Best International Credit Cards For Travelling Abroad


Carrying cash wherever you go is not safe always; thus, travel credit cards are one of the best options to keep your money safe while you are traveling around the world. If you constantly carry cash with you then it will be a big hassle while exchanging currencies in each country.

However, if you have a credit card that is accepted internationally then you will always have the right currency in your hand. Many credit cards that are internationally accepted providing various offers but you need to choose the one that suits you best.

 

Let’s have a look at the credit cards that can help you spend more when you are abroad:

  
1. ABN AMRO credit card

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ABN AMRO bank offers variety of credit cards, and ABN AMRO smart gold credit card is considered to be one of the best international credit cards.

One who is frequent travels can use this ABN Amro Smart Gold Card. The travel card offers benefits and privileges for the same. This card will help you to earn smart reward points which later you can convert in to smart miles like you earn 2 points for every 100 spent. Thus you can enjoy plenty of such exciting and money saving benefits with your ABN AMRO Smart Gold Credit card.

 

2. American Express Gold Card

 

 

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American Express Gold Card, which is also known as AMEX card, has an interest free credit period of up to 48 days. This means if you have planned your holiday abroad then you can enjoy them without any stress, as the card has no credit limit; so, spend as you like! It considers different variables like spending patterns, payment behavior and then adjusts your spending levels accordingly, increasing your spending power. The best part is there is no joining fees and it also gives you a purchase protection cover of 50,000.

3. ICICI Bank Solid Credit Card

ICICI Bank Solid Credit Card has over 22 million merchant establishments internationally. It is a card with high credit cash limits and has one of the most powerful catalog-based rewards program. This card gives you up to 10 percent discount on international and domestic basic fares but the bookings need to be done through websites like makemytrip.com or travel smart. You can also get reward points using this card, for example, if you spend 200 you get 10 reward points and later you can redeem these points against exciting options. Interest rate on the purchases is around 3.15 percent per month and in addition, it gives a purchase power of 40,000.

 

 

4. CITIBANK World Money Card

 

 

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Now you can load your foreign exchange on India’s first prepaid foreign currency denominated travel card, which is none other than CITIBANK World Money Card. It provides with the facility of shopping at millions of Visa merchant outlets, withdraw cash from Visa ATM’s or to even transact online. Convenience and acceptance of a credit or debit card is what this Forex prepaid will provide you along with unmatched safety features to keep you protected while you enjoy your trip abroad. You can overcome the risk of exchange rate fluctuations as during the date of loading cash in your card even the exchange rates get locked in. You are free to load your card with any of the currencies like the U.S. Dollars, Pounds, Singapore Dollars and Euros.

 

5. Axis Bank Easy Gold Credit Card

 

 

Axis Bank Easy Gold Credit Card is truly designed for shoppers who are looking for an inexpensive deal. This card has one of the lowest interest rate of 1.95 percent per month on offer. There are no reward points available on fuel purchases but the card offers fuel purchase benefits like fuel surcharge waiver of 2.5 percent. The insurance cover with the card offers personal accident cover along with credit shield. The card also provides coverage for lost card liability of up to 1 lakh and it has zero replacement card charges.

 

6. Union Bank of India Gold Card

 

 

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Union Bank of India Gold Card is considered to be an entry level shopping card. The features and benefits of this card are the same when compared to other entry level cards; but only few people can own this card as the eligibility of owning this card is 5 lakh and above per annum. The card offers shopping and dining benefits like eating out, holidaying, fuelling up your vehicle and travel privileges like air and rail reservations. In addition, it also consists of free accidental insurance cover that no other entry level card possesses.

 

7. Syndicate Bank Global Classic Credit Card

 

 

Unmatched features and very attractive offers make Syndicate Bank Global Credit Card a unique product in its class. This card offers you with the cash Withdrawal facility where you can withdraw cash with your Syndicate Bank Global Credit Card at all ATMs of Syndicate Bank over 28,000 in India & over 12 Lakh across the globe. You get one reward point on every purchase worth 200 also you will be provided with a free credit period that would vary from 20 to 50 days.

 

If you lose your card by any chance while traveling then you will be liable for getting 1000 as the lost charge.

