Months of planning by a select few sworn to secrecy and then cash-laden trucks on the streets. But this was no bank robbery — rather an audacious plan to issue new notes across the country.
There are 1.25 billion people in the country but only a handful were aware that on Tuesday night Prime Minister Narendra Modi would announce the shock withdrawal of 500 and 1,000 rupee notes from circulation.
The assault on “black money”, which stunned the country and saw large queues form outside ATMs and banks, was carefully planned over six months by a coterie of Modi advisors.
The Prime Minister had become convinced in the spring that he needed a headline-stealing move to underline his determination to check rampant tax evasion and settled on scrapping the two highest denomination bills.
Only finance minister Arun Jaitley, the Reserve Bank of India governor and a few close officials were in the know until the very last minute.
“If secrecy had failed people would have invested most of their cash in Hawala rackets, gold or real estate before the announcement, worsening the black money issue,” said Paras Savla of Mumbai-based investment management firm KPB & Associates.
The move is part of Modi’s crackdown on so-called black money financial transactions in which cash is used to avoid tax. After closing for a day banks started reissuing new 500 notes and a new denomination of 2,000 rupees on Thursday.
Several of the ministers were only briefed on the plan at a Cabinet meeting in New Delhi just before he addressed the nation.
They were then not allowed to leave until he had finished his speech to prevent any unwanted leak. Meanwhile, over 1,000 kilometres away at a meeting in the commercial capital of Mumbai the RBI was briefing bank heads about the plan.
They had been called to the RBI in the morning to receive a locked currency chest which they were told contained notes of the new 2,000 rupee denomination.
They were under strict instructions not to open the chest or speak about it until later that night. It was when they opened it, as Modi was speaking, that they learnt about the new 500 note. A spokeswoman for the RBI said that the chests were standard procedure for the issuing of new notes.
RBI chief Urjit Patel has said production of the new notes had been “ramped up” to meet requirements but Pradip Shah, who helped set up India's HDFC bank, said it would be a “nightmare” getting money to some rural areas. “A lot of people are going to be inconvenienced,” he said.
Almost 90 per cent of transactions in India are done with cash while 500 and 1,000 notes currently account for more than 85 per cent of the value of cash in circulation, according to research firm Capital Economics.
Last week the RBI had ordered banks to issue more 100 rupee notes but no one seemed to have twigged about what was in the offing and Modi managed to pull off the boldest stroke of his premiership.
Why was this scheme introduced?
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 anti-national and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence, the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced.
What is this scheme?
The legal tender character of the existing bank notes in denominations of Rs 500 and Rs 1,000 issued by the Reserve bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes can be exchanged for value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches of commercial banks/ Regional Rural Banks/ Co-operative banks or at any Head Post Office or Sub-Post Office.
Does the scheme apply to pre 2005 banknotes of Rs 500 and Rs 1,000?
Yes the specified banknotes include pre 2005 banknotes in the denominations of Rs 500 and Rs 1,000.
How much value will one get?
You will get value for the entire volume of notes tendered at the bank branches / RBI offices.
Can one get all in cash?
No. You will get upto Rs 4,000 per person in cash exchange irrespective of the size of tender and anything over and above that will be receivable by way of credit to bank account.
DC Take
There can not be two opinions about the fact the denomination of higher denomination notes is a bold, radical step to curb the circulation of black money in the society. Having said that it does not mean that it is fool-proof.
First of all, common sense hints that all those who have black money will necessarily not keep it in cash format. Much of it is immediately consumed in the form of land, gold or shares. Also, the suddenness of the move has caught one and all unawares, it has inconvenienced the common man the most.
Ours is a country with a high degree of illiteracy. Though we have a vibrant media, necessarily all either do not have an access to it or do not follow it on a regular basis. A case in point is the woman from Telangana who “presumed” that her hard-earned money now is nothing more than worthless paper and decided to end life.
But the bigger problem is something else. The government is still not targeting the source or the nexus of the black money. Even after new notes of higher denomination come into use, this scheme in no way guarantees that it will contain the generation.
The government needs to concentrate on devising ways to net the big fish and not harass the aam aadmi. And certainly, the demonatisation project could have been executed in a more planned manner.
