2016 Indian banknote demonetisation

2016 Indian banknote demonetisation
Queues outside a bank to exchange ₹500 and ₹1000 banknotes in Birganj, Kolkata on 10 November 2016
Date 8 November 2016
Time 20:15 IST (14:45 UTC)
Location India
Casualties
Independent stats: 100 dead as of 8 December 2016[1]

On 8 November 2016, the Government of India announced the demonetisation of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and ₹2000 banknotes in exchange for the demonetised banknotes.[2] The sudden nature of the announcement and the prolonged cash shortages in the weeks that followed created significant disruption throughout the economy.[3][4][5]

Indian Prime Minister Narendra Modi announced the demonetisation in an unscheduled live televised address at 20:00 Indian Standard Time (IST) on 8 November.[6][7] In the announcement, PM Modi declared that use of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series would be invalid past midnight, and announced the issuance of new ₹500 and ₹2000 banknotes of the Mahatma Gandhi New Series in exchange for the demonetised banknotes.

The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.[8][9]

Initially, the move received support from several bankers as well as from some international commentators. The move has also been criticised as poorly planned and unfair, and was met with protests, litigation, and strikes against the government in several places across India. Debates also took place concerning the move in both houses of parliament.[10][11][12][13] The move reduced the country's industrial production and its GDP growth rate. [14]

According to RBI Annual report 2017-18, approximately 99.3% of the demonetised banknotes, or ₹15.30 lakh crore of the ₹15.41 lakh crore that had been demonetised, were deposited with the banking system. The banknotes only worth ₹10,720 crore were not deposited,[15] leading analysts to state that the effort had failed to remove black money from the economy.[16][17]

Background

The Indian government had demonetised bank notes on two prior occasions—once in 1946 and then in 1978—and in both cases, the goal was to combat tax evasion by "black money" held outside the formal economic system[18] In 1946, the pre-independence government hoped demonetisation would penalise Indian businesses that were concealing the fortunes amassed supplying the Allies in World War II.[18] In 1978, the Janata Party coalition government demonetised banknotes of 1000, 5000 and 10,000 rupees, again in the hopes of curbing counterfeit money and black money.[19]

In 2012, the Central Board of Direct Taxes had recommended against demonetisation, saying in a report that "demonetisation may not be a solution for tackling black money or shadow economy, which is largely held in the form of benami properties, bullion and jewellery."[20][21] According to data from income tax probes, black money holders kept only 6% or less of their wealth as cash, suggesting that targeting this cash would not be a successful strategy.[22]

Demonetisation process

Demonetized ₹500 of the Mahatma Gandhi Series
Demonetized ₹1,000 of the Mahatma Gandhi Series

The plan to demonetise the ₹500 and ₹1000 banknotes was initiated between six and ten months before it was announced, and was kept confidential, with only ten people being completely aware of it. The preparations for printing new ₹500 and ₹2000 bank notes began in early May 2016. The Union cabinet was informed about the plan on 8 November 2016 in a meeting called by the Indian Prime Minister Narendra Modi.[23]

Public announcement

On 8 November 2016, Modi announced the demonetisation in an unscheduled live national televised address at 20:15 Indian Standard Time.[6][7] In the announcement, Modi declared circulation of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series as invalid effective from the midnight of the same day, and announced the issuance of new ₹500 and ₹2,000 banknotes of the Mahatma Gandhi New Series in exchange for the old notes.[24]

After Modi's announcement, the Governor of the Reserve Bank of India, Urjit Patel, and Economic Affairs Secretary, Shaktikanta Das, stated that while the supply of notes of all denominations had increased by 40 percent between 2011 and 2016, the ₹500 and ₹1,000 banknotes increased by 76 percent and 109 percent, respectively, owing to forgery. They said that forged cash was used to fund terrorist activities, and that the demonetisation was meant to counter this.[25] After demonetisation, only 0.0035% of the ₹1,000 banknotes were found to be fake.[26]

Patel also stated that the decision had been made about six months ago, and the printing of new banknotes of denomination ₹500 and ₹2,000 had already started. However, only the top members of the government, security agencies and the central bank were aware of the move. But media had reported in October 2016 about the introduction of ₹2,000 denomination well before the official announcement by RBI. This statement has led to much debate, because the Reserve Bank governor six months before the announcement was Raghuram Rajan, while the new banknotes have the signature of the newly appointed governor, Urjit Patel.[27][28]

Exchange of old notes

People gathered at ATM of Axis Bank on 16 November 2016 in Mehsana, Gujarat to withdraw cash following deposit of demonetised banknotes in bank on 15 November 2016.

