What Next? the end of the 500 and 1000 as we know them.

Just when you think that life with PM Narendra Modi has become routine and mundane, like any other politician who has assumed office since independence, the Prime Minister strikes. This time he has managed to get the attention of even the most common human being calling himself an Indian. He has definitely surprised the country and taken it by storm, Again! And for the new RBI governor, Urijit Patel, this has been a first.

Well, this isn’t the first time that demonetisation of bank notes has taken place in India. Nevertheless, a news of this magnitude deserves the highest level of attention one can muster.

The government, in a move to crack down on the plaguing problems of terror and the constant destabilising efforts made by neighbouring countries by infusing the economy with fake currency notes has taken a stern decision to abolish ₹500 and ₹1000 notes from circulation. It has been noticed that the neighbouring countries and terror outfits have been making and using counterfeit currency bills to fund terrorism in our own country. As a result, from 9th November 2016, legal tenders with denominations of ₹500 and ₹1000 have been declared as invalid.

This move also comes as a proficient move to curb the parallel economy in India which the PM terms it as a ‘disease’. According to World Bank estimates, the parallel economy is at a staggering 23.2% of the national GDP of the country. This, definitely can be a strong way to crack down on the black economy. However, it does not come without some skepticism. This move, coming immediately after the ‘Income Declaration Scheme’ makes it even more exciting. It just shows the government’s determination to crack down on black money. As always, for such a system to work and to be successful, the corner stone is going to be a flawless system, one without any loopholes whatsoever. It also demands a faithful bureaucracy which will be critical in bringing about the success of this decision. What happens in this domain will need patient observation.

The date 9/11 now seems to have a knack to shake up the world! Or maybe it is just another one of the several coincidences? Maybe not… In his speech, the PM said that notes of ₹500 and ₹1000 “will not be legal tender from midnight” and that they will be “Just worthless piece of paper”.

All of this havoc and chaos is not just penalising to the average Joe. The insurmountable cost that will be incurred by the government is huge! Like really huge! The cost of printing, designing, replacing, destroying the old notes and setting up the accounting and infra are just the tip of the iceberg. As a citizen of the country, and a supporter of the current government, I am anything but enthralled when I imagine the financial overhead that comes along with this.

Keeping aside long term issues and implications, there are definitely going to be short term inconveniences to the people. People without bank accounts, for example will definitely face issues initially. This in a country like India where 20% of the population do not hold bank accounts is an issue that cannot be ignored.

Key points (what will I do of my worthless notes that I actually took efforts to earn!?):-

• Essential services like hospitals, petrol stations, railway ticketing, airline booking counters, milk booths etc. to accept the higher denomination notes till midnight of 11th
• ₹500 and ₹1000 notes can be exchanged in banks and post offices till 30th December 2016.
• For a cash to cash exchange at any bank or post office, the limit is initially ₹4000 This can be availed only after producing a valid ID proof.
• There is no limit to the amount of money that can be deposited. The equivalent amount of money will be credited to your account. ID proof will be required (steps to find black money). However, old banks, where the new know your customer (KYC) norms are not followed, the limit will be capped to ₹50,000
• The withdrawals will be capped to a maximum of ₹10,000 daily until a weekly limit of ₹20,000 is reached, initially.
• Withdrawals from ATM’s for each card capped at ₹2000 a day till 18th November and will be revised to ₹4000 a day from 19th
• All other transactions not involving cash stand unaffected.
• New bank notes of ₹500 and ₹2000 will be inducted into circulation from November the 10th

(In Pic: New Rs 2000 Note that will be issued)

(In Pic: New Rs 500 note that will be issued)

With so many changes taking place in the country’s economy, it is but obvious that the next few days are going to be full of uncertainty. However, with smart check measures in place we can hope for a fairly smooth transition. I also hope that this huge step will be fruitful by being successful at striking down on the subjects it intends to. Proper execution of the transition system and a proper design of notes to prevent counterfeiting will ensure the success of this decision

Originally published at http://omkardesaiblog.wordpress.com on November 8, 2016.