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Raghuram Rajan: 10 things to know about the New RBI Governor


Raghuram Rajan today took over as the governor of the Reserve Bank of India at a time when the Indian economy is facing its worst crisis in over two decades. Mr Rajan said India’s economy was “fundamentally sound” and had a “bright future” in his first remarks after taking the helm at the central bank earlier in the day.

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What you should know about the new RBI governor ?

1. Raghuram Rajan, 50, is the 23rd governor of the Reserve Bank of India. He has been appointed for a period of three years, and will take charge from D. Subbarao, who is exiting after an extended five-year term.
2. This will be Mr. Rajan’s second assignment in the country. He was appointed the Chief Economic Adviser to the Finance Ministry in August last year.
3. He was the Economic Counselor and Director of Research (simply put, the chief economist) at the International Monetary Fund from September 2003 till January 2007.
4. Mr. Rajan’s claim to fame is his prediction of the 2008 global financial crisis. In his paper titled Has Financial Development Made The World Riskier?, which he submitted in November 2005, Mr. Rajan wrote: “But perhaps the most important concern is whether banks will be able to provide liquidity to financial markets so that if the tail risk does materialize,…” The response to this paper was negative.

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5. Mr. Rajan has worked as the Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business.
6. Mr. Rajan has also served as the Bertil Daniellson Visiting Professor of Banking and Finance, Stockholm School of Economics, 1996-97; Visiting Professor of Finance, Northwestern University, 1996-97, and the Fischer Black Visiting Professor, Massachusetts Institute of Technology, 2000-01.
7. In January 2003, the American Finance Association awarded Mr. Rajan the inaugural Fischer Black Prize, given every two years to the financial economist under age 40 who has made the most significant contribution to the theory and practice of finance.
8. He is the author of the popular book Fault Lines: How Hidden Fractures Still Threaten the World Economy, where he has argued that serious flaws in the economy are to blame for the current economic crisis, and warns that a potentially more devastating crisis awaits us if they aren’t fixed.
9. He earned his bachelor’s degree in electrical engineering from IIT-Delhi, before pursuing his MBA in 1987 from the Indian Institute of Management, Ahmedabad, followed by a PhD in 1991 from Massachusetts Institute of Technology. He was a gold medalist at both IIT and IIM.
10. Mr Rajan was born in Bhopal on February 3, 1963. He comes from a Tamil family and is married to Radhika, a classmate from the Indian Institute of Management. They have two children.

Can Falling Rupee be Rescued by Gold in Indian Temples?


The Prime Minister, The Finance Minister, The Finance Ministry of India as well as the RBI are trying to come up with dynamic measures to solve the current problem of falling rupee and improving the Indian economy as a whole. Most of the initiatives taken by RBI met with criticism, and the need of the hour is to come up with some novel idea to curb the current crisis, reports Debiprasad Nayak of The Wall Street Journal.

One of the control measures announced by Government is to increase the import duties on gold. But experts believe that the gold loving Indians will not be affected by the price rise. According to World Gold Council, India currently has around 20,000 tons of gold worth $950 billion. About 2.79 percent of this gold is held by Reserve Bank of India and the rest is under individual possession. Few experts suggest that Government should try to make use of some of this gold. “If we will be able to bring out only 10% of the gold holdings, we don’t need to import any gold for the next two years,” said Haresh Soni, chairman of the Mumbai-based All India Gems & Jewellery Trade Federation.

The gold loan scheme is already practiced in India in which banks accept gold jewelry and bars from individuals and provide loan based on the quantity and current price of gold. The minimum deposit should be of 500 gm of gold. If the amount of deposit is reduced to 100 or 200 grams, it would be feasible for many Indians to use this scheme.  Hence, Government should try and make use of this unproductive asset to increase dollar inflow and reduce gold import.

RBI rule curbs Indian M&A


The Reserve Bank of India’s efforts to stem the rupee’s freefall are threatening the flow of outbound M&A from the country and related loans.RTX124GX_we_220Source: Reuters/Vivek Prakash

A man speaks on his mobile phone in front of the Reserve Bank of India (RBI) seal at the RBI headquarters in Mumbai.

Already reeling from RBI’s move to increase interest rates in recent weeks, Indian corporate borrowers were dealt a further blow on August 14. A change in rules relating to overseas direct investments jeopardises outbound M&A and the refinancing of loans that supported India Inc’s overseas acquisition binge in the past five years.

