MUMBAI // Just over two weeks into its biggest fight against tax evasion and graft, India’s regulatory flip-flops are confusing citizens and sparking criticism of the government’s planning.
Prime minister Narendra Modi’s November 8 decision to invalidate 86 per cent of currency in circulation has affected everyone from pensioners to tourists in a nation where almost all payments are made in cash and about half the population lacks a bank account.
What has made matters worse is that bureaucrats overseeing the move have reversed rules twice a day on average.
“All these measures convince me that the way this scheme has been implemented is a monumental management failure, and in fact, it is a case of organised loot, legalised plunder of the common people,” said Manmohan Singh, Mr Modi’s predecessor and a respected economist.
At the core of the issue is how long people have to exchange the now worthless 500 and 1,000-rupee notes for newly issued bills.
The Reserve Bank of India said on November 11 that the old notes could be exchanged at commercial banks until December 30.
On Thursday, the government announced that this would stop from Friday and banks would only accept old notes as deposits into accounts. As citizens complained on social media, the RBI on Friday clarified that its own counters would continue to exchange notes.
Earlier this week the government banned deposits of the old 500 and 1,000-rupee notes in small savings schemes offered by post offices, which dot the rural landscape where most banks do not reach. Since these accounts lack the stringent customer information norms used by commercial lenders, the concern was that people would use this loophole to stash undeclared income. Surprisingly, the very next day the government amended the order to allow unlimited investments into post office accounts.
“You have made 24 changes from the time of the announcement,” opposition MP Derek O’Brien told the prime minister in parliament on Thursday. “Every time you make a change, you say ‘No, no, this is just to recalibrate it.’”
Perhaps the most amusing of the flip-flops has been over the government’s sympathy – or lack of it – for young couples in a country where almost half the population is under 25 and October-March is the peak wedding season, when everything from marigold garlands to banquets are paid for in cash.
The government relented last week and raised the bank withdrawal limit to 250,000 rupees for people getting married if they could prove it. When this raised questions of what proof would be required, the government issued another notification cancelling the relaxation.
When the public questioned the cancellation, the government press office posted on its Twitter account, “MYTH: Order withdrawn. REALITY: No, only technical correction.”
It issued clarifications that did not do much to simplify matters. First, only the bride, groom, or one of their parents could withdraw the cash. Second, they would need to show wedding cards and receipts from caterers and the like, plus declarations pledging that the vendors did not have bank accounts.
“Banks shall keep a proper record of the evidence and produce them for verification by the authorities in case of need,” the monetary authority said, adding ominously, “The scheme will be reviewed based on authenticity/bona fide use thereof.”
There has also been confusion over other exemptions. For now though, old 500-rupee notes can still be used to pay school fees, fuel for vehicles, medicines, mobile phone cards, air and railway tickets, and tickets to certain historical sites such as the Taj Mahal. The ban on use of 1,000-rupee notes remains.
Foreigners can exchange foreign currency for up to 5,000 rupees per week, which will be noted in their passports, the finance ministry said on Thursday.
* Bloomberg
