Desperate customers throng banks after sudden
withdrawal of high-denomination notes from circulation
By Vidhi Doshi and Katie Allen
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Customers at a bank in
Amritsar. Many Indians were left without cash for
their daily expenses.
Photograph: Narinder Nanu/AFP/Getty Images
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Queues of angry, panicked Indians wound
around bank buildings in Mumbai, the financial capital, on Thursday morning,
two days after the prime minister, Narendra Modi, announced that 500- and
1,000-rupee notes, worth around £6 and £12, would be taken out of circulation.
In a televised announcement on Tuesday night,
Modi had urged Indians not to rush to banks, as they would have until the end
of 2016 to deposit cash in their accounts. But with the high-value notes
withdrawn from Wednesday in an effort to combat corruption, black-market trade
and tax evasion, many were left without cash for day-to-day expenses.
Banks were closed on Wednesday, and reopened
on Thursday morning with a cap on cash withdrawals. ATMs remained closed, so
currency was only available from the banks. Newspapers around the country reported
long queues at branches, as people scrambled to exchange their high-value
banknotes for 100-rupee bills.
At the Churchgate branch of the Bank of
India, dozens of people queued in the midday heat, filling out deposit forms as
a security guard barked instructions. “Life is completely paralysed,” said
Maganbhai Solanki, who had been waiting in line for four hours.
“On the news, they said banks would open at
8am today. I got here at 8.01,” he said. “Now, it’s noon, but I’m still here.
Around 50 people in the queue ahead of me got tired of waiting and left but I
have no choice. There’s no money in the house. We only have 500- and
1,000-rupee notes which are worth nothing. We didn’t even have enough to pay
the milkman this morning.”
“I can’t even buy a cup of tea,” said Guru
Birajdar, a lawyer. “I didn’t go to work today because I had no cash. All my
money is in 500s and 1,000s so I had to come straight to the bank this morning.
I had two 100-rupee notes in my wallet on Tuesday night, but I used that up yesterday.”
Shops, train stations, and taxis stopped
accepting 500- and 1,000-rupee notes on Wednesday, interrupting normal trade.
Even hospitals, which are exempt from the immediate demonetisation, have
reportedly turned down payments in high-value banknotes.
Some complained that Modi’s surprise
announcement had completely disrupted normal life. “Nobody is willing to give
you change,” said Solanki. “They should have planned this properly instead of
springing it upon us.”
In rural areas especially, where around
two-thirds of India’s 1.25 billion population live and access to banks is
difficult, Modi’s announcement caused chaos. Reshma Murthy, who works as a maid
in the city, said she had come to deposit 4,000 rupees for her family in her
village. “They called me and said they had no cash at all. This was a bad
decision. They should have given us more time. It happened too fast,” she said.
Others argued the post-Diwali season, during
which people had received cash bonuses, was ideal timing for the announcement.
“The local municipal elections are starting soon, and it will make life very
difficult for politicians who take a lot of cash bribes around this time,”
Birajdar said. “For us, it is an inconvenience, but it was a good decision by
the government.”
Analysts said the surprise move could hurt
the Indian economy in the near-term but would ultimately prove positive, by
cutting corruption and giving a badly needed boost to stretched government
finances.
There are also hopes the clampdown will curb
inflation, notably cutting property prices – an area of the economy where many
transactions are in cash. That in turn would give India’s central bank more
leeway to cut interest rates.
“This initiative will likely hurt growth in
the very short term, but will yield significant benefits in the medium to long
term as corruption is cut and the ease of doing business improves, as more of
the economy moves into the formal sector,” said Jonathan Schiessl, chief
investment officer at Ashburton Investments.
The move also sent positive signals about the
government’s determination to clamp down on black money, said Mihir Kapadia,
founder of wealth management company Sun Global Investments, which is based in
London, Dubai and Mumbai.
“Corruption, tax evasion and black money have
been major problems for the Indian economy for many decades. Black money is a
major factor in propping up property prices and inflating valuations,” he said.
“This is a bold, dramatic, unprecedented move
… It shows Mr Modi’s determination to tackle corruption and vested interests
and make very fundamental reforms. This is very positive for the economy and
makes us convinced that reforms will be pushed very deeply,” he said.
By its nature, India’s shadow economy is hard
to quantify. But a 2010 World Bank-sponsored study (pdf) estimated it was
equivalent to around a quarter of the country’s GDP.
Citing those figures, analysts at the bank
Société Générale said the notes decision would prove supportive for stock
markets in India. “This demonetisation step reinforces Modi’s reformist and
anti-corruption credentials and raises the prospect of higher long term growth
potential,” they wrote in a note to clients.