Last night, Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 notes that are currently in circulation will no longer be recognised as money. India’s central bank will issue new notes of Rs 500 and Rs 2,000 starting 10 November.
The move is expected to curb black money and help weed out fake currency that’s purportedly used to fund illegal activities and terrorism. Most experts are calling this a “masterstroke”. Meanwhile, on the streets, this is what’s happening.
Banks are not open today. But you have ample time if you want to exchange your old notes for new ones. You can deposit old notes in a bank until December 30. If you are unable to do so for some reason, you can deposit them at the Reserve Bank of India’s offices (after filing a declaration) till March 31, 2017. Tourists can exchange these notes at airports.
Until 11 November, these notes will be accepted at petrol pumps, government hospitals, railway, airline and bus ticket counters, milk booths, stores run by the governments and crematoriums and burial grounds.
Now the big question. Will this help India become a cashless economy? If at all, how big will be the impact? What’s important to note is that India will continue to have Rs 500 notes and new Rs 2,000 notes are being issued. So, in the long term, this event is just a blip.
That said, if it indeed manages to plough in black money into the banking system, we’re talking of a system where there are fewer reasons not to transact electronically.“If most of the black money is brought into bank accounts or into the tax net, there will be far less reason to deal only in cash, and far more reasons to transact through electronic payments,” said R Chandrashekhar, President of Nasscom, the tech industry body.
In the short term, this will force people to use more of digital money because merchants are not likely to accept the old Rs 500 and Rs 1,000 notes for the simple fact that it will become painful for them to get them changed to new notes. Online retailers have already halted taking cash on delivery orders that are more than Rs 2,000 in value. Nearly 84% of all rupee bills in circulation are in the form of Rs 500 and Rs 1,000 notes, according to the RBI.
While the switch to digital may be triggered by Modi’s move, many may continue using cashless payment methods once they realise the relative ease of it. “Users will move to digital payment methods because of unavailability of cash and will stick to them because of convenience of cashless transactions,” Pravin Jadhav, former head of growth at mobile wallet company Freecharge says.
What’s important to note is that India will continue to have Rs 500 notes and new Rs 2,000 notes are being issued. So, in the long term, this event is just a blip