The dust has settled a bit since Prime Minister Narendra Modi announced the demonetization of India’s two largest currencies Rs.500 and Rs.1000 and it has been replaced with new Rs.500 and Rs.2000 notes and Rs.1000 in the coming months. This post covers all the details about this great milestone event in the Indian economy which is currently the 7th Largest with a market capitalization of $ 2.25 trillion to curb the menace of black money.
Why demonetization of currency?
India is a cash-based economy in which 98% of the transaction by volume and 65% by value are made using cash. While cash is difficult to handle and carry, it has become difficult for the government to keep a track of the same.
With no demonetization drive since 1980s and even after opening up of the conservative economy in 1991, tax evaders have hoarded a lot of money in their homes, lockers, etc.… which was disturbing the economy in stabilizing the rupee against the dollar.
The proved fake currency route through Pakistan, which is used in terror funding and other anti-national activities in India were beyond the government’s control. It is said that fake notes are sourced from the same paper manufacturer that supplies to the Reserve Bank of India. How to control it? It is difficult for the government of a country with a population of 1.25 Billion to handle various issues and stupid stiff opposition which speaks against India for its political gains. Some major Pakistan newspapers have made up the headlines with opposition doubting the surgical strike, or any other issue.
In India, only 3% of the population pay Income Tax and of that 66% (i.e., 2% of India’s population) files a nil return, India needed to find a route to get better revenues for the betterment of India as a growing superpower.
Was this the first Demonetization drive? Is 2000 rupees the largest demonization printed by the Reserve Bank of India?
The largest note ever printed by the Reserve Bank of India was Rs.10000 which was introduced in 1938 by the British India government and subsequently again by Independent India in 1954. The notes introduced were Rs.500, Rs.1000, Rs.5000 and Rs.10000.
These notes were withdrawn in 1946 by the RBI under the British Indian Government to curb the black money menace in India. These notes were exchanged for Rs.100 or lower denomination.
Date: 12th January, 1946 probably declared in the morning working hours
Motivation: Steps taken by the Government of France, Belgium and United Kingdom.
Announced By: – RBI headquarters, Mint Road, Mumbai, India
Result: – The exchange of Rs.143 crore was replaced by new notes of lower denomination of Rs.135 crore, making only 9 crore rupees demonetized, partially successful because it mostly became a conversion scheme rather a demonetization scheme.
The notes were re-introduced in 1954 by the RBI, which was subsequently demonetized in 1978 by the Morarji Desai-led Janta Parivar government, just after the downfall of the Indira Gandhi government in 1977 due to Emergency crisis the country faced.
Date: – 16th January, 1978 at 9AM on the All India Radio
Motivation: – To curb the black money menace and make a comeback from the Emergency period problems by starting afresh for the betterment of the Indian economy.
Announced By: – R Janaki Raman, a senior official from chief accountant’s office at RBI Headquarters in Mumbai.
Result: – It was also more like a culmination process rather a conversion process in 1946. This was because there were rumours about the demonetization before it was announced in 1978, making the black money hoarders alert to store money in lower denominations. It was a failure in terms raked in 1946.
Click on the post to check out
We learn from our mistakes: The demonetization of 2016.
As stated earlier the reasons for demonetization, the government seems to have come prepared for the same.
In 2014, Prime Minister Narendra Modi announced zero-balance account for all the citizens of India under the Pradhan Mantri Jan Dhan Yojana along with RuPay Debit Cards, OD facility, etc…. This was done to bring about financial inclusion in the country.
See the detailed post on RuPay cards by clicking here…
The government also announced Insurance schemes and Pension schemes from these accounts for its lifetime.
Large number of citizens stood in queues to open new bank accounts with a record of 18 lakh accounts in the first week of the launch of the scheme. Rs.50 Billion was received as deposits from these accounts, an added benefit to the government exchequer.
The government introduced Income Declaration Scheme in 2016 in which the black money could be made white by paying 45% tax on the total amount. The government had kept the deadline of September 30, 2016 and promised to keep the data confidential. The scheme attracted $10 Billion swelling the tax coffers by Rs.30000 crore.
Some months back, the government had made it mandatory for all gold buyers worth above Rs.2 lakh to furnish PAN account details. Gold market went on a strike for the same, but the government didn’t bulge from its stand.
In the meanwhile, GST Bill being passed by the Upper House with a 100% majority proved to be a bright spot on this drive. With GST rates decided 5% to 28% in four slabs, foreign investors have got a good reason to invest in India, which has a good tax structure and less black money.
