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The Narendra Modi-led central government's decision to demonetise Rs 500 and Rs 1,000 currency notes is understood to have divided the country's people into two classes based on their response to the move.
While there is one class that appreciates the government's intent of cleansing the country's economy of black money and is willing to bear the short-term pain for long-term gains, there is another that views the whole exercise as economically futile and practically painful for the common man.
While there is one class that appreciates the government's intent of cleansing the country's economy of black money and is willing to bear the short-term pain for long-term gains, there is another that views the whole exercise as economically futile and practically painful for the common man.
However, there is also a third class – of people who have found in the misery of other people a unique business idea. Capitalising on the immediate shortage of cash in the system following the demonetisation move, this class of people is making huge money by helping the hoarders of black money turn their wealth into white – and they are doing it very carefully, in an organised fashion.
Prime Minister Narendra Modi had on November 8 said in an address to the nation that currency notes in the Rs 500 and Rs 1,000 denominations would cease to be legal tender within a few hours of the announcement. People with cash in these denominations could exchange those at any bank branch till December 30, but there was a cap on the amount that could be exchanged by each user. There is no limit on the amount that they can deposit in their bank account, but anything higher than Rs 2.5 lakh draws the taxman's glare. With all existing high-denomination notes turned into "pieces of worthless paper", Indians have been scrambling for cash in valid denominations which has led to long queues at bank branches and automated teller machine (ATM) centres.
Spotting a lucrative business opportunity in this crisis, almost every third person in Delhi seems to have taken to exchanging the demonetised notes for a fat commission. They know that a large number of people have illegally stashed big money that they cannot afford to lose. Such people would try every method to save as much of that black money as they could and for this they would be ready to pay a high cut, too.
In the early days of the demonetisation move, the commissioned charged was 15-20 per cent of the money exchanged. The rate has now gone up to 40-50 per cent, according to market reports.
There are numerous agents involved in the exercise of illegally converting black money into white and the rate of commission charged is based on several factors. For one, the higher is the amount, the lower is the commission. If the amount is in crores or rupees, the agent gets a cut of 30-35 per cent; the rate is 40-50 per cent if the amount exchanged is in lakhs of rupees. Similarly, the rate is also decided by the urgency in a person’s need for cash. If he or she wants cash immediately, the rate would be higher; in case he or she is willing to wait (which involves risk), the rate would be lower.
According to sources in the direct know of such practices, the rates would go up as the deadline of December 30 draws nearer.
How it works:
It all starts with people making a phone call to an agent and seeking help. Often, the amount involved in the transaction is not disclosed, so that the window for negotiations remains open.
To understand how the whole operation works, Business Standard spoke to a person who approached an agent for exchange of his high-value currency after the demonetisation move. Here is a snapshot of the conversation Sameer (name changed upon request) had with the agent over phone as he tried to strike a bargain:
Sameer: "I have Rs 1 crore and I do not know how to change it."
Agent: Iske liye commission dena hoga (You will need to pay a commission for this).
Sameer: Kitna commission dena hoga? (How much do I need to pay as commission?)
Agent: Abhi toh 30 per cent chal raha hai 1 crore ka. Yeh 5-5 karke hoga change. Cash to cash hoga. (At present, the rate is 30 per cent for 1 crore. The money will be exchanged in bunches of Rs 5 lakh. It will be cash to cash).
Sameer: Thirty per cent is high. The market rate in 20 per cent for 1 crore.
Agent: I will try but I don't think it will be done for anything less than 25 per cent.
Sameer: You said it would be cash to cash. When will I get it?
Agent: It will be cash to cash but it will take a month (for full delivery). Till that time, you will be given a cheque for guarantee.
Sameer: In what denomination will I get the money?
Agent: Some in 100s and some in the new currency. But it will take a month.
The entire conversation, according to Sameer, does not take place over phone, as the agent fears his phone could be tapped. Parts of the conversation took place in code words. The agent prefers to meet rather than talk.
Even as many people are involved and various means to exchange money are being used, people are working cautiously and not trusting each other much. Sameer's agent told him there were people who would pay as much as 50 per cent commission for upfront cash rather than having to wait for months.
Other methods
There also are other ways by which people have been found to exchange notes without coming the government’s glare. People with black money have been reported to be contacting salaried people and asking them if they could keep some cash in their bank accounts in return for a commission. They are ready to shell out 20 per cent of the money as feel for using others' bank accounts. It has also been reported that many bank accounts that had for very long been unused have received huge deposits and have suddenly begun to see a spike in transactions; there clearly are many people who are making a killing out of their spare bank accounts. Each deposit of Rs 10,000 or more gets them a sizeable commission, while each withdrawal gets a flat 10 per cent cut.
Besides, many businessmen in the national capital region are sending their employees to get their black money exchanged in small bunches. Till November 17, Rs 500 was being paid for the exchange of Rs 4,000, told a businessman. As people had multiple identity cards, they stood in queues at various bank branches. But after the government decided to reduce the daily limit for the exchange of notes to Rs 2,000, the practice of multiple exchanges with multiple identity cards has stopped.
According to sources, even some vegetable sellers in Delhi are offering to exchange every Rs 1,000 in banned currency notes for Rs 800 in valid ones. If they have small amounts in their bank accounts, getting cash deposited for others and making a 20-30 per cent earning does not hurt.
What do the police say?
When asked by Business Standard if the police had any information that these methods were being employed to turn black money into white, Deputy Commissioner of Police (East Delhi) Rishi Pal denied reports of any illegal activity. “No one has complained to me regarding this,” he said.
Clamping down on many who might have become crorepatis by evading taxes and hoarding black money might have been the Modi government’s idea to begin with. But the move seems set to create more crorepatis among those who help convert black into white.
