My quest for cash in Modi’s India

Posted on November 14, 2016

I had just slapped a Rs500 note on the counter of a south Indian snack stand when my phone rang.

“Are you watching Modi’s speech on television,” my colleague said excitedly. “I think he’s scrapping all Rs500 and Rs1,000 notes.” And thus I was catapulted into a maelstrom from which my household — and 1.2bn Indians — have yet to emerge.

Other economies have phased out high-value currency, concluding it was mostly used for illegal activities. The US stopped printing $500 and $1,000 notes decades ago, while the European Central Bank is discontinuing €500 notes. 

But India’s “high-value” notes — worth $7.50 and $15 respectively — are not just the coin of criminal enterprises. They account for 86 per cent — by value — of the cash circulating in this fast-growing economy. It is the currency of daily life, used to pay maids, drivers, security guards and construction workers; to pay for taxis or autorickshaws; and to buy fresh fruit and vegetables from the small vendors that dominate the grocery trade. 

The overnight cancellation last week of 22bn notes, in a quest to catch out holders of illicitly earned or untaxed “black money”, is an experiment with few precedents. Such shock treatment has mostly been used in countries facing acute crises: Germany after the second world war, the Soviet Union just before its collapse and hyperinflationary economies such as Zimbabwe. 

Initially, I wasn’t worried. I had about $500 worth of the doomed notes in cash but the government is permitting them to be deposited into bank accounts until December 30. My bigger concern was getting my hands on money to spend for daily needs. 

Trawling through various bags and drawers, I found about Rs1,100 in Rs10, Rs20, Rs50 and Rs100 notes — plus another Rs100 or so in coins. This wouldn’t last long; most of our fresh fruit, vegetables, meat and fish are bought in cash from small, informal vendors — few, if any, of whom are enabled to take credit cards. 

When banks reopened on Thursday, after a one-day shutdown following the announcement, I arrived at my tiny local branch with my “high-value” notes in a small bag. The branch was a little busier than usual, with a dozen people queueing for just two tellers. I decided to return the next day, when — silly me — I thought the initial rush would die down. 

I then popped into the local mom-and-pop grocery shop, which sells dry goods, to discover that the owner was still accepting old notes as long as I bought in multiples of Rs500, as he had no change. I spent Rs2,500 yet many of the things I needed, such as lentils, weren’t available. There had been a run on pulses, flour and cooking oil by people using condemned currency to stock up on staples. 

The next day I arrived at the bank before opening time to find a long, snaking queue. I found my way inside through a back door, successfully deposited some of my scrapped notes and withdrew Rs10,000 in denominations of Rs100. I left elated: my ability to purchase fresh milk, green beans and papaya secure. 

This weekend, the mom-and-pop grocer wouldn’t take the old notes. The government-run co-op was accepting them — but spending them on butter and wilted spinach required both an identification card and purchases in multiples of Rs500 as there was no change. Queues at banks and ATMs have since only grown longer. 

The Reserve Bank of India has called on people like me, who have valid currency, not to hoard it. But I’m sorry, I’ll be spending my precious Rs100 notes as judiciously as I can because God knows when I’ll be able to get more cash without hours of queueing. 

I used a debit card to pay for Rs200 worth of banana chips. When I took my daughter to have her hair trimmed, which costs Rs300, her usual barber turned out not to be equipped to take cards. I went somewhere else that was. 

Legions of cash-driven traditional businesses are being hit hard, as the currency squeeze pushes the plastic-enabled, middle-class consumers towards larger, formal companies that accept other modes of payment. But traditional veg vendors are still welcome to sell to me. For now, at least, I’ve got change.

amy.kazmin@ft.com

You must be logged in to post a comment Login