The Reserve Bank of India stipulated that the demonetised notes could be deposited with banks over a period of fifty days until 30 December 2016. The banknotes could also be exchanged for legal tender over the counter at all banks. The limit for such exchange was ₹4,000 per person from 8 to 13 November, was increased to ₹4,500 per person from 14 to 17 November, reduced to ₹2,000 per person from 18 November.[2][29][30][31] International airports also facilitated an exchange of banknotes for foreign tourists and out-bound travelers, amounting to a total value of ₹5,000 per person.[32] The exchange of banknotes was stopped completely on 25 November: Modi had previously stated that the volume of exchange would be increased after 24 November.[33]

Withdrawal limits

Cash withdrawals from bank accounts were restricted to ₹10,000 per day and ₹20,000 per week per account from 10 to 13 November.[2] This limit was increased to ₹24,000 per week from 14 November 2016.[29][30]

A daily limit on withdrawals from ATMs was also imposed varying from ₹2,000 per day till 14 November,[34] and ₹2,500 per day till 31 December.[29][30] This limit was increased to ₹4,500 per day from 1 January,[35] and again to ₹10,000 from 16 January 2017. Limits placed vide the circulars cited above on cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft accounts stand withdrawn with immediate effect. RBI increased the withdrawal limit from Savings Bank account to ₹50,000 from the earlier ₹24,000 on 20 February 2017 and then on 13 March 2017, it removed all withdrawal limits from Savings Bank Accounts.[36]

Under the revised guidelines issued on 17 November 2016, families were allowed to withdraw ₹250,000 (₹2.5 lakh) for wedding expenses from one account provided it was KYC compliant. The rules were also changed for farmers who are permitted to withdraw ₹25,000 per week from their accounts against crop loans.[31][37]

Fuel pumps, government hospitals, railway and airline booking counters, state-government recognised dairies and ration stores, and crematoriums were allowed to accept the demonetised banknotes until 2 December 2016.[38]

Ordinance

The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was issued on 28 December 2016 ceasing the liability of the government for the demonetised banknotes, and also imposing fines on people found carrying out transactions with them after 8 November 2016; or holding more than ten of them after 30 December 2016. The ordinance also provided for the exchange of the banknotes after 30 December for non-resident citizens and others on a case by case basis.[39][40]

Information leaks

A fortnight before the official announcement, there was a news report in the Hindi daily Dainik Jagran quoting RBI sources speaking of the planned release of new ₹2000 banknotes alongside withdrawal of ₹500 and ₹1000 banknotes.[41][42] Similar news was reported in The Hindu Business Line on 21 October 2016, also describing a forthcoming ₹2000 banknote and the possible withdrawal of ₹500 and ₹1000 banknotes.[43] The chairman of the State Bank of India had also openly spoken in April 2016 about the possibility of demonetisation of ₹500 and ₹1000 banknotes.[44]

Prominent businessmen stated after the announcement of demonetisation that they had received prior warning of the move, allowing them to convert their money into smaller denominations.[45] A BJP MLA from Rajasthan, Bhawani Singh Rajawat, claimed in a video that wealthy businessmen were informed about the demonetisation before it occurred. He later denied the comments.[46][47]

Initial reactions

Support

The decision met with mixed initial reactions. Several bankers like Arundhati Bhattacharya (Chairperson of State Bank of India) and Chanda Kochhar (MD & CEO of ICICI Bank) appreciated the move in the sense that it would help curb black money.[48] Businessmen Anand Mahindra (Mahindra Group), Sajjan Jindal (JSW Group), Kunal Bahl (Snapdeal and FreeCharge) also supported the move adding that it would also accelerate e-commerce.[48] Infosys founder N. R. Narayana Murthy praised the move.[49][50]

The Indian National Congress spokesperson Randeep Surjewala welcomed the move but remained sceptical on the consequences that would follow.[51] Chief Minister of Bihar Nitish Kumar supported the move.[52][53][54] The demonetisation also got support from Chief Minister of Andhra Pradesh Nara Chandrababu Naidu.[55][56][57] Former Chief Election Commissioner of India S. Y. Quraishi said demonetisation could lead to long term electoral reforms.[58] Indian social activist Anna Hazare hailed demonetisation as a revolutionary step.[59][60][61] The former President of India Pranab Mukherjee welcomed the demonetisation move by calling it bold step.[62][63][64][65] The opinion of the masses varied both ways on micro-blogs and social media sites like Twitter.[66]

