India Raises Cap on Bank Cash Withdrawal to Ease Public Anger

PAPER MONEY: Bank employees count old 500 Indian rupee banknotes inside a bank in Jammu

(REUTERS) India announced new measures on Monday, November 14, to ease the cash crunch faced by millions after the government’s decision last week to abolish large denomination notes to try and uncover billions of dollars in undeclared wealth.

The government will install new micro cash machines across the country and has asked banks to waive off transaction charges on debit and credit cards, Economic Affairs Secretary Shaktikanta Das told reporters.

Das said the government would also raise the cash withdrawal limit of at least three-month old current accounts to 50,000 rupees ($739) per week and said recalibrated cash machines would start dispensing new 2,000 rupee notes within two days.

Large crowds of Indians have gathered outside banks in recent days but struggled to withdraw money or swap the old 500 and 1,000 rupee notes that were banned last week on a short notice.

India’s government increased the limit on cash withdrawals from bank accounts on Sunday to calm public anger as millions of people clamored for new rupee bills after a shock abolishment of large denomination notes.

Large crowds were again gathered at banks across the country trying to change 500 and 1,000 rupee bills, demonetized by the government on Tuesday, in an effort to crack down on corruption.

Indian banks received 3 trillion rupees ($44.4 billion) of 500- and 1,000-rupee notes over the last four days, the Finance Ministry said in a statement, in a surge in liquidity in the banking system. Short term interest rates are expected to fall as a result.

Meanwhile, Indians are inventing ingenious ways to try and hide their money from the tax inspector, as the government attempts to flush out vast undeclared wealth by abolishing high denomination bank notes.

The shock announcement by Prime Minister Narendra Modi on Tuesday gave people only a few hours to spend or deposit 500 and 1,000 rupee bills before they were abolished, although plans are in place to allow a more gradual conversion to new notes.

Those plans involve depositing old bills in bank accounts, however, where they can be seen and analyzed, and, as millions of Indians scramble to convert savings using this method, some with piles of so-called ‘black money’ are looking for loopholes.

Other unusual methods of exchanging cash are appearing on social media.

One tweet described how people were paying agents for expensive first-class train tickets with old bills and then cancelling them later to get reimbursed in new notes, all in order to get around the tax man.

State-run Indian Railways was one of the few places still allowed to accept the old notes until Friday.

Anil Kumar Saxena, spokesman for Indian Railways, said ticket purchases for first class, air-conditioned compartments, the most expensive category, had surged.

We usually sell about 2,000 tickets every day, he said.

The day after the demonetization measures were announced, that rose to 27,000, Saxena added.

Officials have caught on to some schemes.

The railways will refund tickets worth over 10,000 rupees booked on November 9, 10, and 11, but not in cash.

It will be done by check, or electronically, Saxena said.

A jeweler in Mumbai said he stopped accepting cash payments after someone he believed to be a revenue official lingered outside his shop.

Jewelers stayed open into the early hours of Wednesday, and one well-placed industry source in Mumbai estimated that about 250 kg of gold, worth an estimated 750 million rupees at spot prices, was sold in the city within a few hours of the ban.

The source said jewelers were paid anywhere between 20 and 65 percent above the going rate by buyers snapping up the precious metal with old notes.

Meenakshi Goswami, Commissioner of Income Tax, underlined how hard it was for the authorities to detect such activity.

Iím not aware of anything going on, she told Reuters.

But (the) income tax (department) can’t be sitting in the marketplace unless there is a specific complaint.


The problem of the shadow, or black economy in India is pernicious. Transactions that take place outside formal channels amounts to around 20 percent of India’s annual $2 trillion gross domestic product, according to investment firm Ambit.

Shrinking it is a major objective for Modi, who is trying to get more money into tax coffers.

India’s tax revenue as a percentage of its GDP was 16.7 percent in 2016, compared with 25.4 percent in the United States and 30.3 percent in Japan.

Macquarie estimated the government could raise $30 billion in additional tax revenues from its scheme to withdraw higher-denominated bills, enough to significantly reduce India’s fiscal deficit, which in the previous year stood at around $80 billion.

Modi’s administration also implemented a tax amnesty scheme that brought in nearly $10 billion in undeclared income, while regulators are also trying to target unreported accounts overseas.

Bringing money into the legal economy without declaring it is proving tough.

A senior citizen in Mumbai with around 500,000 rupees in undeclared cash told Reuters she split up the amount and opened bank accounts for four of her domestic workers.

Others say they are asking cousins, employees, and senior citizens for help to exchange the cash in the hope that it attracts less attention.

For smaller sums, there are ways to change the money, a partner at an investment firm told Reuters.

But for large amounts, like 400 million (rupees) and up? I’ve tried looking. I have not found a way. Modi really is serious about black money.

On the other hand, retailers and wedding planners say they have been inundated with frantic calls from people looking to bring forward large-item purchases from anyone willing to accept the old notes.

In Mumbai, a senior marketing executive at an event management company that organizes large weddings has witnessed the scramble, and said his firm was debating whether to accept payment in the old money.

Like many others, he was unwilling to be quoted by name when discussing his customers’ requests.

It has been a stressful day. Wedding clients are going mad, he said this week. One client called and said: “I’ll give you 30 million rupees ($450,000) in (old) 1,000 rupee notes. There is loads of black money.”

That amount is not unusual for a wealthy Indian family’s wedding celebrations.

Others are looking to line up friends, domestic staff, and even senior citizens who are prepared to legally exchange the cash in small enough chunks to avoid scrutiny from banks.

Simply stepping forward and declaring the money is not an appealing option for tax dodgers, as banks have to report to tax authorities anybody depositing over 250,000 rupees ($3,765).

Being found to be holding undeclared cash can lead to a penalty of 200 percent of the tax owed.


The government relaxed cash withdrawal limits including removing a per-day cap of 10,000 rupees, increasing the weekly limit to 24,000 rupees from 20,000 and allowed exchange of bills over the counter at banks to reach 4,500 rupees instead of 4,000.

The move to demonetize the large bills is designed to bring billions of dollars’ worth of cash in unaccounted wealth into the mainstream economy, as well as dent the finances of Islamist militants who target India and are suspected of using fake 500 rupee notes to fund operations.

The banned rupee notes made up more than 80 percent of the currency in circulation, leaving millions without cash and threatening to bring much of the cash-driven economy to a halt.

The Reserve Bank of India said last week that small denomination currency notes were available with both the central bank and with other lenders.

People “need not be anxious” and should not hoard bank notes because cash is available when they need it, the RBI said in a statement. It also asked banks to provide details of cash withdrawn and exchanged daily, in contrast to fortnightly, to provide a better idea on circulation.

The measures came as people complained of lack of access to their accounts despite hours of waiting at banks as well as over the non-functioning of tens of thousands of ATMs not yet reconfigured for the new series of smaller-sized 2000 rupee bills.

Prime Minister Modi, facing criticism from opposition groups for putting ordinary people into difficulties, promised further steps to rid the country of graft.

“I know the forces up against me, they may not let me live, they may ruin me because their loot of 70 years is in trouble, but I am prepared,” he said in a speech in western seaside resort of Goa.

The decision to demonetize the high value notes was planned in secrecy over the past 10 months, he said.

Modi came to power in 2014 with a mandate to boost economic growth and fight the corruption that taints large parts of India’s political and business life.

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