Earlier ODI rules, put in place in September 2007, permitted an Indian firm to invest directly in, extend loans or provide guarantees to, offshore joint ventures or subsidiaries for up to 400% of its net worth without requiring prior approval from RBI.

Then, on August 14, RBI reduced that limit to 100%, with immediate effect.

“The reduction in the net-worth limit is expected to significantly affect the ability of Indian corporates to make future outbound investments or support existing offshore investments,” said Philip Badge, partner at law firm Linklaters.

The change applies to all new ODI after August 14.

Apollo Tyres’ US$2.5bn acquisition of US-based Cooper Tire & Rubber would not be impacted by the rule change. Although the deal was awaiting regulatory approval in the US, it was unveiled in mid-June. Others such as ONGC Videsh, Oil India and other public sector units investing in offshore entities in the oil sector can continue to do so under the automatic route as per existing rules.

So far, however, all the details of the new rules have not been revealed. As such, market participants are still unsure how much impact it will have on the way they do business.

What is almost certain, though, is that new rules put Indian companies at a disadvantage when they bid for assets against acquirers from other countries.

Refinancing questions

Obtaining RBI approval on the net-worth limit adds another step to the M&A process, where speed of execution is often paramount. In the past, the 400% net-worth limit was enough for Indian companies to be able to acquire overseas assets successfully.

It fuelled an M&A boom that also led to a significant increase in Indian loans. To pay for purchases, Indian acquirers used debt that offshore acquisition vehicles raised with guarantees from the onshore parent.

“Most of the top-tier Indian conglomerates are way above the 100% limit, with some very close to the 400% mark,” said one loans banker in Mumbai, alluding to recent debt-funded offshore acquisitions.

“These loans pose a conundrum for the borrowers. How will they get refinanced? Will the RBI allow for exemptions to the net-worth rule for ODIs?”

Loan guarantees are also under pressure, as a result.

“There is a concern on refinancings of offshore acquisition loans and on the continuing ability of Indian companies to support existing guaranteed loans by funding their debt service through debt or equity injections,” said Linklaters’ Badge.

“The ability of the offshore entity, as well as the parent, to service the debt the former has raised will be constrained because of the RBI rule change and it raises the risk of a default.”

India’s biggest M&A loan is a US$6.6bn multi-tranche deal for Bharti Airtel in June 2010 that backed its acquisition of Zain Africa. While some of the tranches have already matured, others come due every June in the next three years.

“I will be really surprised if RBI refuses any Indian issuer’s request to refinance their acquisitions financings under previous ODI limits,” said Vivek Kathpalia, senior partner at Nishith Desai Associates.

Meanwhile, M&A financings will not be the only thing the new rule affects. According to a Linklaters note, standby letters of credit that Indian banks issue also count towards the net-worth limits for companies in the country. That means SBLC-backed loans will also face restrictions.

A slew of SBLC-backed loans have been completed for Indian companies in the past year, including second-tier and distressed credits, such as Suzlon Energy and Videocon Industries.

Prakash Chakravarti, Manju Dalal

RBI’s New Banking License: Permits Only to High Quality Applications


After the Reserve Bank of India gave a green signal to issue new bank permits, plenty of applications made their way to the RBI for the license. According to the RBI spokespersons, around 39 applicants have applied for the new banking license.

In this regard, the RBI said that it will take wise and clear decisions in issuing the permit for the newer banks and also, it is not possible to allow all the eligible candidates to have individual licenses.

RBI spokesperson said, “There is no predetermined number. RBI will be very selective while considering the applications for new bank licenses. It will look for very high quality applications,” as reported in PTI. It also said, “It may, therefore, be not possible to issue license to all the applicants meeting the eligibility criteria.”

On February, 2013, RBI issued the final guidelines regarding the issuing of new banking license and this month, RBI finally said that it has received plenty of entries from various interested license seekers. RBI also gave some clarifications regarding this matter.

Loans to become cheaper as RBI cuts policy rate


For the first time in nine months, the Reserve Bank of India on Tuesday cut the indicative policy rate (repo) by 25 percentage points, from 8 per cent to 7.75 per cent, and the Cash Reserve Ratio (CRR) by 25 percentage points, from 4.25 per cent 4 per cent.

