In what is being called the biggest crackdown on the black money business in the country, Indian Prime Minister Narendra Modi announced that 500 and 1,000 rupee banknotes would be withdrawn from circulation at midnight to crack down on rampant corruption and counterfeit currency.
A historic step to fight corruption, black money and terrorism. pic.twitter.com/CpsUA68rQm— Narendra Modi (@narendramodi) November 9, 2016
Thank you. All of us have to work shoulder to shoulder and create a prosperous, inclusive and corruption free India. https://t.co/3rurQwFYja— Narendra Modi (@narendramodi) November 9, 2016
The surprise move was intended to bring billions of dollars worth of cash in unaccounted wealth into the mainstream economy, as well as hit the finances of militants who target India and are suspected of using fake 500 rupee notes to fund operations.
"The evil of corruption has been spread by certain sections of society for their selfish interest. They have ignored the poor and cornered benefits. Some people have misused their office for personal gain. On the other hand, honest people have fought against this evil. Crores of common men and women have lived lives of integrity. We hear about poor auto-rickshaw drivers returning gold ornaments left in the vehicles to their rightful owners. We hear about taxi drivers who take pains to locate the owners of cell phones left behind. We hear of vegetable vendors who return excess money given by customers," said Prime Minister Narendra Modi in his speech to the nation.
Apart from corruption, another great driving force behind this action has been terrorism.
Modi stated militants operating against India were using fake versions of the 500 rupee note, worth about $7.50 at current exchange rates.
"Terrorism is a frightening thing ... But have you ever thought about how these terrorists get their money? Enemies from across the border have run their operations using fake currency notes. This has been going on for years," Modi said.
"There comes a time in the history of a country's development when a need is felt for a strong and decisive step. For years, this country has felt that corruption, black money and terrorism are festering sores, holding us back in the race towards development," he added.
However, the Congress and the Trinamool Congress (TMC) have criticized the action saying while they welcomed any move to check black money, this action will hit small traders, small businessmen, and the common man celebrating festivals and weddings.
The economists agree the move could impact small and medium-sized enterprises that contribute to nearly 40 percent of India's economy and are largely run on cash transactions.
"This is not a good step for business. The prime minister did not think about people like us," says Delhi taxi driver Anu Choudhury, whose boss called to say he should not accept 500 or 1,000 rupee notes from customers.
The action came as a surprise to even the head of a state-run bank who said the institution was not fully prepared for the change.
"This is news for us also. I'm not aware how much stock we have in our chest. The Reserve Bank will have to provide us with required cash to meet the demand. The demand will be very high no doubt," said the bank chief, who did not want to be named as he was still awaiting details.
Government data show circulation of current notes has outpaced the expansion in India's economy.
The head of the country's largest government-owned lender, State Bank of India, said she had just been advised about the government's decision.
"We have handled demonetization earlier and will do so again. Tomorrow banks will remain closed in order to withdraw these notes from counters and ATMs. We will strive to restock ATMs at the earliest and make them operational," said chairman Arundhati Bhattacharya.
But overall there is a pretty positive response from people — at least online:
Historic day! Beginning of RISE of India with this war on black money AND DOWNFALL of USA with Trump win #ModiFiFightsCorruption— Amit Mohan (@amitm01) November 9, 2016
Black President out from USA— Ajay Kadian (@AjjayKadian) November 9, 2016
Black Money out from India ;) :)
Cancelling 500/1000 notes strong blow to cancer of corruption that ails our society. India proud to have PM who walks the talk @narendramodi— Sukhbir Singh Badal (@officeofssbadal) November 8, 2016
Modi's ruling Bharatiya Janata Party came into power in 2014 promising to bring black market money into the regular financial system, but critics said it had failed, with government data showing the cash economy outpacing the formal economy.
The newly elected government announced the formation of a Special Investigation Team (SIT) to probe black money, mostly stashed abroad. In 2015 they followed it up with the Black Money (Undisclosed Foreign Income and Assets) Act to further tap black money abroad. But the popular refrain among experts was that the government should focus on the domestic black money since the foreign black money would have gone places by now.
In 2014 came the world’s biggest financial inclusion scheme: the Jan Dhan Yojana, under which, till 2nd November 2016 almost 25.50 crore bank accounts were opened. This scheme brought a huge number of people so far untouched by the banking sector, into the banking net.
Then in 2016 the Income Declaration Scheme of the Income Tax Department gave people one last chance to come clean, pay taxes at a slightly concessional rate
In September 2016, Modi warned, “No one should blame me if I take tough decisions after the 30th (of September).”