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n0directionhome-blog · 8 years ago

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Modi’s money

At the same time as Trump was creating a ‘hoo-ha’ of American politics, the Indian Prime Minister decided to distract his countrymen and women by proving himself a worthy opponent at wild decision making.

At 7pm one evening, TV and radio channels suddenly announced the recall of all notes higher than 100rupees (approx £1). Not personally possessing a broadcasting gadget of any kind (along with 80% of the country’s inhabitants), a thoughtful friend called me at 1130pm and told me I had to deposit my 500rupee notes in an ATM within the next half an hour or I would lose them. If I hadn’t seen a similar post on facebook a few minutes before, I would’ve thought he was joking. The ATM opposite my accommodation had queue around the block so I went back to bed, guessing that another solution to enable the 1.2billion people in India to deposit their money would present itself.

Sure enough the next day we were informed that it would be possible to deposit old notes for at least a month… if you were brave enough to face the queues.

The motivation behind this demonetisation was to catch illegal ‘black money’ and tax avoiders who’d been hoarding piles of notes at home rather than paying them into bank accounts and paying tax. A limit was imposed on the total deposit amount, so that anyone stashing huge piles in their homes would be taxed 200% on anything above this limit. Stories circulated regarding bags of money found floating in the Ganges or being set on fire.

The government began distributing the new notes to the banks and imposed a daily withdrawal limit of 2000rupees (~£20), given in the form of a single note. Without any 500rupee notes in circulation, these 2000rupee notes were almost useless since no one had any change...

By the time the first weekend came, I still hadn’t found the motivation to join queues so long I’d heard had caused deaths and had about 50rupees left in my pocket. That put an end to my plans of being able to afford an auto into town, eating in a local restaurant or buying any beer!

These were minor problems compared to the rest of the population. Life in the campus wasn’t as badly affected as those living outside. People would give services on loan and our ATMs were refilled daily.

It would have been quite a different story for the local tea waller, selling chai for 6rupees on every street corner, or the coconut seller, collecting coconuts to sell in order to feed himself and possibly a family each day. After one week of everyone’s cash drying out, these folks would have no income for days, or even weeks.

Plenty of the population don’t have bank accounts or even an address! This situation left them unable to use what little money they had, and the necessity to spend many days standing in the queues (without work) to exchange their notes.

It was also wedding and tourist season, causing a lot of stress for those planning either of these. And even though hospitals, train stations and airports were supposed to accept the old money for a few months, in rural places this was not always the case, leaving patients unable to obtain their desperately needed medicines or treatment.

Local businesses started giving stuff on credit as the amount of cash in circulation dwindled. People switched from buying groceries from the local market to using online supermarket chains. To me it felt like all the wrong people were benefiting from this.

One month later saw little improvement to the situation, and instead I heard stories of banks threatening to run completely out of the new notes. The population however appeared to adapt, and even the local fruit sellers began offering the ability to pay through mobile phone applications.

Exactly who suffered and if it was worth it is still not clear (to me at least). You never saw any smart business men in the mile long queues forming outside the ATMs. I heard plenty of stories of dormant bank accounts suddenly acquiring an influx of cash for a few days (which the owner of the account couldn’t actually withdraw), which then magically vanished again, as well as tales of gold sellers allowing people to buy huge amounts of gold and back dating the receipts.

Now that more than 2 months have gone by, it seems the worst of the situation is over, 500rupee notes are now available and there is a lot more cash in circulation once more. I am left wondering how much of the black money really ended up in the hands of the government, and how much is floating at the bottom of the Ganges, or distributed among family and friends of the crooks. How many tax avoiders simply found new solutions, new people to bribe, or new tricks to cheat the system, and will this scare really will make them think twice about repeating the same behaviour in the future?

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