By and large, initial international response was positive which saw the move as a bold crackdown on corruption.[67][68][69] International Monetary Fund (IMF) issued a statement supporting Modi's efforts to fight corruption by the demonetisation policy.[67]

Chinese state media Global Times praised the move and termed it as "fierce fight against black money and corruption."[68] Former Prime Minister of Finland and Vice-President of European Commission Jyrki Katainen welcomed the demonetisation move stressing that bringing transparency will strengthen Indian economy.[70][71] BBC's South Asia Correspondent Justin Rowlatt in his article praised the move for its secrecy.[72] Tim Worstall termed the demonetisation as welcome macroeconomic effect in his article in Forbes magazine.[73] Swedish Minister of Enterprise Mikael Damberg supported the move by calling it bold decision.[69]

Indian-American economist Jagdish Bhagwati praised the demonetisation.[74]

Criticism

The Indian Supreme Court while hearing one among a slew of cases filed against the sudden demonetisation decision in various courts,[75] observed that it "appears to be carpet bombing and not surgical strike" which government repeatedly claims it to be.[76]

Nobel laureate Indian economist Amartya Sen, severely criticised the demonetisation move calling it a "despotic action" among other things.[77][78][79]

Former Senior Vice-President and Chief Economist of the World Bank, Kaushik Basu, called it a 'major mistake' and said that the 'damage' is likely to be much greater than any possible benefits.[80][81][82]

Pronab Sen, former Chief Statistician and Planning Commission of India member, called it a "hollow move" since it did not really address any of the purported goals of tackling black money or fake currency.[83]

Prabhat Patnaik, a former professor of economics at the Jawaharlal Nehru University, Delhi called the move 'witless' and 'anti-people'. He criticised the simple way in which black money was assumed as "a hoard of cash", saying that it would have little effect in eliminating "black activities" while "causing much hardship to common people."[84]

Noted economist and journalist, T. N. Ninan wrote in the Business Standard that demonetisation 'looks like a bad idea, badly executed on the basis of some half-baked notions'.[85] Deepak Parekh (Chairman of HDFC) had initially appreciated the decision of demonetisation, but later said that the move had derailed the economy, and expressed skepticism about its outcome.[86][87] Industrialist Rajiv Bajaj criticised the demonetisation, saying that not just the execution, but the concept of demonetisation was wrong in itself.[88]

Initially, the move to demonetise and try to hinder black money was appreciated, but the manner in which it was carried out by causing hardships to common people was criticised.[89] A Public Interest Litigation (PIL) was filed in Madras High Court by M Seeni Ahamed, General Secretary of the Indian National League, to scrap the decision. The High Court dismissed the PIL stating that it could not interfere in monetary policies of the government.[90] Similar PILs were also filed in the Supreme Court of India.[91] Supreme Court of India is yet to decide on the matter. It is listed for hearing on 2 December 2016.

Steve Forbes described the move as 'Sickening And Immoral'.[92] He stated that "What India has done is commit a massive theft of people's property without even the pretense of due process--a shocking move for a democratically elected government."[92] Nobel laureate Paul Krugman said that it is difficult to see gains from demonetisation, while there may be significant costs to it.[93]

The demonetisation also came in for sharp criticism from media outside India,[94][95] with the New York Times saying that the demonetisation was "atrociously planned" and that it did not appear to have combatted black money,[96][97] while an article in The Guardian stated that "Modi has brought havoc to India".[94] The Harvard Business Review called it "a case study in poor policy and even poorer execution"[98] The frequent change in the narrative on objectives of the demonetisation to its visible impact on the poorest of the poor made other critiques calling government's narrative as spins in view of the "pointless suffering on India's poorest."[99]

A Parliamentary panel report in April 2017 stated that rural households and honest taxpayers were the worst hit by demonetisation.[100] It said that it was not just the poor that suffered, but the manufacturing sector was impacted too.[101] According to the panel, demonetisation created significant disruption throughout economy, because it was carried out without prior study or research.[102][103]

