DEMONETIZATION : THE ACTUAL SWATCH BHARAT MOVE
- Dec 31, 2016
Demonetization, this word is the one which we have been hearing more than the regular “hi/hellos” from past one month. You go wherever in the country or you ask anyone, they speak about this demonetization. Some even share their experiences; what they lost/gained by posting it on the social media platforms. Some support it, some go against it; some say it’s a brave move where some say, this is something foolish. So, lets get into the details of what all it is about whether it’s a good move or not and many other details.
|What||Demonetization is the act of stripping a currency unit of its status as legal tender|
|Why||To combat inflation, corruption and to discourage cash system|
|On 8th November 2016, India’s PM Shri Narendra Modi had stated that the country’s biggest denominations viz., Rs.500/- and Rs. 1000/- will not be legal tenders from the 9th of November|
Why was this huge change made?
- The raising issues over the fake currency of higher denominations in the country was the main reason for this step
- The fake currency that was being rotated as the genuine one was mostly used for the illegal activities
- High denomination notes, which aren’t legal tenders anymore, are the base of funds for terrorists and also the black money hoarders; these HDNs are the ones which are used to bribe (corruption)
Why was Rs. 2000/- notes introduced instead of the Rs.1000/- itself?
Let’s say, for example Mr. X has Rs. 1,00,000/- black money in 100 Old Notes of Rs. 1000 each.
Mr. X divides those Rs. 1,00,000/- into 10 Equal Bundles, each comprising of 10 Old Notes of Rs. 1000 each and puts each Stack on a Table.
On Day 1, in the morning Mr. X would deposit the first Bundle i.e. 10 Old Notes of Rs. 1000 valued at Rs. 10,000 in the bank and on same Day 1 in the Evening he would withdraw 10 New Notes of Rs. 1000 again valued at Rs. 10,000 and put it in the Locker in his house.
Now the real Game starts.
On Day 2: Morning, Mr. X would deposit the second bundle of 10 Old Notes of Rs. 1000 valued at Rs. 10,000 kept on the Table. However, in his books of accounts submitted to Income Tax Department, he will show that he has deposited the same 10 New Notes which was withdrawn on Day 1: Evening (which is actually still lying in the Locker of House)
On Day 2: Evening, Mr. X would again withdraw 10 New Notes of Rs. 1000 valued at Rs. 10,000/- and keep the same in the locker. So at the end of Day 2, Mr. X has Rs. 80,000 on Table in Old Notes and Rs. 20,000/- in New Notes in Locker.
Now Day 3 will come in next week as a limit of Rs. 20000 per week.
The same exercise shall continue till Day 10 and by the end of Day 10, Mr. X shall have no Old Notes and Rs. 1,00,000 in 100 New 1000 Rupee Note in the Locker.
However, to the Income Tax Department, Mr. X has shown that he was having only Rs. 10,000/- as black money initially ( i.e. one bundle of 10 Notes of Rs. 1000 ) and he has rotated the same Rs. 10,000/- by depositing it into Bank account in the morning and withdrawing it in the evening and again redepositing the same on the next day and so on.
Thus, Mr. X has paid tax only on initial Rs. 10,000 whereas he has managed to convert all his Black money of Rs. 1,00,000 into new Notes.
Revenue is also helpless to catch Mr. X because the above scenario can also occur in genuine cases where you withdraw money from the bank to purchase something and then when you think that no good deal is available, you may again deposit the same money into your bank account and are not required to pay tax again.
Scenario B: Watch what happens when PM issues New 2000 Rupee Note instead of 1000….!
Mr. X deposits first bundle of 10 Old Notes lying on the Table in the Bank on Day 1: Morning and then he withdraws 5 New Notes of Rs. 2000 on Day 1: Evening and keeps it in a locker.
Now on Day 2: Morning when he goes to deposit second bundle of 10 Old Notes of Rs. 1000 each and wrongly shows the Income Tax Department that he has redeposited the same money, which was withdrawn on Day 1:Evening – Bingo!!!
He is caught red handed!! Because the Bank slip on Day 2 submitted to bank shows deposition of 10 Notes of Rs. 1000 each, whereas the Govt knows that Mr. X could never have withdrawn on Day 1 any note of Rs. 1000 because they were never printed!
|8th Nov, 2016||(i) Rs. 500 and Rs. 1000 notes scrapped from midnight
(ii) Notes could be exchanged for Rs. 4000 at bank branches
(iii) New Rs. 2000 to be issued
|10th Nov, 2016||Withdrawal limit set to Rs. 10,000/- per day and Rs. 20,000/- per week|
|13th Nov, 2016||(i) Withdrawal limit cap raised to Rs. 24,000/- a week
(ii) No daily limit
(iii) Cash exchange limit raised to Rs. 4500/-
(iv) ATM withdrawals limit raised to Rs. 2500/-
|14th Nov, 2016||(i) District Central Cooperative Bank customers can withdraw Rs. 24000/- per week; but cannot exchange or deposit old notes
(ii) Current account holders can withdraw Rs. 50,000/- per week
|17th Nov, 2016||Exchange limit changed for the third time – reduced to Rs.2000|
|18th Nov, 2016||Cash withdrawal through POS systems made uniform at Rs.2000/- per day per account|
|23rd Nov, 2016||Scrapped notes cannot be deposited in small savings accounts|
|24th Nov, 2016||Exchange at bank counters scrapped totally; people have to deposit the old notes in their bank accounts|
|25th Nov, 2016||Foreigners allowed to exchange up to Rs. 5000/- per week till 15th December
|28th Nov, 2016||Withdrawals beyond stipulated limits would be allowed if someone deposits in the current legal tenders|
|19th Dec, 2016||Deposit of SBNs into accounts above Rs. 5000/- will be allowed only once; Any more would be subjected to the official scrutiny|
|22nd Dec, 2016||Roll back of the above said (19th Dec) order; fully KYC compliant accounts are exempted from this cap|
The above shown table is just a brief and most important change made by the RBI in these crucial days (Reports that 60 Rules are changed in 43 days!!!)
