High Denomination Notes Cease To Be Legal Tender

In a very bold move by PM Narendra Modi, India’s Ministry of Finance cancels the legal tender nature of India’s High Denomination notes of Rs. 500 and 1000 issued earlier by RBI. The move appears sudden, harsh and makes the entire country take a few hardships in the next few days, but it is a much needed and welcome move though. My personal opinions and account of what what to expect soon and how to handle the transition phase.

Baseless Criticism

  • Some people (especially politicians) call this anywhere from anti-nation to draconian. In My Opinion, this is just a harsh and bold move that hurts a bit. Just like you take a shot of injection when you are ill. The move is far less draconian and anti-nation when compared to the inconveniences we common people face when you politicians and employee associations of banks and governments announce sudden strikes/bandhs for some stupid reasons known only to you.
  • Some people criticize the timing of the decision, but I admire this timing for the following reasons.
    1. A big festival season is just over, so common man would have relatively less cash transaction needs
    2. The first week of this month just passed, so majority of monthly cash needs of middle class and upper middle class Indians, like rents and monthly groceries, would be taken care of by now. However, people who do daily and weekly grocery purchases would have a couple of weeks of inconvenience.
    3. This action immediately follows the tax declaration scheme, so people with large sums of undisclosed income did get a chance to get clean. If they haven’t, then they are the most hit.
  • Some people suggest phased withdrawal of notes. However, that would have lesser impact on black money and would lead to long term cash flow issues in the market if big guys cease flow of new currency notes during that phased withdrawal. In my opinion, the cash flow issues with the current approach of PMO and Ministry of Finance would last about a week or two at the most, provided banks and RBI are ready to handle the volumes.

Personal Inconveniences And How To Overcome

I think an average Indian has a short phase of going very conservative. Here is my way to cope up with this critical juncture after assessing the PM’s announcement and its impact on myself. After the announcement, I quickly counted my left over high denomination notes that can be legally tendered. Specifically Rs. 100 and 50. They totaled to Rs. 3850 and here is what I would do with that money.

  • I resolved not to withdraw any cash from an ATM or Bank at least until Friday evening. Preferably until Monday evening. By that time, I presume the rush at these places would ease up and people with more immediate needs can use this time rather.
  • I am going conservative for a few weeks and keeping my cash in bank as contingency for any emergencies including medical emergencies. This would continue even if I am able to withdraw a few high denomination notes in a week or two.
  • I may do some shopping of basic needs using my credit card and limit my purchases to essential food items. That may include biscuit and snack packs for my upcoming travel.
  • I have set aside Rs 1300 towards fuel. My two wheeler needs a refill of about 300 and my car can live with Rs 1000 worth of fuel in the next one week, provided I use my two wheeler more often than my car.
  • I have a weekend travel coming up that involves three overnight travels of 7-13 hours each. I am planning to use biscuit and snack packs as travel food as opposed to meals that I usually buy for anywhere between Rs 80 to 200. With all my tickets purchased earlier, I may be able to manage my travel with about Rs. 1000 of that left over money.
  • I am planning to use public transportation during my weekend travel, so that I would spend less cash than usual for taxis and local transportation.
  • That leaves me with about Rs 1500 to meet any immediate cash needs. Hopefully we can manage with that money and feel proud next week that our nation has done the right thing.

The key thing here is to go conservative and minimize the spending rather than trying to amass large amounts of cash or goods.

Tougher scenarios

I see a few tougher scenarios like these that have no easy way out.

  • My son is going for a few days of international travel representing his college this weekend. The tickets are taken care of by funds from college, but he needs foreign exchange before Friday for food and incidental expenses. Given that he doesn’t have a credit card and we need to arrange forex cash for him before he leaves for the trip, we are not sure how we can manage that. This is a very special case, but a tough scenario for me as an individual.
  • The next few days are auspicious days as per our calendar and lot of my friends and relatives have weddings and functions lined up. Conducting those functions is going to be tough for them (for example, how can one buy Rs. 15,000 worth of vegetables in a farmers market for a wedding dinner tomorrow?) until the banks and ATMs ease up to let them use their cash in banks or exchange already withdrawn legitimate money in high denomination notes.

Barring the impact of tougher scenarios like these, I see that we as a nation can easily wade through the short periods of lesser cash flow. The key is not to panic. Don’t try to get more cash, just conserve the cash you have.

The nation needs support from all of us for this bold and game changing decision. Let us join hands with PM Modi and his administration to make this a smooth phase.

Jai Hind.

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