Demonetisation Journey: Rule Changes During Implementation

Economics Featured

The demonetization drive had lead to a slow, snail-paced transition to cashless transactions. Meanwhile, here is a chronological document of the demonetization drive in December 2016:

Dec 1-Dec 7

Use of old 500 notes ceases at petrol pumps and airline ticket counters. Market stabilization bonds limit raised to 6 tln rupees (for imbibing additional liquidity). Previous order to banks for placing deposits under cash reserve ratio withdrawn.

Nov 25-30 

Old currency notes now allowed to be exchanged at RBI branches. Tourists can exchange foreign currency worth Rs 5000 on a weekly basis until Dec 15. Tax amnesty announced for unreported cash. About 50% of this cash charged with surcharges and taxes. Unreported money deposited in an interest free deposit for 4 years. Deposits above Rs 24,000 made in legal tender allowed. Withdrawals in new Rs 2000 and Rs 500 notes permitted. Monthly withdrawal rules on Jan Dhan accounts tightened.

Nov 22 – 24

Rs 20,000 balance in cards and prepaid wallets instead of Rs 10,000 until Dec 30.Monthly card transactions limits set at Rs 20,000 instead of Rs 10,000 till Dec 30. NABARD (National Bank for Rural Development) directed to roll out crop loans worth Rs 230 billion. Rs 210 billion offered to farmers in farm credit. Counter exchange of old notes discontinued. Only deposits permitted. Pensioners and armed forces assured of ample cash supply. Use of old 500 rupee notes allowed for some time at hospitals and tolls.

Nov 17 – 21

Farmers allowed to withdraw Rs 25000 (as opposed to crop loans). Over-the-counter note exchange limit cut to Rs 2000 (from Rs 4500). Maximum withdrawal of Rs 250,000 allowed for wedding-related expenses. Small-time borrowers permitted 60 more days. This was to occur before loans up to Rs 10 million were marked substandard. Old Rs 500 notes can be used by farmers to buy seeds.

Nov 11 – 15

Payment deadline extended via old notes . Weekly cash withdrawal limit increased from Rs 20,000 to Rs 24,000. Per day withdrawal limited to Rs 10,000. Old 500 and 1000 rupee notes could be exchanged up to Rs 4500 (from Rs 4000). ATM transaction fees on savings accounts waived until Dec 30. Daily withdrawal limits set to Rs 2500 (from Rs 2000). Deadline for old notes extended for limited time. This included petrol pumps. Government recommended use of indelible ink to ensure single exchange of old notes.

Jan 1-2017

Withdrawal limit again increased to Rs 4500 per day and Rs 24000 per week.

Amid all these changes, some people were cribbing about the frequent changes in the rules and daily withdrawal limit. But we need to understand that considering our huge population and percentage of higher denomination notes in the circulation, inconvenience was bound to happen. Still government was very proactive and ready to tweak the rules as per the feedback in order ease the pain of the people and at the same time not keeping any loopholes for back money holders. After two months the lines outside ATM and banks has reduced considerably and normal business is coming back to normalcy. Lets hope everything will be on track in new few weeks.

Watch this space for subsequent blogs on demonetisation.

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