‘Put Money In Thy Bank’

Demonitisation

How demonetisation rules keep changing, adding injury to insult

Announcing demonetisation of Rs500 and Rs1,000 notes from November 8 midnight, PM Narendra Modi laid out a set of rules to implement his plan. He claimed the drive would fight black money. But over the past four weeks, the government has changed these several times before one can say Jack Robinson. And these changes came, mostly, without any form of public warning, exposing the ill-preparedness and incompetence of the government.

Here’s a lowdown of the flip-flops

Thus Spake The PM: Keeping in mind the supply of new notes, in the first few days, there will be a limit of Rs10,000 per day and Rs20,000 per week. This limit will be increased in the coming days.

Ground Report: On November 14, the RBI asked banks to lift the daily Rs10,000 withdrawal limit and raise the weekly limit to Rs24,000. But since then this remains unchanged. Now, even a month after the demonetisation, an account holder can withdraw only Rs24,000 a week from deposits. This, only after standing in long queues or when the bank has enough money. Given the acute cash crisis in the system, several banks refused to pay even this promised Rs10,000.    

 Thus Spake The PM: From 10 November till 24 November the limit for exchange (of old demonetised notes) will be Rs4,000. From 25 November till 30 December, the limit will be increased.

Ground Report: Just the opposite happened. Initially, some banks exchanged old Rs500 and Rs1,000 notes. But several branches of private lenders, for example Kotak Mahindra, were not letting people to swap their old notes. In such banks, only those who have accounts were allowed to withdraw cash using self-signed cheques.

Worse, the government changed the exchange rules several times, which hit the unbanked hard. If the PM had said the daily exchange limit would remain Rs4,000 till November 24, his government reduced it to Rs2,000 on November 18.

The changes didn’t stop there

The PM had said the exchange limit would be raised on November 24. Instead, the finance ministry liquidated the exchange scheme on November 24. It then announced some breather for the public, saying the old Rs500 notes could be used to buy petrol, recharge mobile phones, pay utility bills, etc, till December 15.

Even this this promise was scrapped soon. On December 1, rules changed again. The new notification from finance ministry said Rs500 notes would be accepted at petrol bunks only till that midnight.   

Thus Spake The PM: On November 9 and (in some places) November 10, ATMs will not work. In the first few days, there will be a limit of Rs2,000 per day per card. This will be raised to four thousand rupees later.

Ground Report

It’s another promise by the PM Prime Minister which his government could not keep. If Modi foresaw only two days of crisis at ATMs, the situation hasn’t eased even after 28 days. Most ATMs in the country are dry, and even those with cash, mostly provide Rs2,000 notes. And the promise to raise the daily withdrawal limit to Rs4,000 is yet to be materialised. The government raised the ATM withdrawal limit to Rs2,500 on November 14, but it stayed there ever since.

Other Changes

  • Though the Prime Minister in his November 8 speech repeatedly said the demonetisation move was to fight black money, the government itself came up with the 50:50 scheme for black money holders on November 26. Under the scheme, a person with unaccounted money could come clean by paying 50% of it to the tax authorities. Half of the remaining 50% will have to be locked in a zero per cent instrument. This essentially means the government is helping the black money-holders to whiten their cash with a higher tax rates. Even the 0% interest deposit would not be a problem for money holders because black money in any case doesn’t fetch interest income. Why the government is doing this? One possible explanation is that the demonetisation has been proved a failure in fighting black money, while having pushed the country into a cash crisis. The government was desperate to show that it’s got (some) black money. And it’s hoping that the new scheme would let cash hoarders to come through the government channel, instead of using laundry routes.
  • In another signal of the acute cash crunch, the Reserve Bank of India on November 30 announced that it would limit withdrawals from the  Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts holders to Rs10,000 a month. This is again in contrast with what the PM originally promised, and discriminatory too. The Jan Dhan account-holders are generally poor Indians who opened accounts as part of the government’s financial inclusion drive. As on 23 November, there are 25.7 crore bank accounts under the scheme which was introduced in August 2014. This means if a consumer has only Jan Dhan account, he or she would be allowed to withdraw only Rs10,000 a month compared to the Rs24,000 a week other account holders are eligible to withdraw.

EPILOGUE: CASH IS NO KING

Prime Minister Modi asked for 50 days. But the way he changed the rules shows that the economic crisis he has brought upon on the people of the country is not going to ease any time soon. Perhaps, it’s incapable to fight black money as well. That explains why the government is now trying to change the narrative from fighting black money to moving to a cashless economy.

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