By Surbhi Gogia
I landed at Delhi’s Indira Gandhi Airport on November 9. It was the day Indian Prime Minister Narendra Modi had dropped the economic bombshell on the country when everybody was eagerly waiting for the US election results. Beginning midnight November 9, the 500 and 1000 denomination currency notes in the Indian economy would be invalid. Imagine an economy where common man’s 85% of the day-to-day transaction takes place through these two bills and rest with 10, 50 and 100 rupee notes, would be dishonouring that money in few hours. The country went in total chaos.
I heard the news in London, UK, at my uncle’s house during my transit from Vancouver to Delhi. I was unaware of the crisis and chaos I would witness with my family in Delhi.
The grill started right in London when we first heard Modi’s announcement. Our discussion on high levels of pollution in the Indian capital and US elections came to a halt. My uncle’s phone started ringing non-stop. UK NRIs went crazy since most of the Indian currency they possessed was in 500 or 1000 bills.
When they heard I was catching the next flight to New Delhi, many wanted me to collect those bills from them and get them exchanged. There were even mouth watering offers to keep those bills and dispense them at my own will. But we are experienced travellers and well aware of the currency disclosure rules. We did not want to get into trouble with Indian customs and the offers were declined politely.
The journey had just begun. We started living the plight of Indian citizens the moment we landed at the Indira Gandhi International Airport. The usual warm welcome at the airport by the family, turned into an overly-tensed situation since we did not see any family member inside the airport to welcome us. We stepped outside the airport and saw our family waiting for us. No one could come inside the airport since there is a 100 Rs entry fee and no one had the 100 rupee bill.
Our family greeted us in an unusual manner. There were no warm hugs, flowers or welcome messages. They took us in a corner and embarrassingly asked us to exchange dollars in Indian currency at the foreign exchange and take 100 Rs bills expecting that Indian government would spare foreigners and give them the 100 or 50 Rs bills. But we met with disappointment. The foreign exchange had no 500 and 1000 Rs bills to offer and international travellers had to use their own resources to arrange the money.
The economy had come to a standstill. People did not have paper currency to meet their daily needs. On my way to home from the airport, I overheard discussions about this move from taxi driver, to rickshawwalas to the neighbours talking about their plight. Though there was tension everywhere, no one seemed to disagree with PM’s announcement. Indians were fed up with increasing corruption and inflation. A 500 and 1000 Rs bill is easy to store and takes less space. Businessmen, jewellers, construction contractors, politicians had stored their black money in these denominations to save it from taxes. According to media reports Pakistan too was infusing fake currency notes in Indian economy to spread financial terrorism. “In a single master stroke, the government has attempted to tackle all three malaises plaguing the economy—a parallel economy, counterfeit currency and terror financing,” wrote Huffington Post.
India is an economy still new to the concept of credit card. Only young generation and the rich use credit cards for payments at restaurants, malls or online transaction. Rest of the population still runs its daily transaction with paper money. They are allowed and even expected to possess a certain amount of paper money without records. Now the question was what would be happen to that paper currency people had.
The government announced that people holding those notes can deposit their money at the banks or post offices. There would be no questions asked for depositing Rs 2,5000 lakh in one week. And there was a limit set to as much you can exchange. But all this transaction was to take place after two days of the announcement. Banks were closed and the currency in 500 and 1000 notes would not be acceptable anywhere. For two days those who had credit cards made online payments to buy grocery. However, there are many who do not know what the credit card is. They do not even have their bank accounts. They run their lives on daily wages. The maid who worked at our place in Delhi too said that she only had money to run her house for one day. The next day she came without eating since there was no money to buy food.
In India maids and cleaners act as points of information. Without taking names they reported incidents on how they were asked by their rich employers to carry big bags of 500 and 1000 currency notes and throw them in garbage.
Those who had stuffed their houses and Swiss bank accounts with black money were worst hit. Government had set a limit on 500 and 1000 currency notes exchange at the banks. The black money people possessed was no match to this limit. The only way out was to either burn those notes or take the alternate route of buying bullion. The day Modi announced demonetarization, people rushed to the jewellers to buy gold. Taking advantage of the situation the jewellers were accepting the banned currency and selling gold at higher prices thinking they would exchange it gradually till December 30. But government was alert and there were investigations on various jewellery shop across the country especially Delhi and Punjab.
As soon as the jewellers came under radar, they closed their shops for undecided period. A visit a local market near my residence and was surprised to find that all the jewellers were scared to sell their gold.
India is a country known for JUGAAD (finding way out of any situation). The most humorous part was Indians finding ways to do business and earn money out of this financial chaos. I found a beggar asking for money with a placard announcing ‘500 and 1000 Rs notes accepted.’
The day banks opened after two days of demonetization announcement, people rushed to get cash from ATMs and banks. Imagine a country with over 100 billion people standing in queues to exchange their currency. The wait seemed to be never ending. There is a culture of assigning work to the poor. The rich hired poor to stand in queues for them and exchange the notes. For every 4500 Rs exchange, they were paid 500 rs. Our neighbour had sent 15 people from his factory to stand in queue and collect money for him from different locations.
Shopkeepers started taking advantage of the situation. They were accepting discontinued currency providing customers will not be returned the balance. If someone bought grocery for 250 Rs, the shopkeeper was accepting the 500 or 1000 denomination note provided balance would not be returned. Suddenly the 100 Rs note that had lost its value due to inflation gained its importance.
I went to buy a dress at a local market. When I asked the price, the salesman told me the dress will cost me Rs 2500 if I wanted to give 500 and 1000 Rs notes. And he was ready to sell me the dress at 1000 Rs if I gave him 100 Rs.
Indians love to believe in rumours and hoard stuff that they believe are going to be less in supply. It is not that 100 Rs currency will be out of economy, but people started stocking up their 100 Rs bills. There were people who started spreading rumours about other changes Modi government might bring along with demonetization. The funniest rumour was about salt getting expensive. People started buying salt. There was a day all the grocery stores in India ran out of their salt stock only to find out the next day it was just a rumour.
There was good, bad, ugly and funny side of the situation. For one, Modi’s masterstroke meant more people disclose their real incomes and pay taxes, which is good for the government’s coffers. (Only about 1% of the country’s population pays income tax currently). Brokerages have estimated that the clampdown on unaccounted cash could bring in as much as $45 billion for the government. This unprecedented stash of cash could help Modi spend more on education, health, and housing.
India’s banking sector, which is fighting toxic loans and liquidity problems, should also bring in benefits. Some Rs1.5 lakh crore ($22 billion) in deposits have been collected by banks since the demonetisation announcement, the Times of India reported on Nov. 14. Banks can use these funds to address their liquidity requirements.
There was bad side of the decision. As the supply of money died up, small and medium-size business were finding it difficult to pay daily wages and raw material costs, among other expenses. (Indian small businesses typically rely heavily on cash for their day-to-day operations.) While the government on Nov. 14 tweaked certain rules and increased withdrawal and deposit caps, it should still be a tough few weeks.
Lot of weddings were postponed as bills to wedding halls, florists, and caterers are typically paid in cash across India.
The ugly side was effect on the common man. For some, the long queues turned fatal. There have been suicides reported, too. In the state of West Bengal, a man allegedly murdered his wife after she returned home from the ATM with no money; reports indicated that he expected her to wait in the queue longer.