Demonetisation of currency bills causes chaos within India and beyond

Some hope for term gains, others remain sceptical

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November 11, 2016

/ By / Kolkata

Notes of INR 500 and INR 1000 cannot be used anymore.

Notes of INR 500 and INR 1000 cannot be used anymore.

The sudden announcement by Indian Prime Minister Narendra Modi on the new measure of demonetisation to deal with black money and fake currency bills has left the country divided.

Indian Prime Minister Narendra Modi announced on Tuesday evening that high value bank notes of INR 500 and INR 1000 would be demonetised overnight in an attempt to address the issue of black money in India, an issue that has plagued the country. He assured citizens that there was no need for panic or rush as banks would comply and people have until the end of 2016 to deposit cash in their accounts or change the high-value notes withdrawn from Wednesday. Announcing that new INR 500 notes were to be introduced alongside INR 2000, Modi claimed this move would also resolve the issue of fake currency circulation. However, many were rendered helpless in the country as they found themselves with no cash for daily expenditures and citizens overseas were reportedly clueless about the return and exchange of these notes. Many are highlighting that the inconveniences are a short term affair, while others are claiming that the step taken by the government may not be as consequential as it is ambitious.

ATMs are set to open from today but a large number of people remain in a spot of bother. Domestic help Deepa shared, “I have been counting my change and borrowing money just to travel to work. A lot of us don’t even have bank accounts and are left wondering how our problems will be resolved.” Adding that this shared sense of confusion has led to panic, she said, “There are large queues outside banks for exchanging our wages. At this point I just need money to buy food.” Local markets have seen a decline in sales with many unable to buy daily necessities. Images have flooded social media, showing the serpentine lines outside banks and ATMS, joking about how the common people are suffering the most instead of businessmen such as Vijay Mallya and Gautam Adani who have been accused of defaulting loans and hoarding large amounts of black money.

Even as the decision is being lauded by many as it can potentially cause a positive impact in the long run, the transition to new notes remains a challenge to be addressed. Bijoy Sarkar, who works as an office assistant said, “I live with my mother and we have so far managed our expenses, but we are worried that inefficiency from the banks can leave us stranded.”

Change and confusion

For many homemakers, the demonetisation meant coming clean about their savings. In India, many homemakers choose to save money in the form of liquid cash and at times even by hiding from their spouses, for various reasons. For the women who save from the earnings of their husbands, the new move now puts them in a tricky scenario with notes being needed to be changed and deposited, thus being brought to the surface. Also, UNDP had reported that as of 2014, 80 pc of women in India did not have their own bank accounts, meaning that bank accounts need to be opened for them. Signalling a time for changing saving patterns and taking control over their finances, women are left with making hard choices.

Many outside India, who are still in possession of the two notes in question, were left without answers. Non-Resident Indians (NRIs) and Indians settled across the world in countries such as Canada and the US reportedly stated that Indian banks with branches abroad were not accepting notes that were left with them. This has led to a search for other options. Many NRIs took to twitter, asking similar questions.

A check on black money?

While the move by Modi has primarily been taken in an attempt to bring unaccounted money into the banking system and also stop circulation of fake currency, critics are worried about the efficiency of such a step. With virtually no estimates on how much of transformed black money exists in the country, in the form of jewellery, land or such fixed assets, the extent to which the problem can be dealt with comes under the scanner. Moreover, black money stored away in offshore accounts is another pressing issue. Such questions have led sceptics to question whether this move would have a significant effect on the system in which black money operates and changes hands. Rahul Gandhi, vice president of the Indian National Congress party, tweeted, expressing the same concerns.

The IMF spokesman, Gerry Rice, in a press conference today, supported the decision, but hoped for a smooth transition. “We support the measures to fight corruption and illicit financial flows in India. Of course, given the large role of cash in every day transaction in India’s economy the currency transition would have to be managed prudently to minimise possible disruption,” said Rice.

However, with only a few days since the announcement and implementation of the new decision by the government, much remains to be seen. Whether or not there will be a significant change in the black money economy of India with the change in notes can only be observed with time.

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