From midnight of November 8, 2016, Rs. 500 and Rs.1000 will cease to be legal tender. "These notes are just papers from tomorrow," says the prime minister.
In an attempt to crack down on black money, Prime Minister Narendra Modi has phased out two major currency denominations Rs 1000 and Rs 500 notes.
The announcement was made by the Prime Minister of India Narendra Modi in an unscheduled live televised address to the nation at 8:15 pm IST the same day. In the announcement, Modi declared circulation of all 500 and 1000 banknotes of the Mahatma Gandhi Series as invalid and announced the issuance of new 500 and 2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes.
The Government has taken a powerful measure to eradicate black money by scrapping all notes of Rs 500 and Rs 1000.
Similar measures have been taken in the past. In January 1946, currency notes of 1000 and 10,000 rupees were withdrawn and new notes of 1000, 5000 and 10,000 rupees were introduced in 1954.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.
This measure would mean that from midnight, almost Rs 6,32,600 crore in circulation in the form of Rs 1000 notes would be illegal tender. To replace them, Rs 2000 notes would be introduced.
86% of currency by value in India is of 500 and 1000 denominations.
On 28 October 2016, the total currency in circulation in India was 17.77 lakh crore. In terms of value, the notes in circulation valued to 16.42 lakh crore of which nearly 86% (around 14.18 lakh crore) was 500 and 1000 banknotes. In terms of volume that 24% (around 2,203 crore) of the total 9,026.6 crore banknotes were in circulation.
Finance Minister Arun Jaitley said that demonetisation would clean the complete economic system, increase the size of economy and revenue base. He mentioned the demonetisation along with the upcoming Goods and Services Tax (GST) as "an attempt to change the spending habit and lifestyle".
What is Black Money
Black money is that income which is not reported for income tax purposes, done by transacting with cash and not recording such transactions. Cash is preferred because information regarding bank transactions can be accessed by income tax authorities.
Other Way of Payments
- Other Currency Notes – Rs 100, Rs 50, Rs 20 and Rs 10 are still valid, as are all coins.
- All cashless transactions such as cheques, cards and demand drafts, will continue as usual.
Certain exceptions to this exist where the Rs 500 and Rs 1,000 notes will be accepted for an additional days that is till midnight on November 24. This includes:
- Railway ticket booking counters
- Government bus stands
The people who are going to be affected by this decision are the ones who have stacks of black money.
There are some people who still evaded submission and decided to keep hoarding the heavy note stacks. They will be forced to get in inside the system now.
With the demonetization of these notes they become worthless overnight. You can no longer use them for any transaction. The only way to make them usable again is exchanging them in a bank or post office, and this requires your valid ID.
The method for the exchange of the demonetised banknotes with new 500 and 2000 banknotes of the Mahatma Gandhi New Series are as Follow:
- Citizens will have until 30 December 2016 to tender their old banknotes at any office of the RBI or any bank branch and credit the value into their respective bank accounts.
- Cash withdrawals from bank accounts will be restricted to 10500 per day and 25000 per week per account till 24 November 2016.
- For immediate cash needs, the old banknotes of value up to 4000 per person can be exchanged for the new 500 and 2000 banknotes as well as 100 banknotes over the counter of bank branches from 9 November 2016 by filling up a requisiton form along with a valid ID proof.
- All ATMs will dispense banknotes of only 50 and 100 denominations, until further notice.
- Banks will 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 2500 per day per bank card up to 24 November 2016.
- 1) Heavy Deflation : This will reduce the total currency circulation in the economy - leading to deflation. Deflation increases the value of money that we have because the total money supply goes down but the commodities and things available in the market have not gone down.
- 2) Increase in Inflation : There will be a lot of people who have a lot of cash legally earned which they will deposit it in the bank. Now the bank with more deposits can do more lending. Credit (loans) will become easier and interest rates may come down. More loans given out increases broad money supply and creates inflation. But this will happen slowly, not over-night.
- 3) It will help the government to fight Black money, corruption, terrorism and counterfeit currency with one single decision.