Opposition

A Indian National Congress led opposition which includes 13 political parties, opposed the government on the issue of demonetisation in the Winter Session of the Indian Parliament.[104][105][106][107]

On 16 November 2016, Mamta Banerjee led a delegation comprising political parties of Trinamool Congress, Aam Aadmi Party, BJP ally Shiv Sena and National Conference to Rashtrapati Bhawan to protest against the decision of demonetisation. A memorandum was submitted to the President of India Pranab Mukherjee demanding rollback of the decision.[108][109]

Prem Chand Gupta, a member of the Rashtriya Janata Dal, questioned a statement of Modi from the unscheduled TV broadcast on 8 November, "If it was planned 10 months ago, how did RBI Governor Urjit Patel sign on new note?". Praful Patel, a member of the Nationalist Congress Party, stated that "the government was not even prepared to recalibrate the ATMs while announcing the move. People's suffering are unimaginable. Nobody is questioning the government's intention, but you are unprepared to execute the move". Later, the former Chief Minister of Uttar Pradesh Mayawati stated the situation to "a financial emergency", by saying "It looks as if Bharat has shut down." Also, Sitaram Yechury from Communist Party of India, questioned the government on the demonetisation move by stating "only 6% of black money in India is in cash to drive his point that demonetisation won't curb illicit wealth."[110]

On 17 November 2016, a rally against demonetisation, led by the Chief Minister of Delhi Arvind Kejriwal and his West Bengal counterpart Mamata Banerjee at Azadpur Mandi, the biggest vegetable and fruits wholesale market in New Delhi was organised.[111]

On 24 November 2016, the former prime minister Manmohan Singh termed the demonetisation as an "organised loot, legalised plunder of the common people".[112][113]

The strikes were organised across India. Opposition parties like Indian National Congress, Bahujan Samaj Party, Trinamool Congress,[114] DMK, JD(U), AIADMK, Nationalist Congress Party, Left, Rashtriya Janata Dal and the Samajwadi Party[115] decided to observe ‘Akrosh Diwas’ as, a protest campaign day on 28 November [116][117] and launch protests in front of banks, demanding that money be returned to people.[118] In the state of Bihar, 15 trains were blocked and stranded, while the states of West Bengal, Maharashtra and Uttar Pradesh saw protest marches and rallies led by opposition parties.[119] In the state of Kerala, shops and business establishments were shut, with school and colleges closed throughout the state, while movements of private vehicles were also disrupted in Northern Kerala.[119]

Effects and analysis

Economic

Black money

The government had estimated that ₹3 lakh crore, or approximately 20%, of the demonetised banknotes would be permanently removed from circulation.[120] However, according to RBI Annual report 2017-18, approximately 99.3% of the demonetised banknotes, or ₹15.30 lakh crore of the ₹15.41 lakh crore that had been demonetised, were deposited with the banking system. The banknotes only worth ₹10,720 crore were not deposited.[15]

Therefore, the government failed in its aim of purging black money from the economy.[16][17]

Cost to banks

Before demonetisation, the RBI had spent ₹3,421 crore to print banknotes in 2015-2016 (July to June). The cost of printing new banknotes escalated to ₹7,965 crore in 2016-17 and ₹4,912 crore in 2017-18.[15] It resulted in decline of dividend paid to the government from ₹65,876 crore in 2015-16 to ₹30,659 crore in 2016-17 and ₹50,000 crore in 2017-18.[15][121][122]

The banks incurred the cost in collection, storage and movement of banknotes across the country as well as in re-calibrating the ATMs.[123]

Banknotes in circulation

On 28 October 2016 the total banknotes in circulation in India were valued at ₹17.77 trillion (US$250 billion); what proportion of this derived from ₹500 and ₹1,000 banknotes was unknown. In its annual report of March 2016, the Reserve Bank of India (RBI) stated that total banknotes in circulation valued ₹16.42 trillion (US$230 billion) of which nearly 86% (around ₹14.18 trillion (US$200 billion)) derived from ₹500 and ₹1,000 banknotes. In terms of volume, the report stated that 24% (around 22.03 billion) of the total 9026.6 crore (90.26 billion) banknotes in circulation were ₹500 and ₹1,000 banknotes.[124]

