India rolls back latest curbs on deposits of banned notes
India’s central bank yesterday rolled back an order restricting deposits of banned rupee bills into bank accounts, after the move sparked a huge public backlash. Prime Minister Narendra Modi unleashed chaos last month with his shock move to withdraw high-denomination 500 ($7.50) and 1,000 rupee notes from circulation, in an effort to tackle widespread corruption and tax evasion.
On Monday, just days before the December 30 deadline to swap old rupee bills for new ones, the Reserve Bank of India (RBI) said that deposits of over 5,000 rupees in old banknotes would only be allowed once before the cut-off date. People would also be required to explain why they had not deposited the money earlier. The RBI reversed its decision yesterday for all “verified” bank accounts, without giving a reason.
“On a review of above, we advise that provisions of the above circular... not apply,” it said, citing the Monday order. The restrictions had caused anger and confusion across the country, with local media reporting that some banks had declined deposits higher than 5,000 rupees. Opposition parties had also attacked the move, with many Indians already facing a shortage of cash as ATMs run dry and long queues materialise outside banks across the country as people try to get rid of their old notes-some 86 percent of all bills in circulation.
Modi has repeatedly defended the scheme, saying it will bring billions in so-called “black”, or undeclared, money back into the formal system. Political activist and Modi critic Yogendra Yadav lashed out at the government on Twitter. “I was assured by the Prime Minister, the Finance Minister and the RBI that there was no need to rush to the banks and that I had till 30 December for making any deposit. I believed them,” Yadav tweeted.
Modi losing friends
Meanwhile, a leading political ally of Narendra Modi has abruptly distanced himself from the Indian prime minister’s move to scrap high-value banknotes, as broad initial support for the radical monetary reform showed signs of crumbling. The shift by N Chandrababu Naidu, chief minister of the southern state Andhra Pradesh, came six weeks after Modi announced to a stunned nation that he would scrap 86 percent of the cash in circulation.
While Modi remains by far India’s most popular politician, any crack in his authority could have negative implications in state elections next year that will set the tone for his expected bid for a second term in 2019. Naidu’s regional party is allied to Modi’s nationalists and he heads a federal committee set up to find ways to soften the impact on ordinary people of the crackdown against tax evaders, racketeers and bribe takers who rely on so-called “black cash”. “I am breaking my head daily but we are unable to find a solution to this problem,” Naidu told party workers on Tuesday in the city of Vijayawada.
Modi, announcing the reform on Nov. 8, cautioned that people would face temporary hardship. He promised to restore normalcy by the end of the year, when a deadline to deposit old 500 and 1,000 rupee banknotes expires. His announcement enjoyed popular support at first, with many people prepared to endure hardship as long as others are forced to give up their illgotten wealth or pay tax. But continuing shortages of new 500 and 2,000 rupee notes have caused tempers to rise as millions queue at banks and ATMs to draw money. With new 500 rupee notes, worth $7.50, in very short supply it is hard for people to buy necessities because of a shortage of change. “Modi is now a one-man army, every political ally will blame him if the cash crisis does not come to an end in the next 10 days,” said P. Raja Rao, a political science professor in Hyderabad.
Furious over the lack of cash, mobs attacked six bank branches in Uttar Pradesh on Tuesday, forcing police to rescue bank staff. The northern state, home to one in six Indians, is due to hold an election in early 2017 that is increasingly being viewed as a referendum on Modi’s demonetization drive. In the last 20 days, Modi’s Bharatiya Janata Party (BJP) has won several local elections in western and northern states. Party officials said the wins were a clear endorsement of the new cash policy. “Each and every Indian understands the genuine intention behind the bold move. They trust the prime minister and we hope our political allies put an end to their doubts,” said BJP spokesman Siddharth Nath Singh. —
AHMADABAD: Indians throng a vegetable market at dusk. —