Thursday 10: India awoke yesterday to the news that overnight prime minister Modi had declared all higher-value paper money notes to be no longer valid. This is a bold strike at India's huge "black money" economy, the huge volume of business which is conducted in cash and not declared as taxable income. Millions of indians are believed to have huge sums of money in cash, on which they have never paid tax. The government has allowed 50 days for people to take the old paper notes to banks and deposit them or change them for new notes.
This means that if you have millions of rupees under your bed, they will be completely worthless unless you take them to a bank and deposit them. When you do the bank will ask for details of where the money came from, to determine if it is "white money" or "black money". If they conclude it is black you will pay large penalties (a shopkeeper told us this could be 45%) for unpaid taxes. Millions of holders of black market cash face a grim choice.
As an example of the cash economy our bed and breakfast in Delhi only wanted payment in cash, so we paid him about 90,000 rupees in notes!
In the meantime many traders have suddenly stopped accepting the 500 and 1,000 rupee notes, because they may never be able to get rid of them. The smaller notes are in huge demand and there are not enough to go around, so even if shops accept 500 Rs notes, they will not give change. This means small notes are suddenly much more useful, so the system of tipping everyone you meet with small notes is breaking down.
Today the banks opened for the first time since the announcement, so every bank we passed had a huge queue outside which lasted all day. Tomorrow the ATMs will start working again, stocked with the new notes but with a limit of 2,000 Rs (4$NZ40) per day!
We ourselves were also caught carrying a fair amount of money in 500 and 1,000 rupee notes (these are about the same as $NZ10 and $NZ20 notes), so have been wondering what we were going to do.
Fortunately today we were taken to a place where they polish and cut gemstones. We discovered this place would take the problem notes, so managed to get rid of almost all of them there (by spending them). And Sue now has a nice ruby pendant!
This means that if you have millions of rupees under your bed, they will be completely worthless unless you take them to a bank and deposit them. When you do the bank will ask for details of where the money came from, to determine if it is "white money" or "black money". If they conclude it is black you will pay large penalties (a shopkeeper told us this could be 45%) for unpaid taxes. Millions of holders of black market cash face a grim choice.
As an example of the cash economy our bed and breakfast in Delhi only wanted payment in cash, so we paid him about 90,000 rupees in notes!
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| A third of the cash we used to pay the guesthouse bill |
Today the banks opened for the first time since the announcement, so every bank we passed had a huge queue outside which lasted all day. Tomorrow the ATMs will start working again, stocked with the new notes but with a limit of 2,000 Rs (4$NZ40) per day!
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| One of the many queues we saw outside Jaipur banks |
Fortunately today we were taken to a place where they polish and cut gemstones. We discovered this place would take the problem notes, so managed to get rid of almost all of them there (by spending them). And Sue now has a nice ruby pendant!
