How It Affects You, And What You Need To Do With The Available Cash, Read On...
NEW DELHI: The anticipation built up after PM Narendra Modi met service chiefs to review the India-Pakistan security situation and news filtered out that he would address the nation. But it was a surgical strike of a different kind, with Modi delivering a stunning surprise by scrapping Rs 1,000 and Rs 500 notes and calling for a "decisive war" against corruption, black money and terrorism. The decision comes in the backdrop of a fierce political fight over black money with opposition parties claiming Modi has failed to deliver on his pledge to combat black money.
"From the midnight of November 8, Rs 500 and Rs 1,000 will not be legal tender... these will be just worthless pieces of paper," Modi said in his 40-minute speech. He said this was being done to combat graft and terror funding. The two high-value notes account for nearly one-fourth of all the notes in circulation. In value terms, however, their share was over 86% as of the end of March.
The PM also said new notes of Rs 2,000 and Rs 500 will be introduced but those being currently held will have to be exchanged at banks. But this is subject to limits and rules out the possibility of large exchanges of illegal stash as these will need to be explained and accounted for.
Pitching the decision as a much needed antidote to stamp out the menace of corruption and terror funding, the PM said "Black money and corruption are the biggest obstacles in eradicating poverty...Have you ever thought how these terrorists get their money? Enemies from across the border have run their operations using fake currency notes."
According to the finance ministry, the total number of bank notes in circulation rose by 40% between 2011 and 2016, while the increase in number of notes of Rs 500 denomination was 76% and for Rs 1,000 denomination was 109%. The World Bank in July, 2010 estimated the size of the shadow economy for India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007.
The move could have political ramifications in the forthcoming state elections as it impacts the capacity of parties to spend unaccounted cash for campaigning and various political payments.
ATMs Run Dry As People Rush To Draw Rs 100 Notes
There were serpentine queues at ATMs and petrol pumps at cities across the country as anxious people rushed to get Rs 100 denomination notes and get rid of their 500 and 1,000 rupee bills soon after PM Narendra Modi's address to the nation. There was a mad rush at ATM kiosks with people trying desperately for Rs 100 notes. While some were lucky to get Rs 100 notes for amounts such as Rs 400, others were declined by machines which only had Rs 500 notes. Most ATMs ran out of Rs 100 notes within hours. Many shopkeepers stopped taking higher notes soon after Modi's address. Though hospitals and chemist shops were asked not to refuse the high currency notes, there was chaos at hospitals in Lucknow, where attendants ran from one medical shop to another as they refused to accept the currency. A major toll booth operator in Mumbai said the booths had decided to accept these notes till Wednesday as "we are waiting for a clarity from the RBI as to whether we should stop accepting notes to force commuters to get them exchanged at banks or we should accept the currency from commuters and deposit them with the banks."
But the two-day deadline for petrol pumps notwithstanding, there were logistical problems. “We are running short of change and will have to refuse higher denomination notes.But people are quarrelling and the situation might get out of hand soon,“ said Dr Sharavan Rao, manager of Panjagutta petrol pump in Hyderabad.
While petrol pumps and toll booths accepted Rs 500 and Rs 1000 notes, the instructions were clear at some eateries and cinema halls. “We will turn down customers who come in with Rs 500 or Rs 1000 cash. We are strictly insisting on credit card payment or online booking,'' said the cashier at Hotel Zaffran in south Mumbai.
In Ahmedabad, people sought cops' intervention as the currency notes became invalid almost three hours before the midnight deadline set by Modi. In Chennai, cops had to be deployed at ATMs to manage crowds. "We have received several calls on our helpline number 100 complaining about establishments, mainly petrol pumps and retailers, not accepting currency notes of Rs 500 and Rs 1,000," DCP (control room) Balram Meena told TOI. Some food joints had put up a board saying “Rs 500-1000 notes not accepted“ on Tuesday evening itself.
Migrant workers like Irfan, who sells toys in Mumbai, was heartbroken as he had dispatched his monthly savings of Rs 3,000, all in Rs 500 notes to his family in UP through a boy who will reach his village on Wednesday . "It will be of no use to my family as they hardly go to bank and totally depend on the cash sent by me," he said.
Cash-on-delivery mode may be hit, fear etailers; may stop facility
Bengaluru: E-commerce companies are bracing for a period of low business and uncertainty over the next few days, given that a significant number of their purchases happen through cash-on-delivery (CoD). A few companies plan to stop deliveries for cash. And all companies are unanimous that this will help them reduce CoDs and improve margins over the long term. The proportion of CoDs varies from 80% for some to as low as 0.5% for a few others.
Shopclues, 30% of whose sales are CoD, said the firm will not allow cash deliveries for purchases of over Rs 1,500 for two days. "We expect the business to slow down for a few weeks. As for the long term, CoDs will decline faster and (this) will have a positive impact," said co-founder Radhika Agarwal.
An executive at Flipkart said this move will prove to be a significant moment for all internet-based companies. “Of course, CoDs will go down further, in line with our broader plan to push for more online payments. This will bring more efficiency in terms of cost-per-delivery and make online payments more acceptable to newer and existing users,“ the executive added.
Big-ticket platforms like furniture companies are not expecting a big impact. For online furniture aggregator Pepperfry, CoD accounts for just 0.5% of its transactions.“EMIs may be impacted,“ said Ambareesh Murthy , its co-founder and CEO. Around 14% of Pepperfry consumers opt for EMI schemes, and their payment capacity may be hit in the short term.
Banks shut today, ATMs switched off
Banks will remain shut for business on Wednesday and ATMs switched off from Tuesday midnight as lenders take stock of the Rs 500 and Rs 1,000 currency notes lying in branches, ATMs and currency chests. The notes will be transfered to Reserve Bank of India. From Thursday, banks will resume accepting Rs 500 and Rs 1,000 notes, which ceased to be legal currency on Wednesday. Although the newly-issued Rs 2,000 notes are expected to be ready within days, banks will be able to dispense the new notes through ATMs only after the machines are recalibrated. Bankers said this may take a couple of days. Although reports of impending introduction of Rs 2,000 notes have been doing the rounds and there were rumours of high-value notes being withdrawn from circulation, the government announcement took bankers by surprise.
While the government may have taken the move to put curb on black-money, the move seems likely to affect those who don't have any back accounts such as labourers, maids, vegetable vendors. What do you think the government can do to ease the norms for those without bank accounts?