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Demonetization in India
The Government of India, demonetized the Rs. 500/- and Rs. 1,000/- currency notes in India on Nov 08 2016. This phenomenon is not new to India. Demonetization in done in 1948 and next in 1978. The main objective of it in 1948 is to obtain additional tax revenue from tax evasion and in 1978 it is done to control hoarding of agricultural commodities using illegal (black) money.
This time the main objective is to eradicate the black economy, fake currency notes, and currency causing problems to national security. Currency with denomination Rs. 500/- and Rs. 1000/- are demonitized, the highest denomination currency in circulation. Earlier even bigger currency (Rs. 1000/-, Rs. 5000/- and Rs. 10,000/-) were demonitized.
A summary of the scheme is as follows
- Rs. 500/-, Rs. 1000/- denominations in circulation will cease to be legal tender after Nov 09 2016.
- The currency cannot be accepted or paid for any transaction starting from that date.
- Every person can deposit the currency in his possession, in his / her bank account till December 31st of 2016.
- For small temporary needs a person can exchange demonetized tender into valid currency by providing valid identity proof, upto a limit of Rs. 4,000/-. This limit is increased to Rs. 4,500/- and later reduced to Rs. 2,000/-.
- Exchange of Currency is a one time facility offered till 31st December 2016.
- Restrictions were placed on how much people can withdraw from their bank accounts. A weekly cap of Rs. 24,000/- for individuals (saving accounts), Rs. 50,000/- for business (current accounts) is presently applicable.
- Government has given exemptions, as to where old denominations can be used in essential sectors like hospitals. We will go into detail in upcoming article.
- Owing to the problem of congestion in the banks for withdrawal of money, Government also allowed people to withdraw money from select Point of Sales outlets like petrol bunks, supremarkets, where one can swipe their debit card and withdraw money.
We will see the merits and demerits of the demonitization in upoming articles.