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Govt of India Bans Rs500 & Rs1000 Notes to Fight Black Money - Impact and Analysis

Posted in Finance Articles, Total Reads: 3457 , Published on November 09, 2016

The Govt of India has banned the use of currency notes of Rs500 and Rs1000 denomination with immediate effect from midnight 9th November 2016. This is seen as a strong move by the Govt in order to curb the use of black money, which has been an issue since a very long time in India.

The move by the govt to ban 500 and 1000 rupee notes is being seen as a big step in the process of curbing corruption and black money. The announcement to such effect came after the Banks had closed their branches and most of them filled the ATMs. This left no scope for people to exchange their 500 and 1000 rupee notes for the smaller denominations.

The Government would be issuing new Rs2000 and Rs500 notes.

The seriousness of the govt to end the black money menace can be seen by the fact that the prime minister himself made this announcement.

How curbing the notes can help curb the black money?

Let us analyse how the govt looks at this move to end the black money problem. Historically it has been seen that black money circulates in denominations of 1000 and 500. This is because it is easier to carry large amount of money in such denominations. So, whosoever has these notes which are not accounted for, will not be able to use them from 9.11.16 onwards. Thus, how much ever "money" the person has, it is of no economic use. He can use it during winters to warm himself, but certainly not for any exchange transaction purpose.

The govt has given a timeline to exchange this money at Bank counters for new series. But, the person going for exchange has to provide his identity etc. Thus, the govt becomes aware about everyone exchanging the money. Moreover, there has been a limit to the amount that can be exchanged per day. Thus, its almost impossible to convert all the black money to white money.

This step will certainly cause a lot of inconvenience to innocent public at large. Therefore, the govt has allowed to use these old notes at hospitals, railways etc for a limited period of time.

What to do with existing Rs500 and Rs1000 notes:

1. Deposit old notes of Rs 500 and 1000 in banks or post offices between November 10 and December 30, 2016.

2. Those who are unable to, can exchange notes till March 31, 2017 at specified RBI offices after furnishing proper declaration.

3. There will be an initial limit of Rs 10,000 per day and Rs 20,000 per week on withdrawal of money. This limit is to be increased soon.

4. ATM withdrawal limit of Rs 2000 per day per card initially and this will be later raised to Rs 4000 per day

5. Exchange of old notes for cash upto a limit of Rs 4000 possible at any bank or post office by producing valid ID proof.

6. Rs500, Rs 1000 notes will be accepted at hospitals, drug stores till November 12.

7. Arrangements have been made at airports so that travellers entering/leaving the country are not inconvenienced.

8. No restriction on non-cash payments including transactions by cheques, demand drafts, electronic fund transfers, debit and credit cards.

The laying down of the guidelines on a short notice and with immediate effect has sent ripple across the length and breadth of the country. From wealthy businessmen to a vendor to a taxi-walla, this would impact each and every Indian citizen. However, only time will tell how effective this method would be in curbing the black money from coming into circulation. As of now, this is a master stroke by the Govt which has caught everyone by surprise.


Reserve Bank of India website

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