Rs 1000 and 500 notes become history in Modi’s war on black money

Prime Minister Narendra Modi announced the abolition of Rs 1000 and Rs 500 currency notes on Tuesday, in a dramatic late evening move aimed at stamping out corruption and illicit funds from the economy.

Modi said in a surprise televised address to the nation that a window will be made available from Thursday till December 30 to exchange the existing notes of 500 and 1000 denomination at banks.

He also announced a window of 72 hours from Tuesday midnight for use of existing notes in select places like hospitals, crematoriums and to buy air, rail and bus tickets.

The Reserve Bank of India (RBI) will issue a new set of currency notes of Rs 2000 and Rs 500, with a completely new design, later. There will be no restrictions on online banking or transactions using debit or credit cards. 

“In a country’s history there come some moments when every person feels he too should be a part of it. We have an opportunity when every citizen can join this mega mission,” he said, calling the move an “Imandari ka Utsav”, or celebration of honesty.

“When you go to buy house, you are told some money will be taken in cash. Due to corruption, there is artificial inflation of prices,” he said, explaining why the step was taken.

The unexpected move could help bring billions of dollars worth of cash in unaccounted for wealth into the mainstream economy. It also is an attempt by Modi to fulfill his election promise of curbing tax evasion and recovering illegally stashed incomes overseas.

India was ranked 76th among 168 countries in Transparency International’s 2015 index on corruption, which is estimated to cost the country 1-2% of gross domestic product every year.

Fake currency notes are also a problem.

Modi said there was a proposal for new notes of 5,000 and 10,000 denominations, but it was not accepted by the RBI.

Although new notes of high denomination will be introduced, the overall limit of such notes in the economy will be curtailed from the present level of 80-90%.