When Prime Minister Narendra Modi said Rs 500 and Rs 1,000 notes will cease to be legal tender at midnight in a late evening address to the nation this Tuesday,
his words took the nation by surprise and caught the black money league off-guard.
Initial reactions from the common man ranged from “I’ve just received my salary in five hundred and thousand rupee notes” to the dismal look on the vegetable seller who had just received a bundle of thirty odd five hundred rupee notes as loan, the father who was to marry his daughter off in two days time to the farmer who had these notes in plenty since he never believed in opening a bank account.
PM Modi exhorted them to look beyond the immediate inconvenience and see the benefit to the nation as a whole that included them too. “Let us ignore the temporary hardship,” he urged. “Let us join this festival of integrity and credibility.” He added that new Rs 500 and Rs 2,000 notes would be issued by the Reserve Bank of India (RBI).
The need for this demonetization
- For over a decade now there has been seen an unprecedented rise in a parallel black money economy because of a lot of accumulated wealth that was obvious yet unaccounted for and the small steps that were being taken like voluntary disclosure schemes, sudden raids and crackdowns, other deterrents did not yield the desired result of cleansing the country’s financial system of a malaise that was threatening to become uncontrollable.
The positive take on this bold step
- This is the government’s latest attempt to root out black money, corruption and terror financing and has significantly dented the evil use of these notes.
- Demonetizing high-denomination notes can be an effective means of checking accumulation of wealth in cash. The government has taken a measure aimed at the heart of the black cash economy.
- A lot of currency operating outside the system will now have to get in to banking system which is a major step to build India’s credibility.
- The timing of the move — after the voluntary disclosure scheme and before GST (goods and services tax) implementation — couldn’t have been better, though it will be a logistical nightmare for the first few days.
- This decision is aimed to make India a cashless economy. It pushes the economy in that direction that would most certainly benefit the states.
- The existing currency notes of Rs. 500 and Rs.1000 have ceased to be legal tender from midnight of 9.11.2016.
- In their place the newly designed currency notes of Rs.500 and Rs.2000 would be introduced in the system through banks from 10.11.12016.
- Currency notes can be exchanged at banks and post offices from November 10 to December 30. Keeping in mind the supply of new notes, in the first few days, there will be a limit of Rs 10,000 per day and Rs 20,000 per week.
- From November 10 to 24, the limit for exchange will be Rs 4,000. That will be increased from then to December 30. Beyond that, exchanges can be made at specified Reserve Bank offices until March 31, 2017.
- In the first few days, there will be a limit of Rs 2,000 per day per card, but government hospitals, petrol stations, the railways and crematoriums will accept cash payments in those denominations for a few days (upto 11.11.2016 or 72 hours from the announcement).
The bouquets from experts who know what they are talking about
- ICICI Bank Chief Executive Officer Chanda Kochhar said, “It is perhaps the most significant move ever taken to curtail the parallel economy.”
- “It is the only way to get black money from the system,” said Deepak Parekh, chairman of Housing Development Finance Corp. “There will be some lull in the economy for the short term. Construction activities would be affected. It is a bold move before the Uttar Pradesh elections.”
- “It’s a hugely positive development,” said Snapdeal CEO Kunal Bahl. “A much larger proportion of India’s GDP will now flow through digital pipes. It will boost the digital economy and instruments like wallets.”
- Finance Secretary Ashok Lavasa Lavasa said people need money for transaction so for replacement that currency is being introduced. “RBI will very strictly monitor it,” he said. “For doing any transaction there are different ways, government’s intention is to move towards cash less transaction.”
- Finance Minister Jaitley said the decision has been welcomed everywhere and “it will change the course of the way people spend and keep their money”. He added “The govt. has taken a number steps to embolden the economy and curb the menace of black money and “the new step is also of significant advantage. The government’s decision has given a sense of satisfaction among honest tax payers.” “There is no co-relation of this decision to that of elections but if this makes election costs cheap, it is good,” said Jaitley.
- There have been the usual petty objections from the Congress Vice president Rahul Gandhi and and Chief Minister Mamata Banerjee but surprisingly their ally Nitish Kumar, Chief Minister of Bihar, is all praise for PM Modi and welcomes this move.
An advantage for a better future
There will be the initial teething problems encountered during any change, but the overall gains far outweigh these.
- There are people not having accounts, this has been addressed by the Jan Dhan Yojana and even now if the person were to produce the basic documents, banks would open an account immediately.
- There is a scare of hoarding of Rs.2000 notes in the future. But the kill in this one swoop has wiped out a significant part of the malaise and with likely monitoring by various wings of the government henceforth, makes it very difficult to raise an empire of black money of the proportion that existed, for quite some time.
- The chemical combination and the features included in the notes are fairly diverse and difficult to duplicate and chances of detection have significantly increased.
- The inflow of money into the banking system would enable loans to become cheaper reasonably.
- The situation would improve with the transactions being more legitimate and transparent in the system.
- And of course a whole lot of other smaller but welcome changes that would enable the common man to appreciate the virtues of being honest and discourage those that try to get the better of the system.
An app like Wechat in the future?
In passing one may consider the initiatives towards moving towards cashless transaction and the use of instruments like “wallets”.
WeChat is a cross-platform, instant messaging service, developed by Tencent in China, first released in January 2011. It is one of the largest stand-alone messaging apps by monthly active users. The app is available with most trending mobile operating systems. In China, users who have provided bank account information may use the app to pay bills, order goods and services, send money to other users, and pay in stores. Vetted third parties, offer these services by developing applications within this to make use of.
So with technology available and a pro-active techno-savvy PM, would we be moving towards this reality soon?
Demonetization has been a significant move by a bold prime minister and his able team that has paved the way for better things to come in the future, makes us want to say “A small step for every Indian, a giant leap for India.”