Last evening, our Prime Minister Shri Narendra Modi shook the nation by stating the demonetizing Rs. 500 and 1000 notes. These guidelines have been made by the Reserve Bank of India commencing on 9th November, 2016. The streets of India have been bustling with this news. The ATM’s as well as bank has been closed for next two days causing a panic amongst people. There were long queues outside ATM’s in the middle of the night on 8th November, 2016. PM pointed out that a large number of counterfeit currency notes of Rs 500 and Rs 1000 notes were in circulation. They are being used to fund terror activities. Further 500 and 1000 notes are mostly used as black money.
- Curbing terrorism
- Removal of black money market
- Curtailing parallel economy
- Restraining money laundering
- Rooting out corruption
- End of fake currency
Procedure and exceptions
After the announcement by the Prime Minister, the Governor of RBI Urjit Patel made a press release stating the procedure of exchanging the 500 and 1000 notes at the banks and post offices that are currently in circulation. There were also certain exceptions stated by him keeping in mind the minimum daily requirements of the citizens of India.
- Citizens will have until December 30, 2016 to exchange the notes for lower tender with a valid ID at any bank or post office and until March 31, 2017 to exchange them at designated RBI offices by filling a declaration form.
- All ATMs will remain closed from the midnight of 8 November 2016. The ATMs will resume functioning from 11 November 2016 upon their recalibration to dispense bank notes of only 50 and 100 rupee denominations.
- Banks have been advised to provide all cash withdrawal transactions at their ATMs free of cost to their customers till 30 December 2016. Banks may fix a limit of 2000 rupees per day per card withdrawal limit at ATMs, for all their customers, till 18 November 2016.
- All banks will remain closed to the public on 9 November 2016.
Money is the prime medium of exchange in form of coin and banknotes. It becomes an important medium for every individual, whether rich or poor. With the advent of internet banking, the rich have an alternative but the poor have no option at all. Therefore, for the benefit of middle class and the poor, the government has stated a few exceptions where the 500 and 1000 notes can be used. Those places being;
- Petrol pumps
- CNG stations
- Government hospitals
- Trains and airline booking stations
- State-government recognized diaries
- Rations shops
- Government co-operatives and milk booths
Though these exceptions are also available only till 11th November, 2016.
- 8th November, 2016 – demonetization of 500 and 1000 notes since midnight.
- 9th November, 2016 – banks and ATM’s will be closed.
- 11th November, 2016 – ATM’s will resume functioning, on their recalibration to dispense only 50 and 100 rupees denominations.
- 18th November, 2016 – the value of money to be dispensed maybe increased.
- 30th December, 2016 – limit till which the banks and post offices will accept currency of 500 and 1000 for exchange with valid ID cards. There is no limit on the amount of money to be exchanged until and unless it is legal money.
- 31st March, 2017 – on failure of being able to exchange the money till 30th Dec, the citizens may exchange it till 31st March with the RBI by filling a declaratory form.
- It will help the government to fight Black money, corruption, terrorism and counterfeit currency with one single decision.
- Arms smuggling, espionage and terrorist related activities will be choked due to lack of funding.
- Counterfeit currencies are being used for financing terrorism which is being run by the enemy in India. Now Govt has taken a bold move which enables them to fight counterfeit currency/terrorist funding activities.
- With the new limits on ATM withdrawals being restricted to Rs 2,000 per day, withdrawals from bank accounts limited to Rs 10,000 a day and Rs 20,000 a week, it will drive the card payments across the country
- It will help the common man by putting an end to the artificial increase in Real Estate, Higher Education and Healthcare transactions bringing them within the reach of the common man.
- This decision will help institutionalize the real estate sector bringing more transparency in the Indian real estate industry. This step would give the Indian real estate sector more credibility making it more attractive to the foreign as well as domestic investors.
- Housing prices could witness downward pressure, helping revive demand in the sluggish housing segment (this will give much needed bloodline to the sector)
- Inconvenience to common people who will start running to the nearby bank to exchange the 500 and 1000 currency notes.
- Cost of replacing the 500 and 1000 Rs notes. If all this additional money (a spectacular Rs.6.666 trillion) had to be printed using Rs.100 notes, it would cost RBI about Rs.11,900 crore, which is more than a four-fold increase. This is without taking into consideration the increased costs of operating ATMs (since they would need to be refilled more often), and of handling money in general.
- Very difficult for more than half the population who are not well versed with the card transactions.
- This move deeply impacts the working sections of society: drivers, maids, cooks, electricians, plumbers. Anybody who provides services in the informal sector and depends on monthly or bi-monthly cash payments.
- How do you expect a chai wallah to leave his business and stand in a queue to deposit these notes in bank?
- What will happen to the common man who finds out that the note he is having is a fake one? How is the Govt going to handle such situations?
- The small businesses will be affected at least in the shorter run.
- Jan Dhan scheme, UPI/digital payment stack and payment banks are still in the nascent stage. It will be a long time before rural India moves to completely cashless transactions. In the short-term, people in rural India who have a significant amount of Rs 500 and Rs 1000 notes, but no official form of identification will have a tough time in exchanging their notes.
- The big fish will be left out whose black money is in the form of foreign currency, gold and stashed away in tax havens.
Consequences of demonetization
The advantages of this decision are of long term interest to the country hence it easily outweighs the disadvantages. It has been stated by the maximum number of common men that this is an apt method of curbing black money and corruption, it does have temporary backdrops, but the larger picture behind this act will lead us to prosperity. The IMF and the World Bank has stated that India has created a bright spot for itself. Corruption, black money and terrorism can come in the way of a country's robust economic growth, says the Prime Minister. He moves on from corruption to terrorism. He tells "terrorists from across the border" are spreading counterfeit currency notes. Immediate progress is seen in no action, but this decision of demonetization is definitely a positive step towards vanquishing the face of black money, corruption, terrorism in our country.