The Indian Prime Minister Narendra Modi on Tuesday announced that 500 and 1000 rupee notes would be withdrawn from circulation, effective midnight, and would no longer be accepted as legitimate currency notes.
On the 8th of November, 2016, as the world closely followed the US Presidential Elections, Indian Prime Minister Narendra Modi addressed the Indian population at 8:00 PM IST. In his 40-minute address, Modi declared 500 and 1000 rupee notes will not be accepted as legal tender from midnight, but smaller denomination notes can be used for transactions.
Indian residents have 50 days – from Nov. 10 to Dec. 30 – to deposit notes of Rs. 500 and Rs. 1000 in Banks or Post Offices and get them exchanged for smaller denomination notes. As per the news, the RBI will also introduce new Rs. 500 and Rs. 2000 notes in the near future.
The Government has also said that those who cannot get their 500 and 1000 rupee notes deposited by 30th December may get them exchanged by 31st March 2017 by furnishing a valid ID proof from RBI. Government hospitals, Railways, gas stations, consumer co-operative stores and milk booths shall be accepting old high denomination rupee notes till 11th November.
The sudden announcement was designed to bring crores of rupees which exist in the form of unaccounted wealth into the mainstream economy, thereby effectively reducing corruption. The scheme was also created to counter the finances of anti-India terrorists who allegedly use fake 500 rupee notes to finance themselves.
Black money and corruption are the biggest obstacles in eradicating poverty.
“We hear stories of how auto-rickshaw driver returns gold left by a passenger in his vehicle. These stories tell how honest common people are. It is only a few people engaged in corruption for selfish reasons.” – Mr. Narendra Modi.
More than 35 percent of India’s economy is driven by SMEs (Small-and-Medium Enterprises) which largely rely on cash transactions. The impact of the new decision on SMEs is yet to be seen, with economists predicting short-term negative impacts which will be overcome in the long-run. The Government has said that cashless transactions shall remain unaffected by their decision, which is a sigh of relief for businesses that have alternative ways of collecting payments and conducting transactions.
The Indian economy suffered 1.6 billion USD in illicit financial outflows in 2010, capping-off a decade in which the world’s largest democracy experienced black money losses of 123 billion USD, according to the latest report released by Global Financial Integrity, a Washington-based research and advocacy organization.
The GFI study, titled “Illicit Financial Flows from Developing Countries: 2001-2010,” ranks India as the decade’s 8th largest victim of illicit capital flight behind China, Mexico, Malaysia, Saudi Arabia, Russia, the Philippines, and Nigeria, respectively.
“While progress has been made in recent years, India continues to lose a large amount of wealth in illicit financial outflows,” said GFI Director Raymond Baker. “Much focus has been paid in the media on recovering the Indian black money that has already been lost. This focus is for naught as long as the Indian economy continues to hemorrhage illicit money. Policymakers and commentators should make curtailing the ongoing outflow of money priority number one.”
“$123 billion is a massive amount of money for the Indian economy to lose,” said Dr. Dev Kar, GFI Lead Economist and co-author of the report. “It has very real consequences for Indian citizens. This is more than $100 billion dollars which could have been used to invest in education, healthcare, and upgrade the nation’s infrastructure.”
The RBI Governor, Urjit Patel, said that he saw no impact on liquidity in the wholesale market and that the Reserve Bank of India had ramped up production of the brand new series of rupee notes over the last few months.
Government data shows that circulation of current notes has outpaced the expansion in India’s economy. In the past five years, circulation of all currency notes grew 40 percent, compared with 30 percent growth in one of Asia’s fastest growing economies.
The growth in 500 and 1,000 rupee banknotes was steep; 500 rupee notes grew 76 percent between 2011 and 2016, while in the same period, 1,000 rupee notes rose by 109 percent.
“We have handled demonetisation earlier and will do so again. Tomorrow banks will remain closed in order to withdraw these notes from counters and ATMs. We will strive to restock ATMs at the earliest and make them operational,” said SBI Chairman Arundhati Bhattacharya.
Latest posts by Rajdeep Mukherjee (see all)
- Modi Government abolishes 500 and 1000 Rupee Notes to abolish Corruption and Terrorist Financing - November 9, 2016
- This Delhi-based startup is the solution to all your legal requisites: LegalRaasta - November 9, 2016
- This startup does its best to ensure that your child receives the best possible education - November 2, 2016