Indians are making declarations at gas stations, jewelry stores, fruit stands and other businesses still accepting 2,000 rupee bills to be withdrawn soon, each worth about $24.
The race to issue India’s largest banknote has begun since the central bank announced this month that it would be withdrawn from circulation by early autumn.
India’s huge economy remains heavily reliant on cash, and many businesses have welcomed the increase in traffic, even if they are short of cash as a result. Economists say doing away with the big bill could help fight corruption, bring workers into the formal economy, improve tax collection and accelerate India’s push for digital payments.
But for some consumers, the move has brought back unpleasant memories of 2016, when Prime Minister Narendra Modi’s sudden ban on large notes left them with enough cash for basic transactions. In an economy driven by rural and informal workers, some do not have bank accounts – or rely on government economic policies.
“It’s better to buy and hold gold or silver,” said 32-year-old Meenu Kevat, a cleaner in New Delhi who doesn’t have a bank account and keeps her money in a tin box. After the recent ban was announced, she said, it took her four days to persuade shopkeepers to convert 12 of her 2,000 rupee notes into smaller dominances.
“I don’t trust cash anymore, now that the government can do whatever it wants,” Ms. Kevat said as she stood in front of a South Delhi grocery store. “It can cancel a note at any time, no matter how small or large.”
The fine print
In 2016, Mr Modi’s government announced without warning that it was withdrawing India’s two largest denominations at the time – the 500 and 1,000 rupee notes – to expose and punish people who carried huge amounts of money who could not be accounted for.
After that sudden demonetization, ATMs were overrun and some retail stores came to a standstill as customers hoarded what little cash they had. And because the withdrawn notes accounted for about 86 percent of the cash in circulation, the government decided to introduce the 2,000 rupee note as a “remonetization” measure to alleviate the currency crisis.
So far, the move to withdraw the 2,000 rupee notes from circulation has caused much less disruption. That may be because they make up less than 11 percent of the currency in circulation. India’s 1.4 billion people also have until September 30 to issue the bills or exchange them at banks. (The bills will remain legal tender after that, but many Indians take the deadline seriously, fearing government policy could change.)
In the long run, scrapping the 2,000 rupee notes will likely help a gradual, positive move toward formalization and transparency, said Phyllis Papadavid, an economist who studied the 2016 demonetization program. For example, more employees must be able to formally register and apply for benefits and there will be higher thresholds for tax evasion.
“I can’t think of any aspect of an economy that’s been made worse by digitization or formalization because essentially you have better use and management of information and better accountability,” said Ms. Papadavid, the director of research and consulting at Asia House , a research firm in London.
In the short term, however, the cash rush has caused some headaches.
Briefly changed
Indian news media have reported a nationwide wave of foot traffic in companies willing to accept 2,000 rupee bills in recent days.
“People have a habit of carrying cash in large denominations or gold,” said Vicky Bansal, a jeweler who said his New Delhi store had been particularly busy since the announcement. “So if they can’t hold 2,000 rupee bills, they’ll keep jewellery.”
At petrol stations across India, nearly 90 percent of purchases have been made in rupee 2,000 notes since the announcement, up from the normal level of 10 percent, Ajay Bansal, the president of the All India Petroleum Dealers Association, said in a statement. declaration. With many customers trying to use the accounts to buy gas for as little as 100 or 200 rupees, he added, “the outlets across the country have extremely little change.”
At a fruit stand in South Delhi, the owner, Rizwan Ahmad, said he had stopped accepting 2,000 rupee notes for the same reason.
“It took me three days to pay back the change I borrowed from a tea seller, a hairdresser and a pharmacist,” said 33-year-old Ahmad outside his fruit stand in a busy bazaar. Now he has about $400 worth of 2,000 rupee bills that he needs to unload before the September deadline.
Damaged trust
Mr Modi’s government has characterized the withdrawal of 2,000 rupee notes as a logical step in economic policy. The accounts “have hardly been used, so economic activity will not be affected,” Shaktikanta Das, the governor of India’s reserve bank, told reporters last week.
But some critics called the policy clumsy, saying it has shaken consumer confidence and damaged the integrity of the rupee. A few have also noted that while the 2016 campaign helped the government recover nearly all withdrawn bills, it failed to remove irresponsible cash, also known as black money, from the economy.
The policy has even been criticized by people in other South Asian countries where businesses accept Indian rupees. In Bhutan, for example, 2,000 rupee notes are now “virtually worthless” because they are not convertible, says Tenzing Lamsang, a prominent newspaper editor there. wrote on Twitter last week.
India has talked about making the rupee a global reserve currency, he added. “However, if your own neighborhood can’t trust your currency and its whimsical demonetizations, then good luck getting the world to accept it,” he wrote.
In New Delhi, Shanker Sharma, a gas station manager, recently expressed a similar sentiment. “People don’t trust the government anymore when it comes to cash,” he said.
To cope with the influx of 2,000 rupee bills, he has posted signs warning customers not to fill their tanks with 50 rupees, or about 60 cents, worth of gasoline and expect to be given change. If some do, he said, “I have to drive them away.”