The step is likely to benefit retail borrowers, as lending rates are likely to come down. After meeting RBI Governor D. Subbarao, bankers said they would pass on the benefit to borrowers.

The RBI first cut the repo rate in the current fiscal in April 2012, with a reduction of 50 percentage points, from 8.5 per cent to 8 per cent. It reduced the CRR from a peak of 6 per cent to 4.25 till mid-December 2012.

Repo is the rate at which banks borrow funds from the central bank. CRR is the portion of deposits banks must keep with the RBI.

In its third quarter review, Dr. Subbarao said: “While the series of recent policy initiatives by the government has boosted market sentiment, it will take some time to reverse the investment slowdown and reinvigorate growth.”

The RBI has scaled down the projection for GDP growth for the current year, from 5.8 per cent to 5.5 per cent, and for the wholesale price inflation in March 2013, from 7.5 per cent to 6.8 per cent.

“This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks,”

Dr. Subbarao said.

However, the RBI has warned that retail inflation is still at a higher level.

RBI Asks Banks to Issue Debit Cards with Photographs to Check Misuse of Cards


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Reserve Bank of India asked the banks to observe the possibility of issuing debit cards with the photos of customers to prevent misuse of them. RBI has suggested in its new guidelines that banks should consider taking various steps to prevent the misuse of debit cards by having the customer’s photo on the card of through other latest technology methods.

In India there are around 31 crore debit cards. Reserve Bank of India issued guidelines after analyzing the present rules and regulations in the issuing of debit cards in India.

  • Bank should take the responsibility of any loss to the customers of the bank due to system malfunction.
  • Banks should provide full security to the debit cards.
  • Banks should always be ready to take the complaint/information from customer regarding the loss of theft of debit card and take immediate action to prevent the misuse of card.
  • Debit cards must be issued to customers having savings account or current account in the bank but not to those who are having credit account.
  • Banks should review the debit card issue procedure for every six months.
  • Debit cards should not be issued offline. If any bank is issuing debit cards in offline method, they should stop the process within six months from the day this circular is issued. In the offline debit card issue method customer only requires to sign during the payment but in online payment method, customers will have to enter their payment also.
  • RBI has given approval for issue of co-branded pre-paid cards.
  • Reserve Bank of India further said that there should be a system in which customer complaints are acknowledged. The banks should give a complaint number of docket number for every compliant they receive for making it convenient for the customers to follow-up.

Axis Bank, ICICI Bank, State Bank of India, HDFC Bank and Indian Overseas Bank launched the saral Money Bank account. This account can be opened based on Aadhar card. Recently, Reserve Bank of India ordered banks to consider Aadhar card as identity proof if the address mentioned by the applicant and the address on the Aadhar card of the customer is same. Saral Money account facility will be introduced in Delhi and surround areas presently and will be expanded to other areas by the end of 2014, it is informed.

Major Overseas Acquisitions by Indian Companies


Indian companies have certainly become more ambitious and certainly adventurous. Most companies are no more the ‘frogs in the well of the license-raj era’. In today’s world, Indian companies are not only setting up their own bases overseas, they have become quite ambitious to fly out of the Indian business boundaries to find new companies and potential markets for acquisition and company investment. Even though it might take some years for them to start showing the big time profit evaluations from the acquisitions made so far.

However, this shows that Indian companies have certainly become confident about expanding their operations overseas successfully.

In the last decade itself, many Indian companies have been on a big time acquisition spree, and that has definitely added a huge value to Brand India. Indian companies (listed and unlisted) announced 1995 overseas acquisitions from the last two which involves an investment of nearly $ 116 billion – as reported by The Economics Times.

India has also come out as the world’s 21st largest overseas and foreign investor, with more than 75 billion dollars in foreign investment, just in the past 10 years. And during the financial year 2009-2010, the investment by the native companies in foreign joint ventures and self-owned subsidiaries alone come up to around 10.3 billion dollars, as per The Reserve Bank of India’s report.

1. Corus Group (U.K.)

Acquired by – Tata Group


Tata Steel, one of the leading steel producers in India, acquired Corus Group for U.S. $12.11 billion (€ 8.5 billion) on January 31, 2007. But only after nine rounds of bidding, the acquisition process was completed. The only other competitive bidder was Companhia Siderurgica Nacional (CSN), Brazil.