Before demonetisation (November 2016), there were banknotes worth ₹17.97 lakh crore in the market. The demonetised banknotes constituted 86.4% of it. By March 2018, there were banknotes worth ₹18.03 lakh crore in the market; increase of 9.9%. New banknotes of ₹2000 and ₹500 constitute 80.6% of it. So there was only 5.8% increase in small domination banknotes.[15] The volume of banknotes in the market increased by 2.1%.[125]

Counterfeit banknotes

Number of counterfeit banknotes detected in banks (April - March)[125]
Denomination 2015-16 2016-17 2017-18
₹1 2 3 4
₹2 and ₹5 2 80 1
₹10 134 523 287
₹20 96 324 437
₹50 6,453 9,222 23,447
₹100 2,21,447 1,77,195 2,39,182
₹200 NA NA 79
₹500 (old) 2,61,695 3,17,567 1,27,918
₹500 (new) NA 199 9,892
₹1000 1,43,099 2,56,324 1,03,611
₹2000 NA 638 17,929
Total 6,32,926 7,62,027 5,22,783

After demonetisation, there was an increase in the counterfeit banknotes in small denomination of ₹100 and ₹50. The counterfeit banknote in denomination of old ₹500 and ₹1000 saw increase in 2016-17 and decline in 2017-18 because they were already demonetised. But in 2017-18, there was an increase in counterfeit banknotes of new ₹500 and ₹2000 denomination banknotes than the previous year.[125]

Cash shortage

Queue at an ATM for ₹100 banknotes in Howrah, on 8 November 2016, 22:23 (IST)

The scarcity of cash due led to chaos, and most people faced difficulties in depositing or exchanging the demonetised banknotes due to long queues outside banks and ATMs across India.[126][127][128] ATMs were running out of cash after a few hours of being functional, and around half the ATMs in the country were non-functional.[127] Sporadic violence was reported in New Delhi, but there were no reports of any grievous injury,[129] people attacked bank premises and ATMs,[130][131][132][133][134][135] and a ration shop was looted in Madhya Pradesh after the shop owner refused to accept ₹500 banknotes.[136][137][138][139]

As of 18 December 2016, there were still long queues at banks and ATMs.[140][141] Three months after the withdrawal of banknotes, a quarter of the ATMs were still short of cash.[142]

The cash shortage was still ongoing in the month of April 2017, five months after the demonetisation.[143][144][145][146] According to a survey, the situation was as bad as 83% of people being unable to withdraw money in Hyderabad, while in Pune, the figure was 69%.[146]

As of 10 December, ₹242 crore in new banknotes had been seized.[147] Reports in the media noted that although the general public faced a severe cash shortage, some individuals were able to amass crores in new banknotes; they thus described the demonetisation exercise as being futile.[147][148][149]

Stock market decline

As a combined effect of demonetisation and US presidential election, the stock market indices dropped to an around six-month low in the week following the announcement. The day after the demonetisation announcement, BSE SENSEX crashed nearly 1,689 points and NIFTY 50 plunged by over 541 points.[150] By the end of the intraday trading section on 15 November 2016, the BSE SENSEX index was lower by 565 points and the NIFTY 50 index was below 8100 intraday.[151]

Transportation disruption

After the demonetisation was announced, about 800,000 truck drivers were affected with scarcity of cash, with around 400,000 trucks stranded at major highways across India were reported.[152] While major highway toll junctions on the Gujarat and Delhi-Mumbai highways also saw long queues as toll plaza operators refused the demonetised banknotes. The Ministry of Road Transport and Highways subsequently announced a suspension of toll collections on all national highways across the country until 2 December as well as acceptance of demonetised ₹500 banknote as a toll from 2 December to 15 December.[153][154]

Agriculture

Transactions in the Indian agriculture sector are heavily dependent on cash and were adversely affected by the demonetisation.[155] Due to scarcity of the new banknotes, many farmers have insufficient cash to purchase seeds, fertilisers and pesticides needed for the plantation of rabi crops usually sown around mid-November.[156] Farmers and their unions conducted protest rallies in Gujarat, Amritsar and Muzaffarnagar against the demonetisation as well as against restrictions imposed by the Reserve Bank of India on district cooperative central banks which were ordered not to accept or exchange the demonetised banknotes.[157][158][159][160]

