Cash crunch grips India one month after move to demonetization

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Five weeks after India's Prime Minister made the surprise announcement to revoke the 1,000 rupee and 500 rupee notes (about $10 and $20 Cdn), the country is in chaos. Those two notes represent over 85 per cent of all of India's cash supply, a country heavily dependant on cash transactions.

Exchanging old notes for the country's new official currency has meant hours-long lineups at banks. Outside one such line at a bank in New Delhi is where freelance journalist Shantanu Ray caught up with frustrated queue waiters.

"When do we work? Half the day goes in search of money. There is no cash in hand and there is no change that is visible," a man tells Ray.

The lines are due to the fact that there isn't enough new currency to replace all the old notes deposited, so people are restricted to withdrawals of 2,400 rupees (about $47 CAD) a day for each bank account.  

Ah. Then we are doomed.- Woman waiting in line at bank in New Delhi

"I need substantial cash for transport," says one woman waiting in line. Others say they need cash to pay their daily wage workers, like maids and delivery boys.

So far many have been coping with borrowing from family and friends.

"Ah. Then we are doomed," says one woman when asked what happens when her parents stop letting her borrow.  
 

Running a business during demonetization 

Abhishek Chakravarty is the owner of meal delivery service says since the demonetization came into effect he has lost 70 per cent of his customers. His customers can't pay him cash and without that he cannot pay his suppliers and his staff.

His attempts to go towards an online payment system hasn't met much success because his clients don't have the means to pay electronically, and even if they did, he still needs cash to pay his suppliers.

"[Narendra Modi] should have given us some  time. Many people don't have bank accounts so you have to pay them cash," he tells The Current's friday guest host Piya Chattopadhyay.
 

Demonetization and rural India

The Indian government says demonetization was an effort to crack down on corruption and the illicit economy. However, trade analyst Devinder Sharma says the government could have met that objective without penalising everyone standing in lines to get their money.  

"It is true that there has been hoarding and that there is black money operating in this country but many estimates show that there is only between three to six per cent black money in cash," he tells Chattopadhyay. 

The demonetization has hit rural India hard, as farmers don't have access to the cash they need to buy supplies to sow new crops or pay the labourers to work their fields. To compound that, daily wage earners who have been laid off by businesses in the cities because their employers don't have the cash to pay for them have returned to their rural villages. In their villages nobody has any work for them and no way to pay them increasing their economic vulnerability.

"If you ask a labourer the answer has been 'I don't even have white money. Why is the government expecting black money from me?'" Sharma says.
 

Listen to the full segment near the top of this post.

This segment was produced by The Current's Sujata Berry.