India tries to stem panic after shock rupee notes withdrawal
NEW DELHI: India’s government tried to quell the panic yesterday caused by a bombshell decision to withdraw 500 and 1,000 rupee notes from circulation after cash machines ran dry and shares slid.
A day after Prime Minister Narendra Modi announced the notes would no longer be legal tender in a blitz against “black money”, his finance minister said replacement 500 and 2,000 rupee bills would be available from today and only tax dodgers stood to lose out from the move.
All banks and cash machines were ordered to close yesterday in preparation for the turnaround, triggering a late night rush by customers to withdraw smaller notes from ATMs.
Customers will be able to exchange their old bills for new notes or deposit them in their accounts but face major scrutiny by tax authorities if they cannot account for a sudden swell in their balance.
“Housewives with small cash savings and farmers have no need to worry. People who withdraw money from the banks have nothing to worry about ... all they have to do is exchange it or deposit it in the bank,” Finance Minister Arun Jaitley told public television.
“But if you have illegal money, then you have to give its source. If you have criminal money, then you are in serious trouble.”
While the move was praised by business leaders and commentators, Indian stocks fell 6% in early trade before staging a slight recovery and were around 3% lower at lunchtime than at the opening.
The slide was also partially attributed to uncertainty sparked as Donald Trump claimed the US presidency in a stunning upset.
Sujan Hajra, an economist at the Mumbaibased brokerage firm Anand Rathi securities, said there would be an instant negative impact on consumer spending that would affect the whole economy.
“The government’s demonetisation scheme will affect consumption across India as people won’t have enough cash to conduct major transactions for the next few days,” Hajra said.
Major queues built up outside cash machines ahead of the midnight deadline as customers tried to withdraw 100 rupee bills. There was also a rush by motorists to gas stations, which will continue to accept the old bills until the end of the week as will transport operators and hospitals.
The 500 and 1,000 notes are the largest bills in use in India which is still a massively cash-intensive economy. – AFP