The demonetisation led to unavailability of cash to pay for food products. The reduction in demand that arose in turn led to a crash in the prices of crops. Farmers were unable to recover even the costs of transportation from their fields to the market from the low prices offered.[161][162] The prices dropped as low as 50 paise per kilo for tomatoes[163] and onions.[162] This forced the farmers across the country to dump their products in desperation.[163][164][165][166] Some farmers resorted to burying unsold vegetables.[167] Agricultural produce such as vegetables, foodgrains, sugarcane, milk and eggs were dumped on roads.[168][169] Some farmers dumped their produce in protest against the government.[169][170] In June 2018, Reuters reported that all the farmers they had spoken to in Uttar Pradesh and Madhya Pradesh said that demonetization had made things worse for them.[171]

Digital transactions and cashless economy

The demonetisation was initially seen by some sources as a significant step towards making India a cashless economy.[172][173][174]

In December 2016, the government launched an app called BHIM (Bharat Interface for Money) based on the Unified Payment Interface.[175] Both the Immediate Mobile Payments System (IMPS) and the Unified Payments Interface (UPI), which support instant payments using mobile phones, have grown substantially since demonetisation, even as cash has returned to the economy.[176]

The number and value of cashless transactions, picked in December 2016 and declined from March 2017 to pre-demonetisation levels. The cashless transactions marginally increased again in first half of 2018.[177][125][178][179][180]

The currency-to-GDP ratio was 12.1% in 2015-16. It declined to 8.8% in 2016-17 due to demonetisation but increased again to 10.9% in 2017-18.[125]

GDP growth

Global analysts cut their forecasts of India's GDP growth rate for the financial year 2016-17 by 0.5 to 3 percent due to demonetisation.[181][182] India's GDP in 2016 is estimated to be US$2.25 trillion, hence, each 1 per cent reduction in growth rate represents a shortfall of US$22.5 billion (₹ 1.54 lakh crore) for the Indian economy.[183] According to Societe Generale, India's quarterly GDP growth rates would drop below 7% for an entire year at a stretch for the first time since June 2011.[184]

India's GDP growth for the quarter Jan-Mar '17 was 6.1% as against a forecast of 7.1% by economists.[185] The GDP growth for the entire fiscal year was 7.1%, a reduction from the 8% of the previous year.[186] This drop in GDP was attributed to demonetisation by economists.[187]

The GDP growth rate for the quarter April - June 2017 dropped to 5.7%, in comparison to 7.9% for the same quarter in the previous year.[188] This drop in GDP growth was attributed to demonetisation.[189] This was the lowest growth in GDP since 2014.[190]

Drop in industrial output

There was a reduction in industrial output as industries were hit by the cash crisis.[191] The Purchasing Managers' Index (PMI) fell to 46.7 in November from 54.5 in October, recording its sharpest reduction in three years.[192] A reading above 50 indicates growth and a reading below shows contraction. This indicates a slowdown in both, manufacturing and services industries.[193] The PMI report also showed that the reduction in inflation in November was due to shortage in money supply.[192]

The growth in eight core sectors such as cement, steel and refinery products, which constitute 38% of the Index of Industrial Production (IIP), was only to 4.9 percent in November as compared with 6.6 percent in October.[193][194]

Unemployment

There was a loss of jobs due to demonetisation, particularly in the unorganised and informal sector and in small enterprises. Labour union jobs were crashed.[195][196][197]

Around 1.5 million jobs were lost in first four months of 2017 (i.e. from January 2017 to April 2017) as an effect of demonetisation.[198]

Tax collection

The number of Income tax returns filed between 1 April 2017 and 5 August 2017 grew by 24.7 per cent to 2.82 crore over the same period in 2016, and the advance tax collections between 1 April 2017 and 5 August 2017 rose 41.8% over the corresponding period in 2016.[199][200][201] An analysis of the economic data shows that there has been no substantial increase in the number of new tax payers or direct tax collection due to demonetisation.[202][203][204]

The demonetised banknotes were allowed for the tax payment of municipal and local civic bodies leading to substantial increase in their revenue collections. Fore example, the Greater Hyderabad Municipal Corporation reported collecting about ₹1.6 billion (US$22 million) in cash payments of outstanding and advance taxes, within first four days of demonetisation.[205]

Other

Human trafficking

Nobel laureate Kailash Satyarthi and others working to fight human trafficking said that the demonetisation had led to a huge fall in sex trafficking, but that the trade had already begun rebounding by the following month.[206] Satyarthi said the demonetisation would be effective in combating exploitation of children as well as corruption and would be a great obstacle to traffickers.[207] However, two months later he expressed his disappointment on ₹2000 banknotes being pushed into human trafficking in absence of other concrete steps.[208]

