India is reeling from a severe cash crisis following the government’s decision to withdraw high value currency notes from the country’s financial system.
The government has described the move as a surgical strike against black money but as Bismillah Geelani reports, the scarcity of cash has thrown daily life across the country out of gear.
I am outside the Reserve Bank of India building in New Delhi.
It’s 8 o’clock in the morning. The bank opens at 9, but more than three hundred people have already queued up here.
Among them is 60-year old Mohammad Mustaqeem. He runs a garment shop but hasn’t been able to open it for the last 3 days.
“There’s no business in the market. The only thing for us to do now is to stand in these queues for money because without it we can’t even get food.”
“The grocer is now refusing credit so we can’t get milk, we can’t get vegetables and other things. I’m a diabetic but I haven’t taken medicine for three days because I can’t pay the chemist. Nobody is accepting the old notes,” Mastaqeem told me in desperation.
At another bank, 45-year-old Shobha Devi is getting annoyed at the slow pace.
She has been going from bank to bank this morning and this is the third one. Hopefully, she says, this one will have cash.
Since last week, there have been long serpentine queues outside banks, ATMs and post offices across the country.
Following the government’s decision to withdraw 500 and 1,000 rupee notes from circulation, millions are rushing to change their old currency.
Prime Minister Narendra Modi says the decision is necessary to crackdown on corruption and black money.
“There comes a time in the history of a country’s development when a need is felt for a strong and decisive step,” Modi announced.
“To break the grip of corruption and black money we have decided that the 500 rupee and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight tonight. This means that these notes hoarded by anti-national and anti-social elements will become just worthless piece of paper.”
However, the prime minister clarified that people who have these notes will have until year-end to change them at banks and post offices.
But severe restrictions have been placed on the amount that can be changed and withdrawn from banks at a time.
Still, the move has been widely welcomed, with many economists, financial experts and the public at large lauding Prime Minister Modi.
Rajiv Kumar is from the New Delhi-based Centre for Policy Research.
“This is a historical step, we should all support it because we know that 20 to 40 percent of our economy was in the parallel or black economy; it was eating into the inert of our economic system.”
Kumar continued, “the fact is that this is like routing out malignancy from your system and that’s why you have people after people from the middle class praising Modi because when you have malignancy you are prepared to bear a bit of the pain of the chemo and radiotherapy that you get.”
But as the fallout from the decision becomes apparent, with a deep financial crisis throwing daily life out of gear, the voices of dissent are growing louder.
Senior journalist Shivam Vij explains.
“I think with every passing day people are losing patience over the scheme, the sentiment that this is a minor convenience for a greater good is reducing by the day.”
“The suffering that the people are going through is far from minor inconveniences,” said Vij.
“There have been till yesterday at least 25 deaths because of demonetisation; this includes suicides, heart attacks, and elderly people collapsing in queues that is the kind of suffering. Can you imagine if 25-30 people had died in a terrorist attack we would have been asking for a war with Pakistan,” Vij concluded.
The 500 and 1,000 rupee notes are the most widely used forms of currency, accounting for more than 80 percent of the current cash flow in India.
So the abrupt withdrawal has led to a severe cash crunch.
And it doesn’t address the problem of black money either, argues Jayati Gosh, a professor of economics at New Delhi’s Jawaharlal Nehru University.
“Let’s first of all recognise that black money is not a stock that people keep under their beds and so on, it’s a process, it is transactions. What you have to do is curb transactions that create black money,” Gosh explained.
“Black marketers don’t keep currency, that must be 5 or may be 6 percent of their total holdings, they buy other assets, they buy gold, they buy foreign exchange, they put their money in foreign accounts, they buy real estate, they do all of that kind of thing.”
The opposition parties are also up in arms against the move and have formed a united front to demand a roll back.
The government, however, has rejected the opposition’s demand while assuring swift measures to minimise the hardships people are going through.