Long queues outside ATMs and petrol pumps became a common sight in India as public scrammed to get their notes of Rs 500 and 1000 changed. In a big blow to money launderers and black money enthusiasts, the Indian government scrapped its highest-denomination currency notes overnight.
Prime Minister Narendra Modi announced the surprise move in a televised address, following which, people thronged to ATMs and grabbed bills to sustain for the next two days. From midnight Tuesday, all 500 and 1000 rupee notes hold no cash value. They would, however, still be accepted at hospitals, petrol stations, crematoria, and other businesses and services that are essential. "A few people are spreading corruption for their own benefit," Prime minister Modi said in his speech. "There is a time when you realise that you have to bring some change in society, and this is our time." He assured people that the discontinued notes can be deposited in banks and post office saving accounts before the end of the year, and that new 500 and 2000 notes were being printed and sent to banks.
The Indian economy, and its tax base has long been marred by the 'black money' culture, and people who use cash to avoid paying taxes. Much of the country's illicit money stores are believed to be used in land purchases, or stowed away in overseas accounts. Modi said authorities have dug out over $18.8 billion in illegal cash over the last two and a half years. He said counterfeiting was a major concern, and made a veiled jibe at neighbouring Pakistan, accusing it of circulating fake Indian currency.
The move has been welcomed by banks who termed it a strong call against corruption. Following Modi's speech, the Reserve Bank of India released a statement saying, "We as a nation remain a cash-based economy, hence the circulation of fake rupees continues to be a menace." Five hundred rupee notes are almost a staple denomination in the Indian market. The decision comes close on the heels of September 30 deadline of the black money disclosure scheme under which income and assets worth £6.53 billion were declared.
People can deposit their 500 and 1000 rupee notes in their bank accounts till December 30 without any limit. They can withdraw up to Rs 10,000 in the first few days and Rs 20,000 a week. While all ATMs will remain shut for two days, cash up to Rs 4,000 can be exchanged from November 10 to November 24 by tendering equivalent value of Rs 500 and 1000 notes. This limit will be hiked from November 25 till December 30. Modi admitted to temporary hardships for honest citizens. "In a country's history, there come moments when every person feels he too should be part of that moment, that he too should make his contribution to the country's progress. Now, we again have an opportunity," he said.
The move has adversely affected sectors that deal with unaccounted money like real estate, stock market, gold and gems. The government move was received with mixed reaction as some welcomed the decision and "joined" in the war against corruption, while others called the decision unnecessary and leading to chaos. A government official said it was necessary to stop terrorists and drug cartels "in their tracks.
"An element of surprise is essential, or else they would have made necessary arrangements." The official described the action as a "surgery since the tumour had to be removed to prevent recurrence."
