In­dia rolls back lat­est curbs on de­posits of banned notes

Kuwait Times - - BUSINESS -

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. —

AP

AHMADABAD: In­di­ans throng a veg­etable market at dusk. —

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