Come November 8, 2016, PM Narendra Modi announced the demonetization of India’s two largest denominations (Rs.500 and Rs.1000) with effect from midnight.
Salient features of the activity
- Except for Fin Min and top officials of the RBI, no one had the news about the activity which was on cards since 6 months.
- The Cabinet was briefed early on Tuesday and were not allowed to move out of the premises till the PM finishes his address.
- It came as a shocker, but the government seemed well prepared to handle the situation. Mr.PM has left no stone unturned for any hue and cry among the public (let alone the politicians). Mr.PM had got most of the unbanked sector into the banking ecosystem by the Jan Dhan Yojana with Rupay Cards. He then gave an opportunity without extension (through the Income Declaration Scheme) to declare the black money and strictly warned of action to be taken by the government against hoarders.
- The Indian Media is the freest media in the world. Media starts protesting for even a small issue. NDTV India received a ban for 24-hours of the Pathankot Attack coverage (later upheld by the MIB till December 5, 2016) on 9th November 2016. All newspapers, journals, TV reporters spoke about this issue as a serious matter diverting the attention of the media from the demonetization. (P.S. Rumours had made the 1978 demonetization drive a culmination)
- The government announced the decision after Diwali, making fewer problems for the general public.
- The Best part: – The announcement was done by Mr.PM at 8 pm IST (ish…) rather by the RBI in the morning. Most of the businesses were shut for the day and people were wrapping up from their day’s work. Banks remained closed for the next day paralysing the country. Black money hoarders couldn’t find a way out to funnel the black money, making it a fool proof plan to nab all the hoarders under the tax radar.
There were immediate and long-term effects…..
People immediately thronged to the nearest ATMs (like IndusInd Bank, which gives you denominations of your choice) at night to get the lower denominations and deposit money through the cash depositor machine (24-hour service from banks like SBI, Corp Bank, Karnataka Bank [I was standing in the queue to deposit a small amount too!!!! Despite knowing the fact there is nothing to panic about. Different experience to see a long queue at 10:30pm]) before midnight.
The Government had announced petrol pumps (PSU-owned), utility bills, hospitals, airports, bus stands and railway stations would accept old denominations till November 11, 2016. There was a mad rush and queue at major petrol pumps in the cities. Mysore had most petrol pumps closed the next day due to lack of change. People in Bangalore, Delhi, Mumbai, etc… faced a similar problem to refuel their vehicles. NHAI toll roads were lined up with heavy traffic due to lack of change making the government take steps to not take toll from the commuters for some days until the situation is under control.
Gold shops saw a surge in purchases as black money hoarders tried to convert old denominations into gold and silver. Government officials started raiding these shops for proper documents (according to the regulations) made for the purchase of gold, thereby closing another window for the hoarders.
Many people thronged to airports and railways to book high-class advance tickets such that they can claim refund later from the same. Government later declared no-refund for purchase made using old denominations.
Our Great politicians gave press statements like “We were not informed”, “Farmers and housewives are the most affected”, “Old denominations must be allowed for marriages”, etc… but the common man seems to have no problems. PM Modi lost 3 lakh followers on Twitter after the demonetization announcement was made a headline by the opposition but by trust vote, 86% of the public has no problem with this issue stating “It is for a good cause”.
Digital Payments giant, Paytm has put out large scale advertisements to promote cashless payments for major transactions. With 39% of the market share in digital wallets, let’s hope people throng to use UPI (United Payments Interface) and Paytm. Paytm only said two words, “Paytm Karo”
For people who don’t know about UPI, please check out the complete analysis on the same.
There has been less incidents reported on stone pelting and protests in the Kashmir valley proves the fact that it is sponsored by anti-national elements to disturb the law and order in the valley. Demonetization has played a major role in this, making fake Rs.500 and Rs.1000 a void tender. The government because of Demonetization has got more time to think better solutions to maintain peace and harmony in the valley.
Do we need Rs.2000 note in the market? Does this encourage black money hoarders to store more money with less space?
Rs.1000 note was released in 2000 to cater the demands high-value transactions. But still we were struck with Rs.1000 in 2016. If we calculate the inflation in 15 years, the Rs.1000 is valued at Rs.7500 approximately in 2016. Every Rs.500 in 2000 is valuable more than Rs.2000 in 2016. We need more number of Rs.2000 notes in the market till we achieve a cashless economy. With this round of demonetization, most of the black money comes in control, may be the next demonetization will push India to a cashless economy thanks to the penetration of banks and digital wallets along with the ambitious UPI and RuPay projects.