Radical groups

Demonetisation had badly hit Maoist and Naxalites as well. The surrender rate has reached its highest since demonetisation was announced. It is said that the money these organisations collected over the years have now lost their value making them take such a decision.[209]

The move also reportedly crippled Communist guerrilla groups (Naxalites) financing through money laundering.[210][211] On 10 November the police arrested a petrol pump owner at Ranchi when he reportedly tried to deposit ₹2.5 billion, belonging to a person affiliated with the banned Communist Party of India (Maoist).[212] According to Chhattisgarh Police demonetisation has affected the Naxalite activities. It is reported that insurgents have stashed more than ₹70 billion in the Bastar region.[211][213][214]

Deaths

Several people were reported to have died from standing in queues for hours to exchange their demonetised banknotes.[215][216][217][218][219][220] Deaths were also attributed to lack of medical help due to refusal of demonetised banknotes by hospitals.[221][222][223] As of 15 November 2016, the attributed death toll was 25.[224][225][226] and 33 deaths as of 18 November. In an interview, Chief Minister of Delhi Arvind Kejriwal lashed out at a BBC reporter who asked him to justify his 19 November claim that 55 deaths were linked to demonetisation.[227] By the end of the year, opposition leaders claimed that over 100 people had died due to demonetisation.[228][229][230] In March 2017, the government stated that they received no official report on deaths connected to demonetisation.[231]

People left with demonetised banknotes

The government had initially announced that any person who is unable to deposit the demonetised banknotes by 31 December 2016 would be given an opportunity to do so until a later date.[2] However, the government allowed only Non-Resident Indians (NRIs) to deposit demonetised banknotes after 31 December 2016.[232] As a result, many people with legitimately earned demonetised banknotes were left stranded with it. This included housewives with hidden savings,[233] soldiers who were on duty during the demonetisation period,[234][235] people who had suffered a bereavement,[234] and persons who had demonetised banknotes received as wedding gifts before the demonetisation.[236] Many people found small amounts of currency stashed away inside quilts, pillows, cupboards, lockers, behind old photographs and wall hangings, in some cases by family members who had died.[234][236][237] In one case, two destitute orphans found ₹ 96,000 left by their mother and petitioned the Prime Minister for relief.[238][239] A poor woman who was unable to get her demonetised banknotes exchanged stripped outside the RBI office in desperation.[240][241][242] OCIs and PIOs were also not allowed to exchange demonetised banknotes.[243] People petitioned the courts to allow deposit of the demonetised banknotes.[244] The Supreme Court of India also questioned the government on this matter.[245][246]

Nutrition

Mid-day meal workers, whose wages were unpaid for months were unable to procure loans for the purchase of essentials like vegetables, oil, tamarind, dal and firewood in Karimnagar, Telangana.[247] Other places where mid-day meal schemes were affected included Tekkatte, Karnata,[248] Amritsar, Punjab[249] and Nagpur, Maharashtra[250] among others. Journalist, P. Sainath said there was an irreversible loss to the health of children in these areas because of the demonetisation.[251][252]

Migrant Workers

Migrant labourers in Kerala continued to be paid in demonetised currency, and as a result went hungry. They also lost precious work hours because they had to stand in ques to exchange money at banks. At banks, many labourers faced harassment from officials. Even after exchange, many were unable to buy essentials from shops which refused their Rs. 2000 denomination notes.[253]

Migrant workers in Gujarat's jewellery industry were left jobless by the slowdown in the local economy dues to demonetisation. This included jewellery workers in Ahmedabad and Rajkot, diamond workers and manmade fibres in Surat, ceramic industry workers in Morbi, brass workers in Jamnagar and shipbreaking workers in Alang.[254]

Evasion attempts

A jewellery store in a shopping mall with a notice "We accept ₹500 and ₹1000 notes", even after they were no longer valid banknotes.

