India’s destitute working class and rural populace are most affected by the Modi government’s drastic and unexpected decision to scrap the nation’s highest denomination banknotes. Fabian Kretschmer reports.
The abrupt invalidation of India’s highest denomination 500 and 1,000 rupee notes ($7.5 and $15 respectively) has morphed into a momentous social and economic experiment.
The Indian government, led by Prime Minister Narendra Modi, declared last week that the notes would cease to exist as legal tender as part of its efforts to clamp down on “black money,” or untaxed money and counterfeit currency, and corruption.
The old notes can be exchanged for new ones or deposited in a bank account until December 30, the government said, noting that the old ones can temporarily be used for essential services such as at government-run hospitals for medical care. The scrapped banknotes account for about 86 percent of the value of currency in circulation.Since the announcement, millions of Indians nationwide have lined up in front of the country’s banks and automatic teller machines (ATMs) to exchange their old, now worthless, currency for the new banknotes the government issued in their place.
However, the banks have struggled to cope with the sheer numbers of people looking to exchange and withdraw money, resulting in long queues and hours of waiting before being able to access those services.
Furthermore, weekly limits have been in place as to the amount of money a person can exchange and withdraw. The currency operation also requires a recalibration of ATMs across the vast nation that will allow them to disburse the new notes, which are said to be of a different size now.
An emotional appeal
India’s Finance Minister Arun Jaitley recently said it would take some two to three weeks to recalibrate all the ATMs.
The initial enthusiasm the move generated, as an assault on black money hoarders, has now been overtaken by the cash-strapped Indian public’s growing frustration and anger at the massive disruption caused to their daily lives.
Responding to it, PM Modi delivered an emotional speech on Sunday, November 13, in which he appealed to the country’s increasingly restive public to give him 50 more days to rectify all the problems associated with the currency switch.
Such appeals, however, offer little respite to those suffering and paying a heavy price from the current cash crunch, with reports suggesting a number of tragedies taking place nationwide.
In a suburb of India’s commercial capital Mumbai, for instance, a newborn has reportedly died after the doctor at a clinic there had refused treatment as the child’s family could pay only in the old currency. That’s because old currency is allowed to be used only in government hospitals, not at private ones.
Meanwhile, a 55-year-old woman in the southern state of Telangana committed suicide last Thursday after falsely believing that her long-term savings that she had stored in the invalidated currency were worthless.
While the government issued a fresh notification on Sunday regarding the use of the abolished banknotes, it still remains unclear whether private hospitals are allowed to accept them. Management of private hospitals, raising concern, termed the notification as “confusing.”
Rajiv Singal, member of a trust that runs few hospitals in suburban Dahisar, told the PTI news agency: “Private hospitals and patients are the most hit people due to demonetization as government has failed to come up with clear-cut guidelines. Even the notification, released on Sunday, is not clear on whether private hospitals should accept old notes or not.”
“The notification is silent on use of demonetized notes for private hospitals as it read, hospitals, pharmacy, chemist shops would be able to accept the notes till November 24,” he said.
In the last four days alone, banks had collected three trillion rupees (41 billion euros, $45 billion), according to the finance ministry. But they had managed to distribute only 500 billion rupees. In some cases, the lack of banknotes forced banks to issue coins, with the Indian daily Times of India reporting about a bank customer carrying several plastic bags filled with 10 rupee coins.
While banks remained open on the weekend, they’ve been shut on Monday on account of a religious holiday.
And the government says it expects the ongoing inconvenience to the public to continue until the end of December.
The problems are particularly acute for the India’s impoverished working class and rural populace, who also encounter difficulties accessing banking services.
Moreover, there are regions such as the northeastern part of the country where the services are not widely available, and for the country as a whole there’s only one banking branch for every 9,500 people, shows data from India’s central bank.
Furthermore, a whopping 40 percent of Indians remained outside the “ambit of formal banking,” that is without a bank account, the government said on June 1, 2016. Many of them are either poor peasants or employed as daily laborers toiling in menial jobs.
The urban rich, on the other hand, haven’t faced the same issues, as they continue to carry on with their daily lives by swiping their credit cards and making online payments.
In the nation’s urban centers, like in the capital New Delhi, a thriving black market for currency exchange has come into existence, with middlemen offering to exchange the old banknotes for a 15 percent commission.
Counterfeit money already?
The Indian government has also introduced a new 2,000 rupee ($30) banknote. The new notes, however, differ only in terms of design and there was simply no time to incorporate new security features, a senior official was quoted by the Hindu newspaper as saying.
In fact, the first case of forgery of the new 2,000 rupee note has already been reported in the state of Karnataka, where a flower merchant was allegedly duped with a fake banknote.
The government’s demonetization move represents a reversal of roles for the current ruling Bharatiya Janata Party (BJP) and the opposition Congress party. That’s because the last time India mulled such a move, it was in January 2014 and under the previous Congress-led administration.
The government then had announced that all currency notes issued before 2005 would be withdrawn by March 31 that year and must be exchanged for new notes with more safety features. But the BJP objected to it, terming it a “strongly anti-poor” move.
“The latest gimmick of finance ministry to demonetize the notes before 2005 is an attempt to obfuscate the issue of black money stashed outside the country… This measure is strongly anti-poor,” the BJP spokesperson, Meenakshi Lekhi, said at the time.
Against this backdrop, opposition parties in the country have lambasted the Modi administration’s decision and are looking to form a united front to attack the government.
Still, there are others that say the move could pay off in the long run and help India tackle the menace of black money and tax evasion.
The European Union has also welcomed it, saying that ridding the financial system of “black component” and bringing transparency will strengthen the Indian economy and boost growth.