Thursday was payday for tens of millions of Indians and it created chaos amid the Modi government’s pursuit of demonetisation.
Banks in New Delhi’s central business district displayed “No Cash” billboards within hours of the start of on Friday’s business. Branches of smaller banks did not receive any cash while larger banks with currency chests got a quarter of their requirement.
In Mumbai, several branches were functioning with half shutters down to send a message that they were out of cash. Television news channels said the condition in rural areas was even worse. Since demonetisation was announced, more than 70 people have reportedly died in bank queues.
Gita Hari, a 37-year-old homemaker, said it was frustrating for her not to be able to lay her hands on any cash despite standing in the queue for more than three hours at the State Bank of India branch. The ATM facility outside, too, she said, had run out of cash.
“I have a baby to feed and a joint family to look after. All I am left with is 270 rupees (Dh14.49) in loose change. Tomorrow, I’ll have to queue up again as my husband, a mechanic, has to report for work. I can’t believe I have been denied access to my own money. It’s not a happy situation at all.”
A banker, who did not want to be identified, said that for Thursday they received “only 1.2 million rupees to dispense and all our cash was gone by noon. As a result, we had to down our ATM shutters.”
Ankur Dubey, a branch head at state-owned IDBI Bank, said: “We expect normality to return after December 7 once the salary cycle is over.”
Meanwhile, business establishments were deserted in New Delhi as even the well-heeled are feeling the pinch of demonetisation. Shops only have onlookers, no buyers. New cars are piling up outside showrooms as their sales have slumped. Jewellery showrooms also are deserted.
The better-off may have more money to change but for the mass of Indians living on the margins the disruption and loss of earnings has caused real hardship.
Narendra Modi, the prime minister, expects the cash situation to become normal by the end of December. Critics say he is being over-optimistic.
Meantime, consumers are spending less, which is hurting small producers who, in turn, are being forced to scale back their activities.
As a consequence, supply chains at small, medium and even larger companies are breaking down. Lorries are stranded with no money for fuel, workers will not load goods for free and distributors can’t pay up. Wholesale markets in many cities are shut.
On November 8, Mr Modi said that, effective immediately, the 500-rupee and 1,000-rupee notes were no longer legal tender and needed to be redeemed for smaller notes.
The government called the move a surgical strike to stamp out hoarders of unaccounted cash and to put an end to “black money” – income illegally obtained or not declared for tax purposes, which, the government believes, goes into financing terror and other illegal activities. It also said it would bring into circulation new 500-rupee notes and would replace the 1,000-rupee notes with new 2,000-rupee notes. However, the central bank has been unable to print new notes quickly enough.
Speaking in parliament last week, the former prime minister Manmohan Singh, the economist who designed India’s 1991 economic liberalisation, criticised the Modi administration for its “monumental mismanagement” of the demonetisation process.
Mr Singh said current liquidity squeeze will reduce India’s gross domestic product growth rate by 2 per cent, with agricultural production, small industries and the vast, cash-driven informal sector, which employs millions of youth, hardest hit. Businesses are quietly warning of potential job losses in labour-intensive manufacturing industries as well.
Nobel laureate, Amartya Sen, too, denounced the government’s demonetisation move in a TV interview saying it’s “small fry in terms of achievement but a big disrupter to the Indian economy. We all want something to be done about black money. But surely, it also has to be intelligent and humane. That has not happened.”
By some estimates, Mr Modi may need until May to replace the 23 billion bank notes he has sucked out.
“Modi embarked on the demonetisation drive primarily with an eye on the upcoming assembly elections in five states of Uttar Pradesh, Punjab, Goa, Uttarakhand and Manipur, likely to be held in February-March. With this demonetisation move, Modi runs the risk of being the most unpopular prime minister of India by the time the assembly elections are held as the whole of India is gasping under a cash crisis,” said Rajiv Sharma, a strategic affairs analyst.
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