Tuesday Night, 8 November, at 8PM local time President Modi made a drastic, brave and rather unusual announcement: by midnight that same evening the existing 500 INR and 1,000 INR notes would no longer have any value - that's right - within 4 hours of his speech 80% or more of India's cash would become worthless. You have to realize that these are the 2 biggest denominations and are worth EUR6.5 / 13 respectively. The only valid bills we are left with for now are the INR 100, 20 and 10 notes which are worth EUR 1.30 / 0.26 and 0.13.
Modi won his campaign on the back of a promise to fight corruption in India and pursue the millions of people in India who avoid paying Taxes. Actually - only about 1.6% of people in India file a tax return (which includes all us expats otherwise we do not get a Stay Visa), and only 1% in reality pays any taxes. Much of India's cash is not actually in circulation and stashed away - in recent months circulation in cash has increased by 15% which is huge. With elections coming up Modi and his team are concerned. Also in recent months there have been a few high profile raids, like one where 43 Crore (430 Million INR = EUR 10 Million) was found in cash in the office of a business group that runs one of the biggest Hospital training institutes and associated businesses in Bangalore. There is the belief that Pakistan is printing more (fake) rupees then India at the moment etc etc
To fight corruption, the black market and tax evasion it is safe to say that drastic measures are needed. So without the story having leaked much more then a few hours in advance at best - the announcement came that all existing larger currency would be withdrawn.
We all expected chaos - with the economy working on Cash only for the majority still - and despite the below clarifications we did not have our hopes up as expats here......
BUT - no chaos yet. ATMs have no new bills yet, with a smile, a heated argument and Indian flair toll roads let you through for free or take your 'old' money. People appear to have faith they will get their money back eventually, shops offer credit and issue funny marketing campaigns, Ola cabs has its own currency now - all virtual etc etc.
It is going to be painful still as there will not be enough currency for all and a major switch for many to electronic payments is needed. For people like our maids and nannies that is tough. There will be long queues at banks & post offices and there will be those who will benefit from those who do not understand or are stuck without the right cash for transport etc. But all in all - 48 hrs in I am starting to believe this may pan out.
Those with large cash stashes can come and exchange their money, or rather =, deposit it - larger amounts will be duly taxed there and then. BUT - without prosecution - so the first people with multiple Crores (10 Million Rupee) to deposit have come forward - cutting their losses. No doubt the exchange period will cost the country money & productivity, however no doubt - the ultimate yield will be huge. And it will take some time for the black market to be up and running again in the new system.
Lets see if India can down on the corruption Index more places in the next twelve months then America will go up (especially under President Trumps exemplary subject of tax evasion -;)
Never a dull day in India! Where else in the world would anyone have the guts to declare all money worthless overnight? Where else would all banks & ATMs close like that for 48 hrs without warning without the country erupting in chaos, where else would anyone try to exchange almost 130 Billion EUR in bank notes in such a short period (= equivalent of over 9 trillion 1000 INR notes, more if converted in 500 INR notes too), where else would a government be able to decide that everyone MUST en masse convert to electronic payment as with the 2000 and 4000 limits nothing can operate - we both would have to withdraw cash daily and still could not complete all cash transactions we have today per month - and we are very high on the scale of have digitized our payments and financial transactions in this country.
We will keep you posted!