Features included in the new Rs.2000 and Rs.500 notes include verification of originality of the note by viewing at 45o, supports visually impaired people with Braille imprint, etc…
There was a rumour that a chip is there in Rs.2000 note by which the government can track us, has been proved to be false by our honourable Fin Min Arun Jaitley.
Below images from the Reserve Bank of India shows the specifications of the notes.
Konkani is one of the 22 official languages in India with less population speaking the same. I belong to the same Konkani-speaking Brahmin community who are trying to preserve the heritage of our language. Coming to the point, the new note released by the RBI (Rs.2000) has the value of the bill written in various languages. Konkani has also made it into the list. Respect to the Reserve Bank of India. Check it below.
Let’s take a pledge to start afresh. We are a growing country and must maintain some respect to our currency and our country. The note sports the National Emblem which states “Satyameva Jayate” stating each citizen to be honest and on the back of the note “Swacch Bharat Abhiyan” which promotes cleanliness.
So let’s pledge
“I, a proud citizen of India, take an oath to keep our new currency notes clean and pay the desired taxes in the country for its betterment”
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EDIT 1 : – MY OPINION [November 16 , 2016 —- 8:30 PM IST]
After seeing the overwhelming response of the following post, I decided to make some points clear and request the citizens of India to understand and educate the gullible public.
Urjit Patel, the present governor of Reserve Bank of India was an employee of India’s richest man’s controlled Reliance Industries. People on sites like Quora (click here to see the absurd level of questioning) so Mukesh Ambani started Reliance Jio. FYI, Reliance Jio was started in 2010 after the end of non-compete agreement between the two brothers. Check my post on Reliance Communications-Aircel-MTS merger…….. Urjit Patel joined the RBI in 2013, ascertains the fact that people must think before they speak.
Recently an onion trader from a hamlet in Karnataka came to the city of Bangalore to sell his share of onions. One crooked trader in Bangalore gave him a Xerox copy of a Rs.2000 note and was fooled for the same. Click here to check the full report. Another incident was reported by a fish trader for a purchase of Rs.500. This is ridiculous. How can people take advantage of the poor public like this? In times when we must help people by educating them, some miscreants are looting the gullible people who support the government’s move to curb black money menace but unhappy when cheated. We as responsible citizens must educate the public.
The opposition parties are creating a mess. In times to support the government, our great opposition is making stupid excuses. Some leaders say it is politically motivated others say Modi is getting prespective points as a mileage for the upcoming UP elections. Come on seriously? Will the Prime Minister of India do demonetization only for one state-wise elections? Secondly, opposition called Mr.PM’s mother visiting the bank as a publicity stunt for political mileage. This stunt isn’t necessary for the inspiration to the youth to prove his point. He doesn’t say he is a common man but he works for the common man for 18 hours a day. A common man likes his humility and his mother doesn’t need to give Mr.PM some added political mileage. While opposition also criticized PM Modi’s visit to Japan during the crisis, FYI he was not on a holiday. He went for an important nuclear deal pending since 6 years in one go. Check my answer on Quora for the same……. Media is saying it is an hollow move including our honorable former RBI governor D Subbarao. Click here to check the full report He says money not coming to the market, it shouldn’t be considered as profit. As a economist he may be right, but in laymen terms if money doesn’t come to the market, that means less counterfeit notes and less tax-evaded money. Land deals can be done more legally. Property prices are down, gold down, benefit for common man. Black money hoarders cannot control the prices due to lack of cash-money power. Simplonomics for us right!!!!!! Best part, Uttar Pradesh Chief Minister announced acceptance of old denominations for land registrations till November 24, 2016. Click here to check the report Come on guys, come out and make this move an success in the history of Indian economy. According to a recent survey, 82% people are happy with the demonetization drive even after 1 week of government announcement. Click here for full report
Opposition parties are saying RBI and government is not taking steps to reduce the problems. Following points will make this claim a false statement.
- RBI to not charge for all ATM transactions across any banks till December 30, 2016. Click here for full report
- RBI relaxed rules for PAN proof photocopy to only showing PAN card for exchange of notes. Click here for full report
- Government announces no toll on National Highways to sort out traffic problems on highways. Railways stations, Airports, utility bill payments accept old denominations. Click here for full report
and many more steps. What else do you want the government do? To come to people’s doorsteps and exchange the money? While some people have helped people standing in long queues by giving them tea and biscuits, our media rarely promotes these kinds of news.
Let’s make a point to change our mentality to accept good news and kill the negativity. Some developed nations promote only positive news on the first page of the newspaper due to regulations, we Indians can make a change in this by just promoting positive news on social media. One day our TV and print media will amend to our likes too.
(Engineer By Profession, Blogger By Choice)