Temples and mosques urged to deposit their cash donations in order to ease the cash crunch

Banks will use indelible ink to ensure that people only change old notes for new ones once under Prime Minister Narendra Modi’s scheme to fight “black money,” resorting to a tactic used to prevent multiple voting in elections.
The step comes a week after Modi ordered the withdrawal of large denomination banknotes from circulation, in a shock “demonetisation” drive to fight tax evasion, corruption and forgery.
The government only gave people a few hours notice before cancelling old Rs500 and Rs1,000 banknotes that accounted for 86% of cash circulating in Asia’s third-largest economy.
The sudden move has caused huge disruption to daily life, especially for poor people who live in the cash economy.
There were lengthy queues at banks across the country as people waited in hope that cash dispensers would be refilled.
But people going about their daily business in New Delhi and Mumbai said they were willing to put up with the hassle - as long as it doesn’t last too long.
Hari Kishan, who runs a clothing stall in Delhi’s bustling Karol Bagh district, said his business normally turns over up to Rs60,000 ($900) a day but was making just a sixth of that now.
“People will forget all this inconvenience. When currency returns, by December, the situation should normalise,” said the 40-year-old merchant.
“Credit has to go to the prime minister.”
A top finance ministry official said the use of indelible ink - also used to stop multiple voting in elections - would prevent “unscrupulous persons” from sending people from one bank branch to the next to exchange old notes.
Individuals are allowed to swap Rs4,500 just once.
“You find the same people coming back again and again,” Economic Affairs Secretary Shaktikanta Das told a news briefing, saying huge queues were preventing honest people from getting the cash they need.
“We have received reports that certain unscrupulous elements, who are trying to turn their black money into white, have organised groups of innocent people and are sending them from one branch to another branch to exchange notes,” Das said.
Das also urged temples and mosques to deposit their cash donations, which are usually made in small bills, in order to ease the cash crunch.
Referring to reports of Jan-Dhan accounts being used by other people to deposit their unaccounted cash, Das said the government has decided to set an upper limit of Rs50,000 for deposits in these accounts.
Das said the legitimate Jan-Dhan account holders would not be put to any kind of difficulty but the source of deposits above Rs50,000 into these accounts would be tracked and verified.
For other accounts, the government had earlier said they would not make inquiries into small deposits of up to Rs250,000.
Dismissing rumours about some institutions planning a strike against the government’s demonetisation move, he said the pictures being circulated on the social media were a year old.
“Don’t believe rumours spread on the social media about certain institutions going on strike. On zooming the (strike) picture on the social media, it was found to be from 2015,” Das said.
Campaigning to win power in 2014, Modi had pledged to flush out corruption by forcing people to bring their hidden money back into the system.
And with an important state election just months away, he is again campaigning to justify the demonetisation drive.
“After demonetisation, the poor are enjoying a sound sleep while rich are running from pillar to post to buy sleeping pills,” he told a rally on Monday in Uttar Pradesh, which goes to the polls next spring.
Opposition politicians have rounded on Modi, accusing him of tipping off workers from his Bharatiya Janata Party (BJP) and creating an unfair campaign advantage.
Party leaders have denied any such leak.
Economists say the cash crunch will cause a short-term hit to activity, mainly because a significant chunk of old money will be wiped out and it will take time to print and circulate new Rs500 and Rs2,000 notes.
The purple Rs2,000 notes are smaller than the existing banknotes, and it also will take up to three weeks to reconfigure the country’s 200,000 ATMs to handle them.
In a blog post, N R Bhanumurthy of the National Institute of Public Finance and Policy estimated that growth could be depressed by 0.6 of a percentage point in the current fiscal year to March 2017.
But an increase in bank deposits and the “multiplier” effect of that money being re-lent, could lift growth in 2017/18 by up to 0.7 of a percentage point, estimated Bhanumurthy, whose think-tank is affiliated to the finance ministry.