Gold purchases

In Gujarat, Delhi and many other major cities, sales of gold increased on 9 November, with an increased 20 to 30% premium surging the price as much as ₹45,000 (US$630) from the ruling price of ₹31,900 (US$440) per 10 grams (0.35 oz).[255][256]

Income Tax officials raided multiple branches of Axis Bank and found bank officials involved in money laundering acts, exchanging demonetised banknotes for gold.[257][258][259]

Donations in temples

In India, the cash deposited into hundis, or cash collection boxes in temples and gurudwaras are exempted from inquiry by the tax department.[260] This exemption is sometimes misused to launder money.[261] After the demonetisation, there was a spike in donations in the form of the demonetised banknotes in temples.[262][263][264] Authorities of Sri Jalakanteswarar temple at Vellore discovered cash worth ₹4.4 million (US$61,000) from the temple hundi in the form of demonetised banknotes[265]

Multiple bank transactions

There have been reports of people circumventing the restrictions imposed on exchange transactions by conducting multiple transactions at different bank branches and also sending hired people, employees and followers in groups to exchange large amounts of demonetised banknotes at banks.[266][267]

Railway bookings

As soon as the demonetisation was announced, it was observed by the Indian Railways authorities that a large number of people started booking tickets particularly in classes 1A and 2A for the longest distance possible, to get rid of unaccounted cash. A senior official said, "On November 13, 42.7 million passengers were nationally booked across all classes. Of these, only 1,209 were 1A and 16,999 for 2A. It is a sharp dip from the number of passengers booked on November 9, when 27,237 passengers had booked tickets in 1A and 69,950 in 2A."[268]

The Railways Ministry and the Railway Board responded swiftly and decided that cancellation and refund of tickets of value ₹10,000 and above will not be allowed by any means involving cash. The payment can only be through cheque/electronic payment. Tickets above ₹10,000 can be refunded by filing ticket deposit receipt only on surrendering the original ticket. A copy of the PAN card must be submitted for any cash transaction above ₹50,000. The railway claimed that since the Railway Board on 10 November imposed a number of restrictions to book and cancel tickets, the number of people booking 1A and 2A tickets came down.[268][269]

Backdated accounting

The Enforcement Directorate raided several forex establishments making back dated entries.[270] Money laundering using backdated accounting was carried out by co-operative banks,[271] jewellers,[272] sellers of iPhones,[273] and several other businesses.[274]

See also

References

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  233. ↑ "India's 'desperate housewives' scramble to change secret savings". BBC News. 2016-11-11. Retrieved 2018-06-29.
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  238. ↑ "Rs 96,000 in old notes found at locked home, orphans write to PM Modi". The Indian Express. Retrieved 26 June 2017.
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  255. ↑ "Gold price recovers on renewed demand". Hindustan Times. 10 November 2016. Retrieved 10 November 2016.
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  258. ↑ "ED registers case against fake account holders in Axis Bank's Noida branch - Latest News & Updates at Daily News & Analysis". 17 December 2016.
  259. ↑ "Axis Bank raided again, Rs 89 crore in 19 suspicious accounts found in Ahmedabad branch". 22 December 2016.
  260. ↑ "Rs 500/Rs 1000 demonetisation: Temple money from hundis not to come under scanner". 10 November 2016.
  261. ↑ "13 Ways In Which Indians Will Convert Their Black Money Into White Even After Demonetisation".
  262. ↑ "Demonetisation: Temples across India receive high currency notes as donations". 18 November 2016.
  263. ↑ "Religious places getting over the 'demon' of note ban - Times of India".
  264. ↑ "Rush to offer Rs 500, Rs 1000 donations at Puri Temple - Times of India".
  265. ↑ "Defunct notes worth Rs. 44 lakh found in temple hundi". The Hindu. 14 November 2016.
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  267. ↑ "Demonetisation: In Chennai, To beat cash limit, they send full teams to bank". The Indian Express. 15 November 2016.
  268. 1 2 "Rlys sets 5000 as cash refund limit for tickets". Retrieved 15 November 2016.
  269. ↑ "Railways say, no cash refund for tickets booked between Nov 9-11". Retrieved 15 November 2016.
  270. ↑ "Enforcement Directorate raids forex shops making back date entries". The Economic Times. 16 November 2016.
  271. ↑ "Netas using co-op banks for backdated FDs, DDs - Times of India".
  272. ↑ "Jewellers issue backdated invoices to clients - The Economic Times".
  273. ↑ Rathi, Pranshu. "Back-dated receipts used for Apple iPhone sales after demonetisation: Report".
  274. ↑ "Tiffin service to dental implants: All tried to beat system, swap old notes". 5 December 2016.
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