The Strange Consequences of India's Unprecedented Banknote BanBy and
From keeping Indian defense jets on the ready to transfer cash from mints, to banks knocking on the doors of religious institutions to access smaller change, Indian ingenuity is being stretched by Prime Minister Narendra Modi’s cash ban to crackdown on unaccounted money.
India’s cash economy has been thrown into turmoil since Modi announced last week that 500 and 1,000 rupee notes would cease to be legal tender and would have to be deposited at banks by year-end, leaving about one-seventh of currency in circulation. Economists say the move will be beneficial in the long-run as it is targeted at weeding out tax evasion and corruption. Unaccounted money makes up nearly a fourth of the economy. In the short-term though, the biggest crackdown on money laundering in India’s history is having some unusual side-effects. Here are some unintended consequences.
Indian defense jets are on standby to airlift cash from mints across India to remote corners of the country. “Depending on urgency, security and non-availability of commercial aircraft, requests for support from the Indian Air Force is within standing procedures,” a spokeswoman for Reserve Bank of India said.
Currency notes are usually transported from printing presses owned by the central bank to some 4,000 vaults around the country and then to bank branches in specially-built trucks with gunners for security. Since the crackdown, new currency bills have had to be airlifted by helicopter from Patna after reports of shortage in Bokaro and Jamshedpur, a finance ministry official said.
There was a surge in demand for luxury watches after Modi’s sudden announcement as wealthy Indians rushed to make costly purchases with unaccounted cash. One luxury watch outlet in north-west Mumbai saw 45 units of Rolex watches sold on a single day, according to a representative of a watchmaker, who was present when the sales took place. Demand matched what the shop would usually sell in a month and the store had to turn away customers, the person said, asking not to be identified because the person is not authorized to speak to the media.
A new gold rush also emerged soon after Modi’s announcement. “Jewelers who had shut shop for the day on Nov. 8 had to reopen their stores within a couple of hours and were selling gold up to 4 a.m.,” Chirag Thakkar, a director at gold wholesaler Amrapali Group, said by phone from Ahmedabad in Modi’s home state of Gujarat. “Customers were lining up with bags of cash. Some jewelers even had to call the police to organize the crowds.” Customers paid as much as 52,000 rupees per 10 grams, almost double the current prices, he said.
State-run banks have called retired employees to man new makeshift counters where the banned currency notes are being exchanged for new ones. Bank employees have been working long hours without breaks to ease the transition and the government has told lenders to provide them with transportation and food, All India Bank Employees’ Association General Secretary C H Venkatachalam said by phone.
About half of an estimated 9.3 million trucks under the All India Motor Transport Congress were off the road eight days after the announcement as drivers abandoned vehicles mid-way into their trips after running out of cash, according to Naveen Gupta, secretary general of the group. India’s roads carry about 65 percent of the country’s freight. Drivers don’t have enough money for food, truck maintenance and to make payments at border check posts. “It will take a few more days for the situation to normalize,” Gupta said in an e-mailed statement.
Compounding the problem of pumping new money into the system is the need to reconfigure the country’s 220,000 cash machines so that they can dispense the new 500 and 2,000 rupee notes, which do not fit into existing ATM cash trays, according to Navroze Dastur, the managing director for India and South Asia at NCR Corp., which supplies about two-thirds of the country’s machines. Dastur said it will take as much as a month to adjust all the ATMs.
In Delhi, Mumbai and Bangalore, Starbucks Corp. has been serving free coffee to people waiting for many hours in queues in front of ATMs and banks, a spokesman for the company said.
Turning to Religion
India’s religious institutions are opening up their donation boxes to help people meet their day-to-day needs. Martin De Porres church in the Ernakulam district of Kerala, a south Indian state, decided to open its donation boxes after seeing the public’s suffering, Jimmy Poochakkatt, the parish priest, told India Today magazine. Shree Dharma Shastha Mahavishnu Temple in Mumbai also opened its offering box, Raghunath Raghavan, president of the temple trust said by phone. Lenders are also reaching out to religious places to ask them to deposit funds given by devotees to bring currency back in circulation and ease the shortage, according to a statement from the Finance Ministry.
— With assistance by Shruti Srivastava, Saket Sundria, P R Sanjai, Shikhar Balwani, and Swansy Afonso