Or­di­nary In­di­ans suf­fer amid deep­en­ing cash crunch

Banks to use in­deli­ble ink to stop re­peat cash ex­changes

Kuwait Times - - BUSINESS -

In­dian banks will use in­deli­ble ink to en­sure that peo­ple only change old notes for new ones once un­der Prime Min­is­ter Naren­dra Modi’s scheme to fight “black money”, re­sort­ing to a tac­tic used to pre­vent mul­ti­ple vot­ing in elec­tions.

The step comes a week af­ter Modi or­dered the with­drawal of large de­nom­i­na­tion ban­knotes from cir­cu­la­tion, in a shock “de­mon­e­ti­za­tion” drive to fight tax eva­sion, cor­rup­tion and forgery. The govern­ment only gave peo­ple a few hours’ no­tice be­fore can­celling old 500 and 1,000 ru­pee ban­knotes that ac­counted for 86 per­cent of cash cir­cu­lat­ing in Asia’s third­largest econ­omy.

The sud­den move has caused huge dis­rup­tion to daily life, es­pe­cially for poor peo­ple who live in the cash econ­omy. There were lengthy queues at banks in New Delhi and Mum­bai as peo­ple waited in hope that cash dis­pensers would be re­filled. But peo­ple go­ing about their daily busi­ness in the coun­try’s two big­gest cities said they were will­ing to put up with the has­sle - as long as it doesn’t last too long.

Hari Kis­han, who runs a cloth­ing stall in Delhi’s bustling Karol Bagh district, said his busi­ness nor­mally turns over up to 60,000 In­dian ru­pees ($900) a day but was mak­ing just a sixth of that now. “Peo­ple will for­get all this in­con­ve­nience. When cur­rency re­turns, by De­cem­ber, the sit­u­a­tion should nor­malise,” said the 40-year-old mer­chant. “Credit has to go to the prime min­is­ter.”

STATE ELEC­TION IS­SUE

A top fi­nance min­istry of­fi­cial said the use of in­deli­ble ink - also used to stop mul­ti­ple vot­ing in In­dian elec­tions - would pre­vent “un­scrupu­lous per­sons” from send­ing peo­ple from one bank branch to the next to ex­change old notes. In­di­vid­u­als are al­lowed to swap 4,500 ru­pees ($66.50) just once. “You find the same peo­ple com­ing back again and again,” Eco­nomic Af­fairs Sec­re­tary Shak­tikanta Das told a brief­ing, say­ing huge queues were prevent­ing hon­est peo­ple from get­ting the cash they need.

Cam­paign­ing to win power in 2014, Modi had pledged to flush out cor­rup­tion by forc­ing peo­ple to bring their hid­den money back into the sys­tem. And with an im­por­tant state elec­tion just months away, he is again cam­paign­ing to jus­tify the de­mon­e­ti­za­tion drive.

“Af­ter de­mon­e­ti­za­tion, the poor are en­joy­ing a sound sleep while rich are run­ning from pil­lar to post to buy sleep­ing pills,” he told a rally on Mon­day in Ut­tar Pradesh, which goes to the polls next spring.

Op­po­si­tion politi­cians have rounded on Modi, ac­cus­ing him of tip­ping off work­ers from his Bharatiya Janata Party (BJP) and cre­at­ing an un­fair cam­paign ad­van­tage. Party lead­ers have de­nied any such leak.

Modi’s black money drive is ex­pected to dom­i­nate the re­open­ing of par­lia­ment for its win­ter ses­sion to­day and he was due to at­tend an all-party meet­ing later in the day to dis­cuss the mat­ter. Econ­o­mists say the cash crunch will cause a short-term hit to ac­tiv­ity, mainly be­cause a sig­nif­i­cant chunk of old money will be wiped out and it will take time to print and cir­cu­late new 500 and 2,000 ru­pee notes.

The pur­ple 2,000 ru­pee notes are smaller that In­dia’s ex­ist­ing ban­knotes, and it also will take up to three weeks to re­con­fig­ure the coun­try’s 200,000 ATMs to han­dle them.

In a blog post, N R Bhanu­murthy of the Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy es­ti­mated that growth could be de­pressed by 0.6 of a per­cent­age point in the cur­rent fis­cal year to March 2017. But an in­crease in bank de­posits and the “mul­ti­plier” ef­fect of that money be­ing re-lent, could lift growth in 2017/18 by up to 0.7 of a per­cent­age point, es­ti­mated Bhanu­murthy, whose think tank is af­fil­i­ated to the fi­nance min­istry.

NEPAL VOICES CON­CERN

Nepal’s Prime Min­is­ter Pushpa Ka­mal Da­hal called his In­dian coun­ter­part Naren­dra Modi yes­ter­day to find out how Nepalis could ex­change In­dian ru­pees they hold in the now banned de­nom­i­na­tions. The two coun­tries share a long bor­der and close cul­tural ties, and many Nepalis hold large amounts of cash in In­dian ru­pees.

They have been left in the lurch af­ter Modi’s sur­prise an­nounce­ment last week to with­draw the two largest de­nom­i­na­tion notes from cir­cu­la­tion in a bid to tackle cor­rup­tion and tax eva­sion. “Our prime min­is­ter called Prime Min­is­ter Naren­dra Modi Mon­day evening and re­quested him to ar­range ex­change fa­cil­ity of the notes in Nepal,” press ad­vi­sor to the prime min­is­ter, Govinda Acharya, told AFP. “Prime Min­is­ter Modi was pos­i­tive about eas­ing the sit­u­a­tion and our fi­nance min­is­ters are al­ready in con­ver­sa­tion.”

Nepal’s Cen­tral Bank said that banks in Nepal hold around 33.6 mil­lion In­dian ru­pees ($496,000) in the now banned 500 and 1,000 bills but it is not clear how much is kept by in­di­vid­u­als. Lo­cal me­dia re­ported scenes of panic in bor­der towns, where traders and pil­grims reg­u­larly move be­tween the two coun­tries. There were also re­ports of re­tired Gurkhas, who served in the In­dian army and have bank ac­counts in the coun­try, be­ing paid by des­per­ate Nepalis to ex­change their banned notes.

“There is a sense of panic within the pub­lic and we reached out to the Re­serve Bank of In­dia with our de­tails five days ago,” said Nepal cen­tral bank spokesman Narayan Prasad Poudel. “How­ever, we have not yet re­ceived a re­sponse on how to man­age the ex­change.” In In­dia, peo­ple can de­posit their 500 and 1,000 notes into their bank ac­counts or ex­change them for new notes un­til the end of the year, but huge queues and a shortage of cash has ham­pered the process. — Agencies

— AFP

GUWA­HATI: In­dian vil­lagers wait in a queue out­side a bank to de­posit and ex­change 500 and 1000 ru­pee notes in Chan­dra­pur Vil­lage, some 30 km from Guwa­hati yes­ter­day.

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