DEMONETISATION
On 8 November 2016, an announcement was made by
the Prime Minister of India Narendra Modi in an
unscheduled live televised address to the nation at
8:15 pm. In the announcement, Modi declared
circulation of all ₹500 and ₹1000 banknotes of
the Mahatma Gandhi Series as invalid effective from
the midnight of the same day, and announced the
issuance of new ₹500 and ₹2000 banknotes of
the Mahatma Gandhi New Series in exchange for the
old banknotes.
After the official announcement by Prime Minister
Modi, the Governor of the Reserve Bank of India, Urjit
Patel, and Economic Affairs secretary, Shaktikanta Das
explained in a press conference that while the supply
of notes of all denominations had increased by 40%
between 2011 and 2016, the ₹500 and ₹1000
banknotes increased by 76% and 109% respectively in
this period owing to forgery. This forged cash was then
used to fund terrorist activities against India. As a
result the decision to eliminate the notes had been
taken.
IMPACT OF
DEMONETISATION
Cash rush
The scarcity of cash due to demonetisation led to chaos, and most
people holding old banknotes, faced difficulties to exchange them
as endless lines outside banks and ATMs across India. Several
people were reported to have died from standing in queues for
hours to exchange their old banknotes.
Agriculture
Transactions in Indian agriculture sector are heavily dependent
on cash and were adversely affected by the demonetisation of
₹500 and ₹1000 banknotes. Due to scarcity of the new
banknotes, many farmers have unsufficient cash to purchase
seeds, fertilisers and pesticides needed for the plantation.
Banking
After the announcement of the step, about 3 trillion rupees in the
form of old ₹500 and ₹1000 banknotes had been deposited in the
banking system and about 500 billion rupees had been dispensed
via withdrawals from bank accounts, ATMs as well as exchanges
over the bank counters. Within these four days, the banking
system has handled about 180 million transactions.
Business
By the second week after demonetisation of ₹500 and ₹1000
banknotes, cigarette sales across India witnessed a fall of 30–
40%, while E-commerce companies saw up to a 30% decline
in cash on delivery (COD) order. They believe that it would lead to
a decline in COD returns which is expected to cut down their cost.
EXCHANGING OLD
CURRENCY
The Reserve Bank of India laid down a detailed procedure for the
exchange of the demonetised banknotes the new Rs500 and
Rs2000 banknotes of the New Series and ₹100 banknotes of the
preceding Mahatma Gandhi Series. Following are the key points:
1) Citizens will have until 30 December 2016 to tender their old
banknotes at any office of the RBI or any bank branch.
2) Cash withdrawals from bank accounts were restricted to Rs 24000
per week from savings account and Rs 50000per week from current
account.
3) For immediate cash needs, the old banknotes can be exchanged
for the new ₹500 and ₹2000 banknotes as well as ₹100 banknotes over
the counter of bank branches by filling up a requisition form along with a
valid ID proof. This exchange is restricted to once per person.
Initially, the limit was fixed at ₹4000 per person from 8 to
13Nov.2016.
This limit was increased to ₹4500 per person from 14 to 17
Nov.2016.
The limit was reduced to ₹2000 per person from 18 November 2016.
4) Initially, all ATMs were dispensing banknotes of only ₹50 and ₹100
denominations and cash withdrawals from ATMs were restricted to
₹2000 per day.[33] From 14 November onwards, ATMs recalibrated to
dispense new ₹500 and ₹2000 notes will allow a maximum
withdrawal of ₹2,500 per day.
5) Under the revised guidelines issued on 17 November 2016, families
were allowed to withdraw ₹250,000 for wedding expenses from one
account provided it was KYC compliant. The rules were also been
changed for farmers who are permitted to withdraw ₹25,000 per
week from their accounts against crop loan.
EVASION ATTEMPTS
Gold purchases
In Gujarat, Delhi and many other major cities, sales of gold increased on
9 November, with an increased 20 to 30% premium surging the price as
much as ₹45,000 from the ruling price of ₹31,900 per 10 grams.
Donations
Authorities of Sri Jalakanteswarar temple at Vellore discovered cash
worth ₹4.4 million from the temple Hundi.
Multiple bank transactions
There have also been reports of people circumventing the restrictions
imposed on exchange transactions and also attempting to convert black
money into white by making multiple transactions at different bank
branches.On 17 November, the government reduced the exchange
amount to ₹2000 to discourage attempts to convert black money into
legitimate money.
Railway bookings
As soon as the demonetisation was announced, it was observed by
the Indian Railways authorities that large number of people started
booking tickets particularly in classes 1A and 2A for the longest distance
possible, to get rid of unaccounted cash.The Railways Ministry and the
Railway Board responded swiftly and decided that: cancellation and
refund of tickets of value ₹10,000 and above will not be allowed by any
means involving cash. The payment can only be through
cheque/electronic payment. Tickets above ₹10,000 can be refunded by
filing ticket deposit receipt only on surrendering the original ticket.
DEMONETISATION IN 1978
In January 1978, the Indian government had demonetised that 1,000, Rs
5,000 and Rs 10,000 notes in a bid to counter black money in the
economy. The move had hit a lot of people who had hoarded money.
Then the move was part of the High Denomination Bank Note
(Demonetisation) Act, 1978. It was termed as “an Act to provide in the
public interest for the demonetisation of certain high denomination bank
notes and for matters connected therewith or incidental thereto.”
RESULTS OF DEMONETISATION
Between 10th to 27th November, banks reported exchange and deposit of
demonetized banknotes worth Rs8.45 lakh crore (exchange of Rs 33,948
crore and deposits of 8.11 lakh crore ). During this period, an amount of
Rs 2.16 lakh crore had been withdrawn by people from their accounts.
The demonetisation received support from several bankers as well as
from some international commentators, although it was criticized by
members of the opposition parties, which led to debates in both houses
of parliament and triggered organized protest against the current
government in front of the parliament and elsewhere across india.
On fight against corruption , over 92% rated the government as either
good or very good , 57% rated it as very good. Among the responses, only
2% have rated the move one star – which means very poor. A staggering
86% believe that some anti-corruption crusaders are actually backing
black money, corruption and even terrorist financing.
MOTIVE OF
DEMONETISATION
The main motive of demonetisation of the economy are as
follows:
1)To tackle black money in the economy.
2)To lower the cash circulation in the country which is directly
related to corruption in our country. “According to PM Modi”.
3)To eliminate take currency and dogy funds which have been
used by terror groups to fund terrorism in india.
4)The move is estimated to scoop out more than 5 lakh crore
black money from the economy .
5)A good move to a cashless economy.
-- Taking a swipe at the Opposition parties, including the
Congress, BSP and SP, BJP president Amit Shah on Friday
wondered why leaders, including Congress, SP supremo Mulayam
Singh Yadav, BSP’s Mayawati and AAP’s Arvind Kejriwal have
joined ranks with those dealing in black money, fake currency,
hawala and drug, who are rattled by the government’s decision.
Mr Shah claimed that with this decision, the government has
taken its war against black money to a decisive level.