Initial aspect of this move is inflation as due to less availability of cash, price of every items increase.
If the income tax department finds that a large amount of cash such as Rs 10 lakh is being deposited and is not matching the declared income of a citizen, it would be treated as a case of tax evasion.
There was the rumour on nano-chip enabled currency notes.
Reason for Money Demonetization
The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced.
The withdrawn old high denomination (OHD) notes cannot be used for transacting business or as a store of value.
People if they don’t have a bank account, they can easily open a bank account by approaching a bank branch with necessary documents required for fulfilling the KYC requirements.
According to Government, steps are necessary to arrest corruption and black money. Fake notes of higher denomination are being pumped in from our neighbourhood country which is used to fund terror activities.
For exchange up to Rs 4500 in cash you may go to any bank branch with valid identity proof. For exchange over 4500 which will be credited to the bank account, you have to go to the branch where you have an account or to any branch of the same bank.
You can use the demonetized notes till 24 November of 2016 for payment at government hospitals, purchasing bus tickets at government bus stands for travel by state government buses, train tickets at railway stations, and air tickets at airports within 72 hours after the notification.
India is a cash economy. Well over 90% of all transactions are done in cash.
Demand for gold is up giving some jewellers a temporary albeit welcome windfall.
- 1) Fake currencies were used to fund terrorist activities against India. As a result the step of eliminating the notes was taken.
- 2) Six months ago and printing of new currency notes of denomination 500 and 2000 had already been started. However, only the top members of the government, security agencies and the central bank were aware of the move.
- 3) The scarcity of cash due to demonetisation has led to chaos and long queues at ATMs and banks across India.
- 4) The State Bank of India reported to have received more than 30000 crore in bank deposit in first two days after demonetization.
- 5) Bag of burnt notes was found in Uttar Pradesh and other part in India following demonetization.
- 6) India has made the first move from cash economy to a digital economy.
- 7) Larger amount of savings and cash will find a way into the mainstream economy and be deployed for physical and financial asset creation.
- 8) The demonetization effect is mainly responsible for the current drop of share Markets in India.
- 9) The value of money will go up due to this move and this will very well be reflected in the prices of commodities like real estate and gold in the coming days.
- 10) In the near-term, this move may hurt economic activity, specifically discretionary consumption, gold and property demand.
- 11) This move has been possible because of the availability of technology and multiple means of financial transaction.
- 1) In Gujarat, Delhi and many other major cities, sale of gold massively increased on 9 November with an increased 20 to 30% premium surging the price as much as to 40,000 from the ruling price of 31,900 per 10 grams.
- 2) Due to demonetisation, the share markets saw drop in stocks of software industry and real estate but slight improvements in the banking sector.
- 3) Nitin Gadkari, the Minister of Transport announced a suspension of toll collections on all national highway sacross India until midnight of 18 November.
- 4) It points out that there are still 300 million people who do not have an identity proof such as an Aadhaar card and as such people will not be able exchange notes.
- 5) It will impact the middle class in terms of inconvenience for several months. It will gut the very poor and the lower income groups. These are people with little in the way of ID proof and they often keep cash stashed under the bed because they have no bank accounts.
- 6) Reports coming in from Malaysia where money exchangers are refusing to accept Rs 500 and Rs 1000 notes from travellers coming from India. It is advice for customers to wait for further announcement from the Indian government.
- 7) Today Indian economy's major problem is black money entering from Nepal, Bangladesh and Pakistan.
- 8) This decision never touch that part of the stock of black money held in other forms of assets like benami properties in land and real estate, gold, foreign currency, offshore bank accounts etc.
- 9) This decision has particularly affected the lives of the rural and urban poor who are out a living in the vast informal economy.
- 10) There is no guarantee that the high denomination currency notes would not be faked again.
- 11) It will have deflationary impact in general and more specifically on real estate prices and makes homes affordable. It is also indirectly a benefit to honest tax payers.
- 12) There is likely to be a negative impact on sectors with high cash economy in the immediate term.
