India’s currency chaos is stalling cash transactions

In the second one too, the persistent issue of long queues at banks came up for discussion. Banks have been asked to recalibrate 12,500 ATMs every day. Especially not one carrying a club. “But I don’t see anything good happening”.

Modi’s latest idea was to declare on November 8 that existing 500 rupee ($7.34) and 1,000 rupee currency notes, which together account for 86% of the value of notes in circulation, would no longer be accepted as legal tender.

The government is visibly struggling to print enough notes to replace its withdrawal of 86 per cent of the currency in circulation.

Families began hoarding small-denomination currency, merchants reported plummeting business and salaries went unpaid. In a few months, even new Rs 1,000 notes will be added.

Last week, the Indian government chose to get rid of two widely circulated bills, the 500 and 1,000 rupee notes. A government bank’s manager said, “Many ATMs are in the process of recalibration where a new cassette of Rs 2,000 has to be installed and the Rs 1,000 bin has to be removed”.

But in the parking lot outside the Axis Bank, no one was talking about a sound sleep. “We can not change it from external control!” said Modi.

They also point out the possibility that our faceless black money-hoarder would have even used benamis to put the unaccounted cash into different bank accounts to escape tight scrutiny and tax penalty implication that would happen on such deposits post the demonetisation announcement. Many legitimate businesses deal with large amounts of cash.

A new gold rush also emerged soon after Modi’s announcement.

“This [demonetization] is a step which will make a positive difference, if the transition challenges get handled well by the administration”, says Jitendra V. Singh, Wharton emeritus professor of management. The tax amnesty saw $10 billion in declarations of “black money”. As a result of this, those who have already exchanged old currency notes are unable to queue up again. “What the governments needs to preserve at this stage is goodwill”, he said.

How are money launderers getting rid of outdated currency? The party should revisit this stance, given the strong nexus between politicians, officials and crony capitalists that accounts for much of India’s corruption.

Economists reckon that the currency squeeze will knock 0.5-1 percentage points off India’s growth rate in each of the next two quarters.

Some of those waiting at Axis, like Parveen, were there to exchange their own money.

Indians have until November 24 to exchange old notes for legal tender, up to a limit of 4,500 rupees, per card, just over £50. The educated people may bear the pain but do you think the poor and the illiterate will be able to sleep in peace? In some cases, there were altercations as people waited for hours. They will be allowed a one-time withdrawal of 250,000 rupees ($3,700) – more than 10 times the now weekly limit of 24,000.

Of course, what the government loses out, it also gets back to an extent.

ATMs in Tamil Nadu have reportedly started disbursing Rs2,000 note, but there has been a marked shortage of smaller denomination notes, particularly Rs100 as the people keep holding them. India uses the same system during elections, to stop people from voting repeatedly.

Credit and debit cards are unaffected, but only half of Indians have bank accounts. Enormous fines will be levied on anyone found to have been illegally avoiding taxes.

Meanwhile, expensive marriages were called off. Deaths can not be called off so easily – but the government catered to that by allowing payment at crematoria in old currency.

It says: “India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace”. “Cash is available when they need it”.