ECONOMY

India’s PM Modi unveils handouts, tax breaks after cash ban

Indian premier Narendra Modi in a New Year’s Eve message on Saturday defended his demonetization drive and lauded the nation for “bearing with the inconveniences with extreme patience.” (File photo: AFP)

Indian Prime Minister Narendra Modi defended his government’s decision to demonetize the country’s highest-value currency bills last month in an unusual New Year’s Eve message to the nation Saturday.

Modi called India’s massive demonetization drive, which withdrew 86 percent of the country’s currency bills from the system, “a historic purification ritual” to cleanse the system of tax evasion and corruption.

“This will play an important role in changing the direction of the nation in times to come,” he said in the speech, which was televised live.

 Modi also unveiled on Saturday a series of cash handouts, cheaper loans and tax breaks for women, farmers and businesses as he defended the move to ban high-value banknotes.

In the address, Modi thanked people for their “patient sacrifice, discipline and resolve” in supporting the withdrawal of some 85 percent of all bills in circulation, which he said had laid the foundation for a better India.

His televised remarks followed the expiry of a deadline for people to swap their old 500 rupee ($7.30) and 1,000 rupee notes for new ones on Friday.

The Indian leader has been widely hailed for his assault on tax evasion but long queues outside banks, a cash crunch and policy flip-flops since the November 8 announcement quickly led to anger in some quarters.

“The troubles faced and the sacrifices made by the people to build a better India is an example for all of us,” Modi said in his 45-minute speech, describing the cash ban as a “big fight” against corruption and unaccounted wealth.

In an effort to appease those most affected by the cash crunch, Modi said the government would offer cheaper loans to home buyers and farmers as well as cash handouts for pregnant women.

He also unveiled tax breaks for small and medium-sized businesses.

In an announcement that caught the country by surprise on Nov. 8, Modi said in a similar address to the nation that India was withdrawing 500- and 1,000-rupee bills as legal tender in order to crack down on the country’s massive amounts of “black money,” or untaxed wealth.

The deadline for exchanging or depositing the old currency in bank accounts passed Friday.

People queue outside an ATM to withdraw cash in the eastern city of Kolkata, India, on December 4, 2016. (Reuters)

When the government announced its demonetization plans, it also announced a cap on the amount of money people could withdraw from ATMs and bank accounts, while the central bank printed new currency bills to fill the gap created by the erasure of a majority of the country’s notes.

At that time, Modi said that by Dec. 30, normalcy was likely to return.

ATM withdrawal limits

However, on Friday, the Reserve Bank of India announced that that it would continue to control how much money people can withdraw from ATMs and banks for now.

A woman cleans an ATM which is out of service in Mumbai, India, November 11, 2016.(Reuters)

According to a statement from the central bank, the daily limit on ATM withdrawals will go up to 4,500 rupees ($66) from 2,500 ($37) rupees, but the weekly cap on withdrawals from bank accounts will remain at 24,000 rupees Saturday onward.

It wasn’t clear how long the limits would be in place.

Since the announcement that the old high-value bills were no longer legal tender, banks and ATMs have seen massive lines of people. It’s not unusual for ATMs to not be refilled for days and for banks to run out of cash within a few hours of opening.

A majority of Indians earn and spend in cash, either due to habit or because they’re too poor to have access to banks.

Experts say only about 40 percent of the country’s ATMs are equipped to start giving out the new 2,000- and 500-rupee bills.

In his speech on Saturday, Modi said that his government hopes that banks will get back to normal business as soon as possible, but gave no deadline for that.

Modi lauded the nation for “bearing with the inconveniences with extreme patience.”

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Last Update: Saturday, 31 December 2016 KSA 22:35 - GMT 19:35
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India’s PM Modi unveils handouts, tax breaks after cash ban
Defends his government’s decision to demonetize the country’s highest-value currency bills
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