In a bid to clamp down on corruption and tax evasion the Indian government has withdrawn both ₹500 and ₹1000 rupee notes from circulation—two of the most popular denominations in use.
Since the Indian government began to transition to the new Mahatma Gandhi currency on the 10th of November, the country’s financial landscape has been more than a little chaotic. Given that the Indian economy is largely cash based, disruption has been unavoidable, affecting everyone from individuals to street sellers and restaurants.
The situation has been made more difficult by the fact that exchanges are capped at just ₹4,500 in cash per person per day (circa £53), and at ₹50,000 (£592) in account deposits. Daily queues have lengthened outside banks, and many ATMs have run dry as people try to get hold of the smaller notes they need to keep everyday life on track.
Outside of India the situation is nearly as tricky. Many Non-Resident Indians (NRIs) may lose out on exchanging their own notes completely, as the rupee is a restricted currency and technically shouldn’t be removed from the country. This makes it ‘black money,’ and unfortunately means most banks in the UK won’t be exchanging the currency.
How will you be affected?
While there will be some short-term pain for those who have large amounts of black money in the UK, this transition should have a positive effect on corruption, house prices, and public spending in India—all long-term plus points if you have roots, family, or working commitments in India.
NRIs may currently have few options for dealing with the changes individually, but there is a slim chance things could change. The Indian government has remained responsive to issues as they have developed, and has changed its approach within India from time to time, so there is still a chance they could amend the rules for Indians abroad—particularly those with a non resident bank account.
Right now tourists and inexperienced visitors are struggling with the realities of the cash-flow crisis. As the rupee is a restricted currency it generally needs to be bought upon arrival, which is proving difficult as banks are closed, running out of cash, or swamped with customers. Since the affected notes also account for over 85% of the cash in circulation, most businesses are also running short on cash, and are reluctant to accept even the new high denomination notes, as their high value requires sellers to make change that they don’t have. In rural India the situation is even more acute, with whole villages running out of money—so be careful to stock up at every opportunity you get.
What can you do?
- The simplest option is to send your outdated currency with a trusted friend or family member to exchange, or visit India and stand in line yourself. Given that it is now peak holiday season there may well be someone you are able to ask before the 30th of December deadline—but remember, they will need a letter of authorisation to make a deposit in your name.
- Though most banks in the UK are not exchanging the withdrawn notes, it is always worth checking if your bank is able to help you. Should your bank say yes to an exchange or deposit, you will be limited to ₹25,000, as this is the highest amount you can legally take out of India.
- If a member of your immediate family is getting married in India you may be able to take advantage of the larger withdrawal rate of ₹250,000 recently made available for wedding payments. Farmers can also withdraw more than standard to meet their working costs, but these options are carefully rationed per family, so make sure everyone is onboard with your spending plans.
- Forward planning is key. Rupees are not guaranteed to be available in your arrival airport or by ATM, so be aware that it won’t be easy to get what you need.
- Bigger institutions like hotels and supermarkets will still be accepting card payments—buy meals and essentials there so you can save your cash for excursions.
- Think about whether you need to take more currency with you than you had originally planned, as a lack of change may see prices rising in areas where access to cash is tight. Alternatively, pre-loaded travel cards like our newly launched Escape Card, now available in Birmingham Airport, can be a good way to take spending money without having to worry about having cash on-hand.