Indian Government Bans 500, 1000 Currency Denominations to Curb Black Money

November 6, 2016

In a surprise move, the Narendra Modi government declared on the night of November 8 that the current US$ 7.5 (Rs 500) and US$ 15 (Rs 1,000) cash notes will be withdrawn from public use from the subsequent midnight. The move is the administration’s boldest step yet to control the course of black and fake, and also control inflation. Only twice before, first in 1946 (a year preceding to independence) and after that in 1978, has the administration taken such a choice to demonetize high value money.

When the declaration was made on Tuesday night, long lines were seen at ATMs and banks to either withdraw US$ 1.5 (Rs 100) denominations or deposit the 500 and 1000 rupee denominations. All banks and ATMS will be shut on November 9 to exchange the older denominations. Banks are expected to re-open on November 10 while ATMs are required to start limited operations from that day itself.

To lessen inconvenience in the near term, carrier ticketing counters, government hospitals, drug stores, and railway reservation counters will acknowledge the old currency notes until November 11. The older currency denomination can be traded or deposited until December 30.

What can customers do?

Once ATMs are functional, there will be a withdrawal restriction of US$ 30 (Rs 2,000) per card up to November 18. The restriction will be raised to US$ 60 (Rs 4,000) every day per card from after that day.
Cash withdrawal using a check will be liable to a cap of US$ 150 (Rs 10,000) every day, including an overall restriction of US$ 300 (Rs 20,000) in a week. This includes ATM withdrawals up until November 24.
Foreign tourists leaving or landing from international airplane terminals who have 500 or 1,000 rupee notes up to US$ 75 (Rs 5,000) can trade them for new notes or other legal tender and offices.
To trade the old 500 and 1000 bank notes, customer can go to any bank and trade up to US$ 60 (Rs 4,000) with a legal identification. For sums over that, clients should go to their own particular bank, which they have a record with. In the event that the client wishes to go to a bank that they don’t keep money with, they will be required to give legitimate identification proof and bank account details for electronic fund transfer to the customer’s account.
In the event that somebody doesn’t have a bank account, they can store their old currency notes in a friend’s/relative’s financial bank account considering they have written authorization and legitimate identity evidence.
For those not able to exchange or deposit by December 30, India’s national bank, the Reserve Bank of India (RBI), will permit clients to exchange the older currency notes at particular workplaces; these rules will be issued later.
Non Resident Indians (NRIs) will have the capacity to exchange and deposit in their Non Resident Ordinary Rupee (NRO account).

The downsides

While the overall population, minor traders, food and vegetable merchants will endure in the quick term, there are different groups who will likewise feel the tweak.

Political gatherings: Political gatherings utilize monetary rewards to impact elections giving away freebies and money itself, especially in provincial territories to increase votes. Political gatherings also accept contributions in money without any records. Reports say that around 75 percent of the source of assets to political gatherings is obscure. With significant state elections coming up, political gatherings and pioneers should really work and think of creative approaches to charm the voting bank.

Gold: This is another part where tax evaders shroud their riches. The most recent advancement will tighten up of retail trade and cut down the demand for gold. India is a biggest importer of gold and along these lines, the import bill could likely descend.

Real estate: Real estate developers and small traders normally bargain in money to abstain from paying tax, and this is one part where a lot of cash is unaccounted for. With the most recent ruling, the land area will get to be on the same pace with worldwide economies influenced by market prices. Costs of land is likewise anticipated that would drop.

The advantage

Credit card business: Credit card transactions are anticipated to rise after the prohibition on utilization of old currency notes. Such businesses are also anticipated that would increase rebates and incentives.

Mobile/Digital wallets: Mobile/digital wallet businesses, for example, Paytm and Mobikwik are most probably going to see a huge increment in transactions. The industry was facing challenges while contending with money. Supermarkets like Big Basket and taxi aggregators such Uber and Ola all utilize mobile wallets, which will support such transactions.

New companies:Startups are projected to profit as well. Analysts said that customers will be pushed to make online payments and cashless transactions. So as to contend, a few new businesses have cash-on-delivery alternative yet this has challenges as money takes more time to account and has a higher return rate. The push to online payments will support the business.

Takeaways

The administration’s move is a striking one as it intends to eliminate a lot of unaccounted money being held by businesses, people, and households. The clarity is expected to help the economy in the long haul while easing inflation and raising tax accumulation. The crackdown will permit no time for individuals with unaccounted money to consider alternative arrangements. Nevertheless, while the decision expects to uncover black money, tax evaders can still get imaginative and utilize different approaches to cease from proclaiming their cash reserves. While many say that this is a watershed minute, the test will be for the administration and banks to manage the quick logistics and huge update in as consistent a means as possible.

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Indian Government Bans 500, 1000 Currency Denominations to Curb Black Money