Lakhs of Indians struggled to pay for groceries, fuel and other daily needs and fretted about their savings, a day after the Centre withdrew Rs 500 and Rs 1,000 notes from circulation to target black money, corruption, fake currency and terror funding. With ATMs and banks shut for a day, reports of chaos poured in from states as most consumer payments in India are made in cash.
Union finance minister Arun Jaitley admitted that the government’s move would cause some inconvenience to people, but would boost India’s economy in the long term.
“Obviously there is some inconvenience for a couple of days or a couple of weeks People will realise that it pays to be honest. The not-so-honest are left worried,” said Mr Jaitley who sought to rubbish political criticism of the government’s surprise move.
From Tuesday midnight, the larger bank notes ceased to be legal tender for transactions, sweeping away 86 per cent of total currency in circulation. They can only be exchanged at banks and post-offices for smaller notes till the year-end. As an exception, till Friday midnight, people will be able to use the withdrawn currency notes for essential services.
While the finance minister said housewives and farmers with genuine savings need not worry about depositing cash in their bank accounts, and that the entire society has welcomed the decision, complaints poured in from across states that retailers refused to accept these notes and people were unable to access ATMs shut on Wednesday.
Banks will work an extra two hours on Thursday and Friday and will also remain open over the weekend to help customers deposit or exchange their Rs 500 and Rs 1,000 notes. The RBI also announced that the new notes of Rs 2,000 and Rs 500 would be available at banks and in ATMs from Friday.
Reports said petrol stations and hospitals also refused to accept larger denomination bank notes, even though the government had given them a waiver to continue accepting them. Shopkeepers refused to accept the large notes available with people, in a country where ATMs would largely disburse mostly Rs 500 or Rs 1,000 bills, reports said.
Chaos reigned at petrol stations, tourist places and toll plazas across India as outlets ran out of smaller bills. The Railways faced a rush of people buying tickets using Rs 1,000 and Rs 500 notes as these are allowed at rail premises and sought banks’ help in providing lower denominations in return.
Rashmi Chavan, a retired bank professional, said: “I don’t know if such a move to curb corruption/black-money will be successful or not, but people are certainly facing inconvenience”.
The finance minister described the government’s move as a “big step” to make India cashless that will lead to a rise in tax collections and bank deposits and boos the economy. “Those outside the system will be forced to get into the banking system and be a part of the formal economy,” he said.
He also said that deposits of the existing Rs 500 and Rs 1,000 notes in bank accounts will not enjoy immunity from tax. “If the money is legitimate, there is nothing to worry about,” he said. He said, a 200 per cent tax would be levied on those who deposit an unaccounted sum of Rs 10 lakh or above.
Union home minister Rajnath Singh said Pakistan was already worried, as the government’s move will hit funding to terror outfits backed by it.
According to reports, the income tax department will coordinate with banks to get details of individuals who deposit cash of Rs 2 lakh and above. As per rules, banks have to report cash deposits aggregating '10 lakh or more in a financial year in one or more accounts of a person to the income tax department.
On reports that there people are exchanging Rs 1,000 notes by taking commissions and Rs 50 and Rs 100 notes are being sold at a premium, Mr Jaitley said that these reports are “exaggerated.”
According to Reserve Bank of India data, Rs 17,54,000 crore worth of currency is in circulation in the country, out of which 45 per cent is accounted for by Rs 500 notes and 39 per cent for Rs 1,000 notes.
