Modi seeks to rally public behind India’s currency crackdown

Posted on November 14, 2016

Indian prime minister Narendra Modi sought on Monday to rally public support for his draconian decision to scrap most of the country’s existing banknotes, while the government urged citizens struggling to obtain cash not to panic.

Speaking at large political rally, Mr Modi said his decision to scrap Rs500 and Rs1,000 notes was a decisive blow against hoarders of illicit cash. He urged citizens to withstand their temporary hardships with grace in order to help create a “corruption-free India”.

“Poor people are sleeping peacefully; it is the rich who are running pillar to post to buy sleeping pills,” he told the crowd in Uttar Pradesh, which is heading for critical state legislative assembly elections in the next few months.

“I had no other option to crack down on black money,” Mr Modi said. “I want to assure you that your inconveniences will not go in vain.”

The move — which affects about $223bn worth of notes, nearly 86 per cent of the rupees in circulation — has shaken India’s cash-driven economy, damping retail sales and causing mayhem at banks, where old notes are being exchanged for limited supplies of new currency.

Opposition parties have fiercely criticised Mr Modi’s administration for the difficulties facing the public, with long queues forming at banks and automated teller machines, and some people camping out overnight near cashpoints hoping to secure money once they are refilled.

The government has called for calm amid major bottlenecks that have impeded its effort to distribute the new currency rapidly.

The new banknotes are slightly smaller in size than the old notes and the nation’s roughly 200,000 ATMs need replacement parts in order to handle them. The government set up a task force on Monday to supervise the process of recalibrating the machines.

“Enough cash is available and there is absolutely no reason for the public to feel any kind of panic,” Shaktikanta Das, secretary of economic affairs in the finance ministry, told reporters on Monday. “In the days to come, the supply of money through various channels will be improved.”

New Delhi has extended the period during which old notes can be used at petrol stations, government hospitals and to pay taxes and utility bills until November 24. Limits on withdrawals from banks or ATMs have also been raised slightly.

But Mr Modi’s surprise move — which came at the peak of India’s wedding season, normally a period of frenetic spending — is seen as a major blow to consumption, which has been a primary driver of the country’s economic growth.

Sales of consumer durables, for example, grew 17 per cent year on year in September and 7.6 per cent in the first half of the current financial year, according to recent data. But consumption, along with the property and construction sectors, are expected to be major casualties of the squeeze on cash.

“It’s clearly going to be a big impact in the short term, and it’s going to be particularly big in the property market,” said Chris Wood, managing director and equity strategist at CLSA. “The key question is how long does it last, and that’s going to be very much caught up in the technical issue of can they replace this currency quickly.”

He added: “If it’s just a two week glitch, it’s not a disaster. But if it’s a two-month glitch, it is.”

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