Demonitization of 500 and 1000 Rupess: War against unaccountable Wealth
Abhishek Dubey • The CEO Magazine
On November 8, Prime Minister Narendra Modi announced 500 and 1,000 rupee banknotes would be withdrawn from circulation, replaced by new 500 and 2,000 rupee denomination notes, in a surprise demonetization move that caught most people off-guard. India has never witnessed such ques in the ATMs, Banks and Post Offices.
The demonetisation was done in an effort to stop counterfeiting of the current banknotes allegedly used for funding terrorism, as well as a crack down on black money in the country. This process will make India a stronger economy, since all the transactions will be accountable. The move is also aimed at reducing corruption, drug menace, hawala transactions and smuggling.
Sectors that heavily relied on cash transactions, including real estate, construction, gold, gems and jewelry as well as the informal sectors are expected to suffer a near-term decline in consumption demand.
According to analysts from India Ratings and Research (Ind-Ra), “Small and marginal farmers in the fruits and vegetable category typically require off-loading of their produce in the local wholesale market in cash and could see an immediate impact. “
Presently, the limit for over-the-counter exchange of old currency notes for new ones is at 2,000 rupees. Old currency above the withdrawal amount can still be deposited in banks upto Dec. 30. Many Indian medias reported that ATMs in the country were running out of new notes to dispense, while many bank branches were facing cash shortages due to lack of cash transporting vehicles, according to the Times of India.
The Central Government has requested State Governments to facilitate opening of new Bank accounts as a part of financial inclusion programme.
In a statement on November 13, Ministry of Finance stated that Arunachal Pradesh Government has made special arrangements like cash deposits /withdrawal and opening of new bank accounts in the remotely located areas with the help of Banks and State Government staff. Government of Assam has arranged a Mobile Banking Vans with support of Banks and State Government Staff at certain Hospitals for carrying out emergency banking transactions. All Banks have now been advised to arrange mobile banking vans to the extent possible at major hospitals to carry out emergency banking transaction for patients.
All the banks have been advised to make arrangements for separate queues for Senior citizens and Divyang persons. Separate queues will also be arranged for exchange of cash to cash and transactions against Bank accounts.
The Jharkhand Police have already started a poster campaign in Maoist-hit areas of the state asking people not to deposit or exchange the demonetised currency notes belonging to Maoist guerrillas or their organisations.
A Pune based economic think tank, ArthaKranti (literally means financial or economic revolution) which claims to have suggested to Prime Minister Narendra Modi to demonetize Rs 500 and Rs 1,000 currency notes, wants the government to abolish income tax and 56 other taxes and replace it by a Banking Transaction Tax, or BTT, of 2 per cent on earnings. ArthaKranti first proposed its five-point proposal for tax reforms in 1999. Anil Bokil is the founder of this group of technocrats and chartered accountants, named ArthaKranti.
However PM Modi has invited views from the citizen, on the recent decision taken by the Union Government regarding currency notes of Rs. 500 and Rs. 1000. People can submit their views through a survey consisting of ten questions, which is available through the Narendra Modi App. Sharing the link to this survey, the Prime Minister tweeted that he wants a first-hand view from the people, regarding this decision.
Being asked by The CEO Magazine to share his opinion on demonitization, Group Managing Director, Asia Pacific of a global Fintech company that empoys over fifty five thousand employees, said“It’s a good step for the country as the government tries to eradicate black money and counterfeit currency from the system. We had voted this government for its promise to curb corruption, so the government is keeping its promise. While we may have short term challenges in terms of liquidity in the system, this is an opportunity for us to go cashless in terms of spend. Countries in the west have progressed in terms of cashless and now we have enough alternate payment systems in the country and should cease our reliance on cash.
The mobile networks, technology infrastructure, payment networks have formed such a strong ecosystem that even roadside vendors have started accepting cards, wallets and electronic transfer to accounts. In the industry that we are in, this is nothing short of a revolution. We have adopted Financial Inclusion as a key CSR theme and have a financial inclusion lab in Bangalore which creates innovative products to accelerate financial inclusion. This step is a fillip for us as we reinforce our efforts in investing in fintech and associated technologies. Those who have access to bank accounts, cards, wallets etc. have realized that they can really carry on living their daily lives without cash. Till now the problem was acceptability, however, if merchants have to transact, then they need to open up their options of accepting cashless payments. ”