• India withdraws high–value currency to fight corruption

    0

    HYDERABAD, India: Indian Prime Minister Narendra Modi announced on Tuesday that 500 and 1,000 rupee notes would be withdrawn from financial circulation from midnight, in a bid to tackle corruption.

    “To break the grip of corruption and black money, we have decided that the 500 and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight ie 8 November, 2016,” Modi said in a special televised address to the nation. The notes would no longer be legal tender, he told the nation

    The move resulted in widespread reaction. Cash machines ran dry and stocks tumbled on Wednesday.

    The government plans to print new 500 and 2,000 rupee notes, which will be rolled out later in the week.

    An Indian man display the currency of 500 and 1,000 rupees in Hyderabad on Wednesday. / AFP / NOAH SEELAM

    An Indian man display the currency of 500 and 1,000 rupees in Hyderabad on Wednesday. / AFP / NOAH SEELAM

    All banks and cash machines were ordered to close on Wednesday in preparation for the turnaround, triggering a late night rush by customers to withdraw smaller notes from ATMs.

    Customers will be able to exchange their old bills for new notes or deposit them into their accounts but face the prospect of major scrutiny by tax authorities if they cannot account for a sudden swell in their balance.

    While the move was praised by business leaders and commentators, Indian stocks plunged six percent in early trade — a fall also partially attributed to uncertainty sparked by Donald Trump’s surprise strong showing in the US election.

    Commentators warned the markets would react negatively to Modi’s shock move.

    “With the noose tightening on black money, the consumption story goes for a complete toss,” market analyst Ambareesh Baliga told The Hindustan Times, predicting stocks would take a big hit.

    Major queues built up outside cash machines ahead of the midnight deadline as customers tried to withdraw 100 rupee bills.

    There was also a rush by motorists to gas stations, which will continue to accept the old bills until the end of the week as will transport operators and hospitals.

    The 500 and 1,000 notes, which are worth around $7.50 and $15, are the largest bills in use in India which is still a massively cash intensive economy.

    “I waited for 20 minutes in a queue at the ATM outside my office,” Delhi resident Puneet Raheja told AFP.

    “The person in front of me made a total of 18 transactions on multiple ATM cards, withdrawing cash in only 100 rupee notes.”

    Many machines ran out of cash before midnight while other customers had to trudge away disappointed after failing to access their funds in time.

    While the use of debit and credit cards has increased in the last decade in India, many small businesses insist on taking cash to evade tax or else ask for mark-ups to cushion the blow.

    Some $439 billion left the country illicitly from 2003-2012, according to estimates from the Global Financial Integrity group in Washington.

    Many of India’s wealthiest citizens channel money to tax havens and convert it into jewellery and antiques to avoid tax.

    Domestically, targets for investigation include temples and ashrams, where lavish donations can be a front for money laundering, and cricket betting. The property sector too is awash with black money.

    Only 2.89 percent of Indians pay any income tax at all, India’s previous finance minister told parliament in 2013.

    Since coming to power in 2014, Modi has pledged to crack down on so-called black money with a series of new measures, including 10-year jail terms for evaders.

    The latest announcement comes a little over a month after the government raised nearly $10 billion through a tax amnesty for Indians to report undeclared income and assets.

    “This is a logical next step in cleaning of the system and weeding out the black money,” said Dhiraj Relli, chief executive of the India-based brokerage HDFC Securities Limited.

    “This will clean up the real estate sector and bring down the cost of doing business… As there will be no motivation to generate black money, the economy will see more inflows and the GDP will go up.”

    AFP

    Share.
    loading...
    Loading...

    Please follow our commenting guidelines.

    Comments are closed.