In­dia scraps 500, 1,000 ru­pee notes

Kuwait Times - - FRONT PAGE -

In­dian Prime Min­is­ter Naren­dra Modi or­dered the with­drawal of 500 and 1,000 ru­pee notes from cir­cu­la­tion yes­ter­day in a shock an­nounce­ment de­signed to tackle wide­spread cor­rup­tion and tax eva­sion. Modi said that while peo­ple could ex­change their old notes for new bills at banks or post of­fices un­til the end of the year, or de­posit them in their ac­counts, they would no longer be le­gal ten­der from mid­night.

“To break the grip of cor­rup­tion and black money, we have de­cided that the 500 and 1,000 ru­pee cur­rency notes presently in use will no longer be le­gal ten­der from mid­night that is 8 No­vem­ber, 2016,” he said in a tele­vised ad­dress to the na­tion. “This means that these notes will not be ac­cept­able for trans­ac­tion from mid­night on­wards.”

Af­ter a one-day shut­down of all banks and ATMs, new 500 and 2,000 ru­pee de­nom­i­na­tion notes would be is­sued from to­mor­row by the Re­serve Bank of In­dia (RBI), the coun­try’s cen­tral bank. The 500 and 1,000 notes, which are worth around $7.50 and $15 re­spec­tively, are the largest bills in use in In­dia which is still a mas­sively cash in­ten­sive econ­omy. Since com­ing to power in 2014, Modi has pledged to crack down on so-called black money - vast piles of wealth kept hid­den from the tax au­thor­i­ties - with a se­ries of new mea­sures, in­clud­ing 10-year jail terms for evaders. The lat­est an­nounce­ment comes a lit­tle over a month af­ter the gov­ern­ment raised nearly $10 bil­lion through a tax amnesty for In­di­ans to re­port un­de­clared in­come and as­sets. Fi­nance Sec­re­tary Shak­tikant Das said the de­ci­sion was “a very bold and pow­er­ful and a very de­ci­sive step to fight the men­ace of black money and the use of fake In­dian cur­rency notes”.

He warned those with hid­den stashes of cash that banks would be ex­tra vig­i­lant with CCTV cam­eras to record iden­ti­ties and all bank­ing trans­ac­tions. While the use of debit and credit cards has in­creased in the last decade in In­dia, many small fam­ily-owned busi­nesses in­sist on tak­ing cash to evade tax or else ask for mark-ups to cush­ion the blow. Most busi­ness lead­ers wel­comed yes­ter­day’s an­nounce­ment al­though there were some con­cerns about the im­pact on small traders. “It is per­haps the most sig­nif­i­cant move ever taken to cur­tail the par­al­lel econ­omy,” said Chanda Kochchar, chief ex­ec­u­tive of ICICI Bank. “This move will give a sharp boost to all for­mal chan­nels of pay­ment which in turn will help the for­mal econ­omy to grow.”

Some $439 bil­lion left the coun­try il­lic­itly from 2003-2012, ac­cord­ing to es­ti­mates from the Global Fi­nan­cial In­tegrity group in Wash­ing­ton. Many of In­dia’s wealth­i­est cit­i­zens chan­nel money to tax havens and con­vert it into jew­ellery and an­tiques to avoid tax. Do­mes­ti­cally, tar­gets for in­ves­ti­ga­tion in­clude tem­ples and ashrams, where lav­ish do­na­tions can be a front for money laun­der­ing, and cricket bet­ting. The prop­erty sec­tor too is awash with black money. Only 2.89 per­cent of In­di­ans pay any in­come tax at all, In­dia’s pre­vi­ous fi­nance min­is­ter told par­lia­ment in 2013. The prime min­is­ter said that the move was also de­signed to counter Pak­istan­based ex­trem­ist groups who carry out at­tacks on In­dia, say­ing “en­e­mies from across the border” were fi­nanc­ing their ac­tiv­i­ties by mass pro­duc­ing coun­ter­feit In­dian notes. Fi­nance sec­re­tary Das said there had been a dis­pro­por­tion­ate rise in the num­ber of 500 and 1,000 ru­pee notes in cir­cu­la­tion in the last five years. He re­vealed that the new 500 ru­pee note would bear the im­age of Delhi’s iconic Red Fort while the new pink 2,000 ru­pee note would fea­ture In­dia’s “Man­galyaan” Mars or­biter. RBI chief Ur­jit Pa­tel told re­porters the cen­tral bank was ready to get the new notes into cir­cu­la­tion swiftly. “The RBI has been con­cerned with the grow­ing men­ace of fake In­dian cur­rency notes which has been in­creas­ing in num­bers,” he added. While the old bills will no longer be le­gal ten­der in shops, hos­pi­tals and trans­port op­er­a­tors will con­tinue to accept them for the next 72 hours. They would also be ac­cepted at gas sta­tions run by pub­lic sec­tor oil com­pa­nies, and at milk booths and cre­ma­to­ri­ums.

But there was con­cern among mem­bers of the pub­lic about chang­ing larger de­nom­i­na­tion ban­knotes for new ones once they ex­pired. Around a dozen peo­ple lined up to use an ICICI cash de­posit ma­chine in sub­ur­ban Mum­bai soon af­ter the an­nounce­ment, try­ing to de­posit bun­dles of 500 and 1,000 ru­pee notes. The ma­chine stopped work­ing af­ter 10 min­utes. Only two cus­tomers man­aged to de­posit their money, and a security guard in­formed the rest that the cash dis­penser has reached its limit and would not accept any more. Delhi taxi driver Anu Choud­hury said his boss called to say he should not accept 500 or 1,000 ru­pee notes from cus­tomers. “This is not a good step for busi­ness. The prime min­is­ter did not think about peo­ple like us.”

The head of a state-run bank said it was not fully pre­pared for the change. “This is news for us also. I’m not aware how much stock we have in our chest. The Re­serve Bank will have to pro­vide us with re­quired cash to meet the de­mand. The de­mand will be very high no doubt,” said the bank chief, who did not want to be named as he was still await­ing de­tails. The head of the coun­try’s largest gov­ern­ment-owned lender, State Bank of In­dia, said she had just been ad­vised about the gov­ern­ment’s de­ci­sion.

“We have han­dled de­mon­e­ti­za­tion 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 chair­woman Arund­hati Bhat­tacharya.

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