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2016 Indian banknote demonetisation

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Queue at an ATM for 100 rupee notes in Howrah, 8 November 2016.

The demonetisation of 500 and 1000 rupee banknotes is a step taken by the Government of India in November 2016 to fight corruption and black money issues in the country. Starting from 9 November 2016 IST, all 500 and 1000 rupee notes ceased to be accepted as a form of legal tender in India.[1] The announcement was made by the Prime Minister of India in a live televised address to the nation at 8:15 pm IST[2] the same day.[3] In the announcement, Modi declared circulation of all 500 and 1000 rupee banknotes (approximately $7.50 and $15 USD respectively) of the Mahatma Gandhi series as invalid and announced the issuance of 500 and 2000 rupee banknotes (approximately $7.50 and $30 USD respectively) in the new Mahatma Gandhi series in exchange for the old banknotes.

The demonetisation was done in an effort to stop the counterfeiting of the current banknotes alleged to be used for funding terrorism and for cracking down on black money in the country.[4]

History and background

Previously, similar measures were taken. In January 1946, currency notes of 1000 and 10,000 rupees were withdrawn and new notes of 1000, 5000 and 10,000 rupees were reintroduced in 1954. The Janata Party coalition government had again demonetised notes of 1000, 5000 and 10,000 rupees on 16 January 1978 as a means to curb forgery and black money.[5]

On 28 October 2016, the total currency in circulation in India was 17.77 lakh crore (US$210 billion). In terms of value, the annual report of Reserve Bank of India of 31 March 2016 stated that total bank notes in circulation valued to 16.42 lakh crore (US$190 billion) of which nearly 86% (i.e. 14.18 lakh crore (US$170 billion)) was 500 and 1000 rupee notes. In terms of volume, the report stated that 24% (i.e. 2,203 crore) of the total 9,026.6 crore banknotes were in circulation.[6]

After the official announcement by Prime Minister Modi, the Governor of the Reserve Bank of India, Urjit Patel and the Economic Affairs secretary, Shaktikanta Das explained in a press conference that while the supply of notes of all denomination were increased by 40% between 2011 and 2016. The 500 and 1000 rupee notes increased by 76% and 109% respectively in this period owing to counterfeit money. This was then used to fund terrorist activities against India. As a result the step of eliminating the notes was taken.[7]

Procedure for exchanging old notes

Following the announcement by the Prime Minister the governor of the Reserve Bank of India (RBI), Urjit Patel issued a press release with details on the procedure for exchanging the 500 and 1000 rupee notes that are currently in circulation.[8] On 8 November, in addition to the notification that these denominations will be discontinued, there were a few other relevant announcements such as:

  1. Citizens will have until December 30, 2016 to tender the discontinued banknotes at any office of the RBI or any bank branch and credit the value into their respective bank accounts.[1]
  2. Cash withdrawals from bank accounts will be restricted to ₹10,000 per day and ₹20,000 per week from 9 November 2016 till 24 November 2016.[1]
  3. For immediate cash needs, the discontinued banknotes of value up to ₹4000 per person can be exchanged for the new banknotes over the counter of bank branches from 10 November 2016 by furnishing a valid ID proof.[1]
  4. All ATMs will remain closed from midnight on 8 November 2016. The ATMs will resume functioning from 11 November 2016 upon their recalibration to dispense bank notes of only 50 and 100 rupee denominations.[9]
  5. Banks have been advised to provide all cash withdrawal transactions at their ATMs free of cost to their customers till 30 December 2016. Cash withdrawals from ATMs will be restricted to ₹2000 per day per card up to 18 November 2016 and the limits will be raised to ₹4000 per day per card from 19 November 2016.[9]
People queue outside a private bank to deposit and exchange 500 and 1000 currency notes in Kolkata, 10 November 2016.

However, exceptions were given to petrol pumps, CNG stations, government hospitals, train and airline booking stations, state-government recognised dairies, ration shops, and crematoriums to accept the 500 and 1000 rupee notes until 11 November. International airports would facilitate exchange of notes amounting to total value of 5,000 (US$59) for foreign tourists and out-bound passengers.[10]

Patel also informed that the decision was made about six months ago and printing of new currency notes of denomination 500 and 2000 had already been started. This change had however been kept only in the top members of the government, security agencies and the central bank.[11]

Reactions

Finance Minister Arun Jaitley said that demonetisation would clean the complete economic system, increase the size of economy and revenue base. Along with the upcoming Goods and Services Tax (GST), this demonetisation is "an attempt to change the spending habit and lifestyle".[12] Jaitley also dispelled rumours of the Rs. 2,000 note having a "micro nano GPS chip" to enable its tracking through satellite.[13]

The decision was both praised and criticised by economists, other experts, politicians and common people. Right after the news spread out, a large number of people reacted on social media sites like Twitter.[14] Several bankers like Arundhati Bhattacharya (Chairperson of State Bank of India), Chanda Kochhar (MD & CEO of ICICI Bank) and Deepak Parekh (Chairman of HDFC) appreciated the move that would help curb black money.[15] Businessmen Anand Mahindra (Mahindra Group), Sajjan Jindal (JSW Group) and Kunal Bahl (Snapdeal and FreeCharge) welcomed the decision that would also accelerate e-commerce.[15]

