With Rs 2,000 notes withdrawn from circulation, middlemen have sprung up in Mumbai’s wholesale markets to accept these notes in bulk, charging a commission from retail business owners for payments to wholesalers with these notes.
Some retail businesses Moneycontrol spoke to said several wholesalers in the wholesale markets in the Malad, Kalbadevi, and Bhandup suburbs of Mumbai were not accepting payments through Rs 2,000 notes. They complained of commissions being demanded by intermediaries in these markets for facilitating payments through Rs 2,000 notes.
According to retail business owners, the middlemen have been facilitating payments through Rs 2,000 notes by charging a commission of Rs 500 to Rs 1,500, depending on the value of the transaction. This trend kicked in after many wholesalers stopped accepting Rs 2,000 notes, pointing out that they were going out of circulation.
“A wholesaler in the imitation jewellery market in Malad (a suburb in Mumbai) rejected my payment in Rs 2,000 notes. Later, I was told by an intermediary that he can help in making the payment through Rs 2,000 notes but I would have to pay a commission of Rs 1,500 for the payment,” said a retailer, who did not wish to be named.
Also read: Rs 2,000 note withdrawal: Banks see no rush for exchange, deposit
Speaking on condition of anonymity, another retailer, who went to the wholesale gold market in Kalbadevi (a suburb in Mumbai), also said his payment of Rs 2 lakh would be done through Rs 2,000 notes but he was told by an intermediary to pay Rs 500 per lakh as a commission.
“A facilitator (middleman) told me that I would have to pay Rs 500 per lakh, and that my payment through Rs 2,000 would then be possible,” said the retailer.
The Reserve Bank of India (RBI), on May 19, announced that Rs 2,000 notes will be withdrawn from circulation but continue to be legal tender. People can either exchange or deposit their notes with banks till September 30, 2023.
Middlemen spot an opportunity
A retailer, who went to a textile factory unit in Mumbai’s Bhandup, said his payment was not accepted in Rs 2,000 notes and that a commission was asked for payments through Rs 2,000 notes. “Why would I pay a commission when Rs 2,000 notes are legal? Some wholesalers are not accepting their payments through Rs 2,000 notes,” said the textile retailer.
Also read: Rs 2,000 note withdrawal: Digital payments may get a push, says former RBI Deputy Governor
Here, market experts and industry veterans highlighted that the announcement of the note withdrawal had caused some panic in the market, as it brought back memories of demonetisation in 2016 for some sections. This sparked the rise of the commission makers.
“The withdrawal of Rs 2,000 notes caused some panic in the market. People started comparing this with the demonetisation of Rs 500 and Rs 1,000 notes in 2016. This caused some intermediaries to step in to charge commission for payments through Rs 2,000 notes,” said an imitation jewellery dealer.
A cash-dominated market
Another thing that experts highlighted is that in the wholesale markets, sometimes payments, which range in lakhs, are done through cash.
“Payments done through cash have taken a hit after the news of withdrawal of Rs 2,000 notes. Largely, payments between retailers and wholesalers are in lakhs and sometimes done in cash using Rs 2,000 notes. This gave an opportunity for middle persons to charge commissions,” said Karan Jain, a gold-dealer based out of Kalbadevi.
Also read: From 1946 to 2023, a timeline of demonetisation and rupee note withdrawals in India
Withdrawal of Rs 2,000 notes
On May 20, Moneycontrol had reported that the decision to withdraw Rs 2,000 notes from circulation would have a negligible impact on the country’s economy due to the lower share of such notes in circulation as well as the wide window to deposit them.
The RBI introduced Rs 2,000 banknotes in November 2016 to meet the currency requirement of the economy in an expeditious manner after the withdrawal of legal tender status for all Rs 500 and Rs 1,000 banknotes in circulation at that time.
Also read: RBI recalls all Rs 2,000 currency notes from circulation
The apex bank said that the objective of introducing Rs 2,000 banknotes was met once banknotes in other denominations became available in adequate quantities.
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