In­dia’s shock bank note ban sparks cash chaos

Kuwait Times - - FRONT PAGE -

In­di­ans strug­gled to pay for ba­sics goods like food and fuel yes­ter­day and fret­ted about their sav­ings, af­ter the govern­ment with­drew 500 and 1,000 ru­pee notes from cir­cu­la­tion in a bid to flush out money hid­den from the tax man. The shock mea­sure also sent shud­ders through the in­vest­ment com­mu­nity on a day when the mar­kets were also reel­ing at the elec­tion of Repub­li­can can­di­date Don­ald Trump as the next US pres­i­dent.

In­dia’s Na­tional Stock Ex­change share in­dex slumped as much as 6.3 per­cent in early trade be­fore re­cov­er­ing most losses to close the day off 1.3 per­cent. The cur­rency move, an­nounced late on Tues­day night by Prime Min­is­ter Naren­dra Modi, aims to bring billions of dol­lars worth of un­ac­counted wealth into the main­stream econ­omy and curb cor­rup­tion.

The big­gest dis­rup­tion in decades to cash trans­ac­tions, which power much of the ru­ral econ­omy, comes months be­fore a se­ries of state elec­tions in­clud­ing in In­dia’s most pop­u­lous Ut­tar Pradesh state.

Crit­ics have warned that or­di­nary peo­ple who do not have ac­cess to the bank­ing sys­tem will be hard­est hit, and that Modi risks up­set­ting his rul­ing party’s sup­port base of small traders and busi­ness­men who largely deal in cash. It will also af­fect politi­cians run­ning for of­fice in a coun­try where there is no state fi­nanc­ing for elec­tions and many cam­paigns are funded by un­ac­counted wealth.

“This is a pre-elec­tion disas­ter for po­lit­i­cal par­ties, the piles of cash sit­ting with them are worth­less,” said one tax of­fi­cial, who asked not to be named.

Modi, how­ever, came to of­fice in 2014 promis­ing a war against the shadow econ­omy that won him sup­port from mid­dle-class In­di­ans who ac­cuse elite politi­cians and busi­ness­men of cheat­ing the sys­tem. “If elec­tions can be­come cheaper as a re­sult of this de­ci­sion, it would be a good be­gin­ning,” Fi­nance Min­is­ter Arun Jait­ley told a news con­fer­ence.

The re­place­ment of the old cur­rency was also de­signed to stop anti-In­dia mil­i­tants sus­pected of us­ing fake 500 ru­pee notes to fund op­er­a­tions.

NOT ENOUGH CASH

From mid­night, the larger bank notes ceased to be le­gal ten­der for trans­ac­tions other than ex­chang­ing them at banks for smaller notes. Re­tail­ers re­fused to ac­cept the bills, worth around $7.50 and $15 re­spec­tively, and peo­ple were un­able to ac­cess ATMs af­ter banks closed them down.

Deepak Urs, a staff trainer at a fi­nan­cial ser­vices com­pany in In­dia’s south­ern tech hub of Ben­galuru, said he would need to take time off work to ex­change his old notes.

“Once the ATMs start op­er­at­ing, there will be long queues,” he said. “Maybe to­mor­row on­wards, ev­ery two, three weeks, I will have to go the ATM or bank to get cash.”

In­dia’s “black econ­omy,” a term widely used to de­scribe trans­ac­tions that take place out­side for­mal chan­nels, amounted to around 20 per­cent of gross do­mes­tic prod­uct, ac­cord­ing to in­vest­ment firm Am­bit. New bills of 500 and 2,000 ru­pees will be in­tro­duced from Nov. 10. Jait­ley said it would take two to three weeks to re­place the old notes, amid con­cerns over the avail­abil­ity of cash. — Reuters

AMRITSAR: An In­dian fuel sta­tion em­ployee counts 500 ru­pee notes as motorists queue at a fuel sta­tion in Amritsar yes­ter­day. — AFP

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