Prime Minister Narendra Modi yesterday announced that Rs500 and 1,000 banknotes would be withdrawn from circulation immediately, saying it was part of a crackdown on rampant corruption and counterfeit currency.
The surprise step appears designed to bring billions of rupees worth of cash in unaccounted wealth into the mainstream economy, as well as hit the finances of militants who target India and are suspected of using fake Rs500 notes to fund operations.
“Black money and corruption are the biggest obstacles in eradicating poverty,” Modi said in an address to the nation.
New Rs500 and 2,000 denomination notes will be issued at a later date, he added.
Reserve Bank of India Governor Urjit Patel and Economic Affairs Secretary Shaktikanta Das later said said the central bank will launch new Rs500 and Rs2,000 notes from tomorrow.
Das revealed that the new Rs500 note would bear the image of Delhi’s iconic Red Fort while the new pink Rs2,000 note would have India’s Mars orbiter “Mangalyaan” on it.
Modi said that although the existing notes would be “worthless”, members of the public would be able to exchange them for new notes at banks until the end of the year.
Hospitals and transport operators would continue to accept old Rs500 and 1,000 notes for payment for the next 72 hours.
They would also be accepted at gas stations run by public sector oil companies, and at milk booths, crematoriums and burial grounds.
ATMs and banks would be closed today and tomorrow the prime minister added.
He also said that ATM withdrawals will be restricted to Rs2,000 per day till November 11, after which the limit may be increased slowly.
Withdrawals from bank accounts will be limited to Rs10,000 for the first few days, he said.
Modi’s ruling Bharatiya Janata Party came into power in 2014 promising to bring billions of dollars of black market money into the regular financial system.
Critics said it had failed to deliver on that promise.
Yesterday’s announcement comes just over a month after the government raised nearly $10bn through a tax amnesty for Indians to declare hidden income and assets.
A report by Washington-based think-tank Global Financial Integrity estimated that India lost $344bn in illicit fund outflows between 2002 and 2011.
Modi also said militants operating against India were using fake versions of the Rs500 note, worth about $7.50 at current exchange rates.
“Terrorism is a frightening thing. But have you ever thought about how these terrorists get their money? Enemies from across the border have run their operations using fake currency notes. This has been going on for years,” Modi said.
Some officials and experts said yesterday’s move was the biggest in decades aimed at fighting graft.
“It is like a surgical strike on black money,” said Revenue Secretary Hasmukh Adhia.
BJP president Amit Shah backed the government’s decision, saying it will help in eliminating corruption.
“PM @narendramodi has yet again demonstrated his unwavering commitment to promises he made to people of India,” Shah tweeted within minutes of Modi concluding his address to the nation.
“PM @narendramodi ji’s decision to discontinue Rs500 and Rs1000 rupee note will immensely help in eliminating the corruption.
“Let us all support PM @narendramodi in his efforts & together nurture a nation that we all are proud of. I once again congratulate him,” he said.
“Announcements made by PM @narendramodi are exactly what is needed to uproot corruption, black money, hawala & fake currency rackets.
“On behalf of all BJP Karyakartas, I compliment the Central government and PM @narendramodi for taking tough but timely and path-breaking measures,” he posted.