Prime Minister of India's address to the nation on 8th Nov'16 at 20:00 hrs came as a rude shock to many when in his address he made a revelation to the entire nation that the existing highest currency denominations in India which is INR 500 and INR 1000 would no longer be a legal tender starting midnight. What that implied was that these notes could no longer be used for any financial transaction and would have to be exchanged from the banks or post offices with the new currency notes of equal value. In four hours these major currency bills would become valueless. This was huge and nobody had a clue. While he did clarify his action as another step in the fight against black money menace that had been impacting the country's economy adversely.
Background
If we step back a little. This huge announcement only came a month after the amnesty scheme called IDS 2016 (Income Declaration Scheme) ended on 30th Sep'16. This was another major step undertaken by the current government to curb the black money menace and make people declare their undisclosed assets. Under the scheme the income tax department had politely asked the citizens especially the non tax-payers and defaulters to declare their undisclosed wealth and pay a 45% tax guaranteeing no scrutiny or legal proceedings against the declarant. The scheme fetched the tax department 65,250 Crores (almost $10 Billion) worth of undeclared money. Though this was not that great a success considering the black money and undeclared income and the fact that only about 1% Indians pay income tax in this huge country of 1.25 billion but still a valiant effort.
Impact of Fake Currency
Coming back to the discussion of demonetisation or currency withdrawal - So what actually inspired this idea? What really lies ahead of us? These were immediate and pertinent questions soon after the withdrawal.The PM in his address to the nation on tuesday evening clarified the same stating..
"Black money and corruption are the biggest obstacles in eradicating poverty." Sabka saath, sabka vikas (governance and progress for all) is our motto. This is a government for our farmers. Corruption and black money are diseases rooted in this country, they are obstacles to our success. We are among fastest-growing economies, but we also rank so high in global corruption rankings," he added.
"There is a time when you realise that you have bring some changes in society and this is our time to feel the same. Corruption and black money is something we have fought for immediately after assuming office," he added. He said the move would "cause some hardship" but asked people to "ignore" it, calling the step a "celebration of honesty".
Asserting that the NDA Government focuses on empowerment of the poor, Prime Minister Modi said a series of schemes have been introduced for this. He also made a mention of how the existing government under its Pradhan Mantri Jan Dhan Yojna reached out even to the remotest village of the country allowing every Indian the access to the banking system and allowing them to save their hard earned cash in their accounts.
The truth is incidence of fake Indian currency notes in higher denomination has increased. With a lot of them in active circulation or being pumped up through various hawala channels and other mediums. Its not hidden that a lot of fake Indian currency is printed in Pakistani printing press. And it's mostly the higher denomination notes that are sneaked in via Nepal or through bordering states. Much of this is then used in funding anti national/terrorist activities and sleeper cells across India. Over the course of time these fraudster have become much more smarter technically. The point worth considering is, that not just terrorism but these counterfeit currencies post coming into circulation deal a severe blow to the economy of the country. For ordinary people, the fake notes look similar to genuine notes, even though no security feature has been copied. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash-based economy, hence, the circulation of fake Indian currency notes continues to be a menace. Withdrawal of the Rs 500 and Rs 1000 notes has been introduced with the prime motive to eliminate the fake currency circulation.
The Provisions
Immediate withdrawal needed some immediate measure to ensure that a chaos wasn't created when the majority of currency in circulation in the country is deemed valueless with immediate effect. Banks and ATMs were kept shut to strategise and prepare for the transition begining 10th Nov'16. How well this would be managed can only be assessed in the coming days,as for the citizens its essential that they are well informed of the change and what steps they need to take to secure their savings.
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| New INR 500 Note |
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| New INR 2000 Note |
From 10th Nov -30th Dec'16 all the existing 500 and 1000 Rupee notes can be exchanged at the banks and post offices all across the country. The chart below depicts in details how the exchange or deposits would work while the transition is completed. Additionally provisions have been made to ensure the inconvenience to common public is minimised and essential services like medicines, healthcare, food, travel services etc provided through public systems still continue to accept the old currency for next 72 hours post implementation. All banks including private and public sector to also remain open on the weekend including sunday.
The Income tax department will also be keeping a vigil on these deposits especially those crossing INR 250,000 over the next 50 days to identify the tax defaulters and the black money holders.
The Challenge Ahead
The scrapped 500 and 1,000 rupee notes comprised 86 percent of the value of currency in circulation, and replacing this quickly and effectively with the new notes pan India in itself is currently the biggest challenge facing the government. Needless to mention the cooperation of the banking sector to make this change reach out to 1.25 billion Indian is extremely critical. They truly will be in a somewhat warzone like situation being cautious and tireless.
Its also fantastic to see that people of the country have taken this initiative in sporting spirit and despite the inconvenience, are overwhelmingly supporting it. Social media was flooded with praise for the move, while some went beyond amidst all the hullabaloo and circulated news about the new note being loaded with some NGC (Nano Gps Technology) allowing tracing of notes via satellite. The hoax was however soon called off. So much for the fun. Irrespectively, this is a mighty blow to the black money hoarders, hawala operatives as well as the political and business fraternity indulging in corruption as they have all been suddenly caught on the wrong foot. Its like a crisis without a warning for them. With upcoming elections in some of the major Indian states this is certainly a welcome move to avoid illegal fundings of political parties. The money could have otherwise been used in influencing voters. In view of all this one can easily ascertain that among the dissenting crowd are mostly the political class especially the opposition parties. There have already been PILs filed in court against this game changing decision. We are also witnessing few odd examples of people burning counterfeit currencies.
Its also fantastic to see that people of the country have taken this initiative in sporting spirit and despite the inconvenience, are overwhelmingly supporting it. Social media was flooded with praise for the move, while some went beyond amidst all the hullabaloo and circulated news about the new note being loaded with some NGC (Nano Gps Technology) allowing tracing of notes via satellite. The hoax was however soon called off. So much for the fun. Irrespectively, this is a mighty blow to the black money hoarders, hawala operatives as well as the political and business fraternity indulging in corruption as they have all been suddenly caught on the wrong foot. Its like a crisis without a warning for them. With upcoming elections in some of the major Indian states this is certainly a welcome move to avoid illegal fundings of political parties. The money could have otherwise been used in influencing voters. In view of all this one can easily ascertain that among the dissenting crowd are mostly the political class especially the opposition parties. There have already been PILs filed in court against this game changing decision. We are also witnessing few odd examples of people burning counterfeit currencies.
Certainly a bold move but a lot more of such proactiveness is required to deal with rampant corruption and huge chuck of black money that still prevails and circulates with ease in the system.
Also do check out more on demonitization on my blog http://hubpages.com/politics/Demonetization-And-The-Fight-Against-Fake-Currency-Black-Money
Jai Hind!
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