Effect on public:
In Rural India (I do work in a rural branch):-
As we all know that about 70% of our country’s population live in the rural and in rural around 80% of people depend on agriculture. And this is a very important time for the crop season, farmers need money to pay to their laborers and buy the essentials for farming. As digitalization hasn’t taken its shape yet in the rural (and, I find it merely impossible to make people digitally knowledgeable), it becomes pretty difficult in this period of time. You need cash for everything and at banks there are two options: banks do not have enough cash or they have Rs. 2000/- notes in plenty and the smaller denomination notes in lesser quantity.
Place where I work, people mainly depend on two sectors; one being the agricultural and the other being a dairy farm. In the dairy sector, people who have cows/buffalos get milk and sell it to a company with a good name and brand. In turn, the company pays these people through their Aadhar- enabled bank accounts. Sometimes people who have more cows hire some labors to get the work done and people have to pay them. And they too will get payed for their work. As it is rural, most of them still fear to open bank accounts, as they think that, either banks are going to waste their hard earned money or they think that only rich people can have their saving account. When we ask people to transfer money to their accounts, they say that, this is what they get for their daily needs; and if I transfer to them now (who have accounts), they have to stand in long queues again! Neither they accept to transfer money nor they accept the newly unfolded Rs. 2000/- notes. But, as they have no other option they started to accept the new notes.
In urban India:
It’s no different from the other part of the sub-continent. More population, more banks yet less cash! The real cash crunch has been faced in this period by every citizen in the country. Even in the urban India, digitization hasn’t been implemented in the full fledged and it is not so easy as it looks to make the whole country digitized in a shorter span of time – most citizens may be educated, but not every educated are tech-friendly. Though various steps are being taken by the government and even the banks to make (or even we can say push) the people go digitized, people find it difficult most of the times! The biggest problem in the semi-urban and urban areas was that, people had to remain away from their daily work or have to skip their office to stand in the never ending queues. At the end, when their turns come, they have to face either “NO CASH” placard or they will have the Rs. 2000/- notes which are of no use, merely (milkman, hotels, ironwalas and all the other regular payments we have to make, neither they need this Rs.2000 /- note nor they have the change for everyone!)
Effect on Bankers:
Life of bankers in a line:
As bankers, we got trolled by someone; sympathized by someone; pressurized and mentally tortured by someone else; and hanged by self!
We, bankers, aren’t the most superior ones in the nation, we do have bosses (RBI & Government) and we act according to them. No people understand that and we have to face the ire of the common people who never think that we also belong to the category of human beings! With the changing rules of the central bank and the central government, from both, the front end and the bank end officials from the banking industry are facing a great problem in understanding and developing the software in view with the changes! The bankers find it very difficult to make people understand the changing pattern of the rules and even harder to make them understand that the bank has run out of the cash (but not their bank accounts instead!).
Some Major Flaws in Demonetization Saga:
Whatever would have been the strategy of GOI, the implementation of this whole program was way too harsh and seemed to be unplanned. The GOI ordered to deposit money back in banks but it left the bankers and the general public helpless as there were no new notes to distribute. The GOI didn’t make any concrete strategy because of which we saw daily modifications in deposit and withdrawal ways. People of India still supported the move, some did for the betterment, some did as they didn’t have any other option.
Other than money issue, the state government were busy in opposing the move which made it worse. If only they supported, we wouldn’t have had heard any news related to deaths, thefts or violence. The state Govt should have arranged the crowd properly while the bankers were busy in taking and giving the notes. A normal tent, availability of water and snacks and place to sit and wait for turn would have pleased the general public much much more than pathetic interviews of ministers and news reporting of bogus and fake media.
The Saga is not over yet:
Many are in a belief that Modi is going to distribute black money in Jan Dhan Account and it is really surprising that they really believe so. People are waiting eagerly for cash and 1st January. Our PM is going to address the nation very soon and it might be the most awaited speech of his of 2016. Surely as Modi said before, this is not the end. This was just the beginning of transforming India. We can expect many changes in 2017 and we hope all those changes to bring fortune to our country.
Penned by – Hareesh
We Banking Mantras give a big thanks to our PM as he took this bold step, public for showing such immense patience and support and our bankers who were called deshbakht + magarmach as well, a big thanks to all the bankers of each and every bank, all those employees national, private bank or other financial institutions who made this move possible and ease the pressure of general public.
Thank You Hareesh (Cameo) for sharing your thoughts and experience with us.