- 13) Demonetisation of currency is not entirely effective because one can not really know how much black money there is in circulation.
- 14) Out of the current Indian population estimated at 123 crore only a minimal fraction of 2.87 crore individuals filed their income tax return and even lower, one percent or 1.25 crore paid taxes in FY 2014-15.
There have been also reports of people circumventing the restriction by making multiple such transactions at different bank branches.
The last date to exchange currency notes of 500 and 1000 is 30th December 2016. The limit is Rs 4500 till 24th November 2016. (Which changed again to Rs 2000 due to misuse of this)
Government hospitals, bus, air and train ticketing counters, fuel stations, co-operative stores, milk booth and crematoria grounds will accept these notes till 11th November 2016.
The entire country is in a surprised state right now. No one expected this huge news. The social media has gone crazy and hilarious tweets and shares are flooded all over internet.
Many labourers get paid in cash. It was mostly all in 500 Rupee notes. They have money, but they can not do anything with.
Mostly labourers live on cash and the cash in their pocket is now worthless. Worse, waiting in line for changing currencies for two days, it means that they are not working on those days.
The currency notes affected by the new policy account are roughly 86% of all notes in circulation across India which functions on cash.
The value of notes and coins as a proportion of India’s economic output, or GDP, was just over 12% significantly higher.
Lot of people said that they do not mind waiting if it helps end corruption and the black money problem.
These old notes can be converted into currency again only with identity proofs (which hundreds of millions don’t have) and the additional hardship of standing in many queues for many hours.
Comments from Bussines
- 1) It would help curb black money. Kunal Bahl (Snapdeal and FreeCharge) also supported the move adding that it would also accelerate e-commerce.
- 2) Former World Bank Chief Economist Kaushik Basu said that the damage is likely to be much greater than any possible benefits. It has also been noted that black money holders keep only a small fraction of their ill-gotten wealth as cash, hence targeting this cash may not be a successful strategy.
- 3) Former Chief Election Commissioner of India S. Y. Quraishi said demonetisation could lead to long term electoral reforms.
- 4) All denomination of notes will be reintroduced with new design and new features: Shaktikanta Das, Economic Affairs secretary.
- 5) “If you have valid money, it would not turn invalid. People with some vested interest are trying to create panic” said by Venkaiah Naidu
- 6) Funny Advise : “Urgent message to anyone who robbed a bank tonight: You just got robbed…
- 7) Most truly rich people do not keep their wealth in the form of cash, but in the form of real estate, gold, deposits in foreign bank accounts and other benaami investments. They will be largely unhurt. it is the poor who will be hurt the most by this.
A key point is that only 1% of India’s population pays income tax. As a result, what low income tax payments mean is that India is forced to raise money in less efficient ways and to govern through regulation.
Two early demonetization in India, one in 1946 and one in 1978, both were focused on the larger bills unlike the current demonetization.
There is no need to panic. Your immediate cash is not worthless. You can refill your vehicles or restock your medicines.
Those unable to deposit Rs 1000 or Rs 500 notes by 30 December 2016 for some reason can change them till 31 March 2017 by furnishing ID proof.
It is a big reform which no one expected and will have a huge impact on people who are hoarding money and not disclosing money for tax purposes.
New updates about Money Demonetization
- 1) Exchange limit over the counter increased from the existing 4000 to 4500.
- 2) Cash withdrawal limit at ATMs increased from the existing 2000 to 2500 per day in the recalibrated ATMs.
- 3) The weekly limit of 20,000 for withdrawal from bank accounts has been increased to 24,000.
- 4) The limit of 10000 per day has been removed.
North East and other far off places which are not that developed, are not equipped with banks and ATMs, they are suffering most.
Further information of money demonetization is available on rbi.org.in and GoI website (rbi.org.in) or call the control room of RBI on Telephone Numbers 022-22602201 and 022-22602944
Our Appeal : Ordinary citizen is quite and doing their job. Common citizen know that there is a pain and inconvenience but they are supporting to crack down the corrupted people. If there is a pain there is a gain.