This acquisition is considered to be one of the biggest foreign acquisitions by an Indian company, and after this only TATA Steel came out to be the fifth largest steel producer in the whole world.

2. Zain Africa

Acquired by – Bharti Airtel


India’s largest mobile services company, Bharti Airtel’s ambition to expand into the markets outside India was completed after this complete acquisition of the African operations of Mobile Telecommunications Company (known as Zain).

Bharti Airtel had acquired Zain Africa for a value of U.S. $10.7 billion. The acquisition gives Bharti Airtel a total customer base of 180 million, including 131 million subscribers it had in India at the end of April.

“By expanding its business outside the country, Bharti Airtel can in the long term benefit from economies of scale, including getting better deals from suppliers” says, Kamlesh Bhatia, Principal Research Analyst at Gartner.

3. Novelis (U.S.)

Acquired by – Hindalco Industries

Aditya Birla Group, one of India’s leading MNCs, acquired the entire stake in the Atlanta based aluminium company Novelis for U.S. $6 billion. This company had separated from Alcan, a global aluminium company. This deal was announced on Feb 11, 2007 by Kumar Mangalam Birla, Chairman of the AV Birla group.

The deal, in a way recapitulates India’s new appetite for international acquisitions, as it comes barely a fortnight after the Tata-Corus deal, which made Ratan Tata the toast of Indian industry.

4. Imperial Energy (U.K.) 

Acquired by – ONGC


Oil and Natural Gas Corp (ONGC) has acquired Imperial Energy. This deal was for 1.3 billion pounds (U.S. $1.9 billion). 96.8 percent of London-listed firm’s shareholders had top accept this takeover offer, for the acquisition deal to take effect.

“The company owed the acquisition to government support, which has seen OVL in the past seven years increase its number of projects to 39 in 17 countries, from just a single project in Vietnam,” says ONGC Chairman R S Sharma

5. Jaguar Cars and Land Rover (U.K.)

Acquired by – Tata Motors


Tata Motors, one of the leading automobile MNCs in India, has acquired both Jaguar and Land Rover, which are two iconic British brands with worldwide growth prospects. This deal was for a whooping U.S. $ 2.3 billion with Ford, the previous American owners.

The deal was effective from May 2008. The deal is seen as yet another endeavor of the fast growing Indian industries, also the latest in a string of foreign acquisitions by Tata.

6. Honiton Energy Holdings (China)

Acquired by – Tanti group


Tanti group of companies jointly with Bahrain-based Arcapita Bank, has acquired Honiton Energy Holdings, a Chinese wind energy firm. The joint venture partners invested around U.S. $2 billion which help to develop a 1,650-MW portfolio of wind farms in China.

Tulsi R. Tanti, Chairman Tanti Group felt that the acquisition would reinforce their commitment towards the renewable energy sector. And also would have a potential growth of wind energy in developing countries like India and China.

7. Abbot Point Coal Terminal (Australia)

Acquired by – Adani Enterprises

Adani Enterprises completed a $2-billion deal which acquired Abbot Point Coal Terminal in Australia on the month of May, 2011.This acquisition marked the third overseas acquisition in nine months by Adani Enterprises, the country’s biggest private port and is India’s largest coal importer.

This deal one of the largest port acquisitions in the world. There have also been many Indian companies which have acquired many mines in foreign countries to secure coal supplies for Indian projects.

8. Algoma Steel (Canada)

Acquired by – Essar Steel Global


Ruias owned Essar Steel Global acquires the Canadian steel company Algoma Steel at a valuation of Canadian $1.85 billion. The arrangement must be approved by Algoma’s shareholders by the affirmative vote of at least 66 per cent (2/3rd) of the votes cast. Algoma Steel is an integrated steel producer based in Sault Ste Marie, Ontario.

Essar Steel Holding, Essar Group’s overseas investment arm made the investment possible and easy. Algoma would definitely provide Essar an excellent platform for the Canadian and North American market.

9. Marcellus Shale (U.S.)

Acquired by – Reliance Industries


India’s Reliance Industries bought a $1.7 billion stake in natural-gas properties Marcellus Shale, from Atlas Energy Inc. This acquisition made Reliance in becoming the latest international energy company to bet on growing fuel output in U.S. shale formations.