However, CM of West Bengal Mamata Banerjee called the new declaration as "drama" and tweeted "Heartless and ill- conceived blow on the common people and the middle class in the fake name of anti-corruption".[16] Indian National Congress spokesperson Randeep Surjewala welcomed the move but showed apprehension on consequences that would follow.[17] A Public Interest Litigation was filed in Madras High Court by M Seeni Ahamed, General Secretary of Indian National League, to scrap the decision. The High Court dismissed the PIL stating that it could not interfere in monetary policies of the government, however it found the action suitable for country's security and development.[18] Similar PILs have been filed in the Supreme Court of India.[19]

Aftermath

In Gujarat, sale of gold increased on 9 November with an increased 20 to 30% premium as people bought gold in exchange of their unaccounted cash. The Hindu reported that such transactions have been made back dated. Major highway toll junctions in Gujarat and Delhi-Mumbai highways also saw long queues as toll plaza operators refused the old banknotes.[20] Nitin Gadkari, the Ministry of Road Transport and Highways, announced suspension of toll collections on all national highways across India until midnight of 11 November.[21].

Price of gold has increased to 40,000 in many places. .[22].

References

  1. ^ a b c d "Withdrawal of Legal Tender Status for ₹ 500 and ₹ 1000 Notes: RBI Notice (Revised)". Reserve Bank of India. 8 November 2016. Retrieved 8 November 2016.
  2. ^ "Demonetisation of Rs. 500 and Rs. 1000 notes: RBI explains". The Hindu. 8 November 2016. Retrieved 10 November 2016.
  3. ^ Bhatt, Abhinav (8 November 2016). "Watch PM Modi's Entire Speech On Discontinuing 500, 1000 Rupee Notes". NDTV India. Retrieved 8 November 2016.
  4. ^ "Here is what PM Modi said about the new Rs 500, Rs 2000 notes and black money". India Today. 8 November 2016. Retrieved 9 November 2016.
  5. ^ Gopika Gopakumar, Vishwanath Nair (8 November 2016). "Rs500, Rs1000 notes may be back, if history is a guide". Live Mint. Retrieved 9 November 2016.
  6. ^ Damodaran, Harish (9 November 2016). "Are banks equipped to replace 2,300 crore pieces of Rs 500 and Rs 1,000 notes?". Indian Express. Retrieved 9 November 2016.
  7. ^ "Why Were the Notes Scrapped? RBI Chief, Economic Affairs Secy Explain". News 18. 8 November 2016. Retrieved 9 November 2016.
  8. ^ "Press Release", Government of India Ministry of Finance, Department of Economic Affairs. Effective date 8 November 2016.
  9. ^ a b "ATMs –Non-dispensing of Old High Denomination Notes – Closure of operations". Reserve Bank of India. 8 November 2016. Retrieved 8 November 2016.
  10. ^ "Outlets that will accept Rs 1,000 and Rs 500 notes in next 72 hours". Economic Times. 8 November 2016. Retrieved 9 November 2016.
  11. ^ "Move was in the pipeline for months". The Hindu. 9 November 2016. Retrieved 9 November 2016.
  12. ^ "War on black money: Scrapping Rs 500, Rs 1000 notes will expand economy, increase revenue, says Jaitley". Daily News and Analysis. 10 November 2016. Retrieved 10 November 2016. {{cite web}}: Italic or bold markup not allowed in: |work= (help)
  13. ^ "Arun Jaitley dismisses rumours of nano GPS chip on Rs 2000 note". Zee News. 9 November 2016.
  14. ^ "Rs 500, 1000 notes pulled out: How Twitter reacted". Times Of India Blogs. 8 November 2016. Retrieved 8 November 2016.
  15. ^ a b "Govt demonitises Rs 500, 1000 notes: Here is how India Inc reacted". Indian Express. 8 November 2016. Retrieved 9 November 2016.
  16. ^ "Demonetisation of Rs.500 and Rs. 1000: Who says what". The Hindu. 8 November 2016. Retrieved 9 November 2016.
  17. ^ "Rs 500 & 1000 currency notes banned: Congress raises questions against Narendra Modi govt's shocking move". India.com. 8 November 2016. Retrieved 9 November 2016.
  18. ^ "Govt's demonetisation move fit for country's security, development: HC". Economic Times. 10 November 2016. Retrieved 10 November 2016.
  19. ^ "PILs in Supreme Court against making Rs 500, Rs 1000 notes illegal". India Today. 10 November 2016. Retrieved 10 November 2016.
  20. ^ Langa, Mahesh (9 November 2016). "Scramble for gold in Gujarat after demonetisation". The Hindu. Retrieved 9 November 2016.
  21. ^ "Toll tax suspended on national highways till Nov 11, banks open this weekend". Hindustan Times. Retrieved 10 November 2016.
  22. ^ Hindustan Times http://www.newindianexpress.com/business/2016/nov/10/gold-price-recovers-on-renewed-demand-1536940.html. Retrieved 10 November 2016. {{cite web}}: Missing or empty |title= (help)