Reliance, led by Indian billionaire Mukesh Ambani, got the right to buy 40 percent of all new Marcellus Shale leases that Atlas acquires, after this purchase acquisition and agreement was completed. And this was one of the most lucrative deals which have been seen in the Marcellus.

10. Minnesota Steel (U.S.)

Acquired by – Essar Steel Holdings

Ruias owned Essar Steel Holdings, part of Essar Global, has acquired Minnesota Steel, a U.S. based steel company with estimated reserves of over 1.4 billion tones. Essar Global invested a sum of $1.65 billion which was used to set up a steel plant in Minnesota Steel company’s facilities.

The Essar Global chairman felt that the investment in Minnesota Steel was very benefiting as they would get good exposure in the North American market. He added that Minnesota’s iron ore reserves will help the company to be one of the low cost producers of steel in the world.

It’s SRILANKAN TURN


Sri Lanka govt issues advisory to its citizens against visiting Tamil Nadu

Jayalalithaa

As Cheif Minister Jayalalithaa toughens her anti-Sri Lanka stance, the Sri Lankan government has now issued a travel advisory to all its citizens cautioning them from visiting Tamil Nadu.

The travel advisory comes in the backdrop of an attack on Sri Lankan pilgrims who were assaulted while on a trip to a church in Thanjavur in Tamil Nadu. Following the incident about 180 Sri Lankan pilgrims have returned home.

The move by the Sri Lnakan government comes barely a day after reinforcing her anti-Sri Lankan stance, Tamil Nadu Chief Minister J. Jayalalithaa ordered the return of two football teams from the island nation that are in the city to play friendly matches.

Jayalalithaa also cancelled all football matches involving Sri Lankan players in the state.

She also ordered the suspension of the stadium officer at the Nehru Stadium here for allowing the football team from Royal College of Colombo to play a friendly match against the Chennai Customs football team Friday.

Condemning the central government for permitting Sri Lankan football teams to come to India to enhance their skills, Jayalalithaa said: “Such an action is an insult to the people of Tamil Nadu.”

According to her, the management of Royal College of Colombo (RCC) contacted an official of Reserve Bank of India (RBI) here to organise a friendly football match with the teams here.

The RBI official facilitated such a match and the Sri Lankan team came here Thursday and played the match Friday at the Nehru stadium.

She said the stadium officer permitted the match on an oral request from the RBI official.

“The stadium officer has no power to permit any match at the Nehru Stadium. Only the Sports Development Authority of Tamil Nadu has such a power. The stadium officer has demeaned the sentiments of the Tamil people by exercising an authority that he does not have,” Jayalaltihaa said.

The other football team from Sri Lanka is from Hilborn International School comprising of eight players and a coach who are here to play a match against Velammal International School.

The Sri Lankan government has advised its citizens not to travel to Tamil Nadu after Lankan pilgrims, visiting a church in Thanjavur in the state, were allegedly harassed. Around 180 pilgrims have returned to Sri Lanka.

– With IANS inputs

 

 

We should abolish Rs 500 and Rs 1,000 notes completely


The white paper on black money produced by the ministry of Finance and presented to parliament during the last session has evoked a mixed response.

One of the major criticisms it has faced is that it has mixed up domestic black money and illicit money kept in tax havens abroad by Indians. These two need to be dealt with in different ways. Some part of the domestic black money is used in productive activities like real estate, trade, construction, mining, transport, restaurants and other businesses. The illicit money kept in tax havens abroad is, by and large, not used for domestic purposes unless it is round-tripped through share markets or foreign direct investment (FDI) to domestic operations.

Domestic black money is a no-confidence motion on the government of India while illicit money kept abroad is a no-confidence vote on India itself – its stability and its people.

Domestic black money is primarily dependent on the cash economy and tries to avoid formal transactions through banks due to fear of being captured by electronic systems and the tax authorities. So the holding of black money is usually in the form of cash and transactions undertaken in cash. This implies that substantial portions have to be kept in high denominational currency, since storing or carrying huge quantities of cash in small denominations is relatively difficult.

In India, if we take only currency notes (and coins), we have the lowest denomination at Re 1 (of course, the Rs 1 currency note has been replaced with coins) and the highest at Rs 1,000 – which implies that the differential is 1,000 times between lowest and highest pieces if currency. In the US, the most popular highest denomination is $100 – and the differential is 100 only.

Not only that, we find from Table 1 below that the Reserve Bank of India (RBI) seems to favour printing higher denominations currency even though the mass of poor people may transact only in lower denominations. We find that in 2005-06, around 57 percent of the total amount of Rs 43 lakh crore of coins and notes introduced in circulation comprised Rs 500 and Rs 1,000 notes. But by 2010-11, the share of the higher notes had become 79 percent of the total value of Rs 95 lakh crore.

This implies that more and more of the denominations in circulation are skewed to higher value notes when the mass of people may need lower value denominations. The very high denominations also facilitate transactions in black money.

If the government wants to reduce domestic black money, it should withdraw Rs 500 and Rs 1,000 notes from circulation, and replace them with lower denominations such as Rs 100 and Rs 50. This can be undertaken in an orderly fashion over a period of say three to four months and all those who possess the higher denominations can exchange it with banking channels for lower denominations. It will automatically bring a huge amount of the funds kept in these denominations into the banking channels.

When this happens, the government can decide the nature of penalties to be levied if the amount has not been declared earlier for tax purposes. For instance, for the year 2010-11, nearly Rs 75 lakh crore would be converted from Rs 500-1,000 notes to new Rs 100s, etc. Of course, an adequate number of new Rs 50-100 notes should be made available from the operational point of view for this conversion.

Another issue about holding cash in our context is this. The black money report says: “As of now there are no legal restrictions to keeping very large amounts of cash with oneself or transporting it from one place to another. One is neither required to report it nor provide any explanation for it. There have been suggestions that the government may consider amending existing laws, including the Coinage Act, 2011, the Reserve Bank of India Act, 1934, FEMA, and the Indian Penal Code, or enacting an entirely new statute aimed at regulating the possession and transportation of cash above a particular threshold limit. This may include creating a limitation on cash holdings for private use, as well as provisions for confiscation of cash held beyond such prescribed limits. However, such laws need a broader political consensus to emerge for their acceptance in Parliament.”

We find that political parties do disburse cash to voters prior to elections and for which a huge amount of cash is held and transported from one location to another. For instance, one report suggests that in the recent Andhra Pradesh byelections cash valued at as high as Rs 32 crore was seized prior to the polls. These were presumably meant for distribution to voters.

An earlier report pertaining to last year’s elections in Tamil Nadu suggested that Rs 24 crore in cash was seized by election officials.

There are many other reports which give us a clue that cash is held and transported in huge quantities not only for bribery at elections, but for other black money transactions. It is important that we bring in the necessary changes in the Coinage Act, 2011, and other relevant acts to make holding of cash above a threshold level, say Rs 10 lakh, punishable. This threshold can be arrived at by the Reserve Bank after taking into account the requirements for genuine cash transactions in the economy like marriage and religious ceremonies, wage disbursals in construction activities, etc. This limit should not be applicable to obviously banking institutions and corporates having construction/project activities where substantial amounts of cash disbursals take place.

In developed economies like the US, there are no restrictions per se in terms of holding or transporting cash domestically, unless it is suspected to be drug money. Even there, transactions beyond $10,000 in cash are expected to be notified to the Internal Revenue Service (IRS) by shops and establishments. Of course, there are restrictions on the amount of dollars one can transport during immigration/emigration. But since the US is a well developed economy, most of the transactions are conducted through plastic cards or banking channels.

In our country, cash transactions are more to avoid taxes and generate black money. The higher the denomination, the easier it is to transact and transport. Taking into account our situation, we should evolve laws to prohibit the holding of cash beyond a threshold level and this will go a long way in preventing disbursals for black transactions.

These two steps – demonetising Rs 500 and Rs 1,000 currency notes and creating a threshold limit for cash holdings – will facilitate a reduction in domestic black money transactions. These decisions will not eliminate domestic black money, but will help reduce it to some extent. Probity in public life comes in an incremental fashion since we have reached the nadir. Are our parliamentarians and other opinion makers ready for at least incremental steps to reduce domestic black money?

By R Vaidyanathan

R Vaidyanathan is professor of finance at the Indian Institute of Management, Bangalore. These views are personal