AMID DIGITAL PUSH, INDIA FINDING IT HARD TO END LOVE AFFAIR WITH CASH
The government’s decision to demonetise the rupee has largely failed to deter a reliance on banknotes, with gold dealers even profiting off it
Fat wads of banknotes move across counters in Old Delhi’s gold and diamond district in one of many challenges to six months of Indian government efforts to suffocate the black market. Cash has been king in the musty narrow streets of Chandni Chowk since the jewellery market was set up by Emperor Shah Jahan in the 17th century.
The owners now largely shrug off “demonetisation” by modern-day ruler Prime Minister Narendra Modi.
In a shock move on Nov 8 last year, Modi cancelled all 1,000 rupee (540 baht) and 500 rupee notes in circulation, rendering about 86% of India’s currency void.
Amid street protests, the decision triggered massive queues outside banks as the authorities struggled to print enough new notes.
Chandni Chowk is not alone in resisting the digital economy. At least 80% of business in India is estimated to be conducted in cash, much of it avoiding tax as well as fuelling corruption.
“I’m sticking to cash,” one gold and diamond dealer, Kapil, who declined to give his last name, said at his store in the backstreets.
“There have been many raids on the shops here so I don’t keep as much stock of ready jewellery as I used to, but I don’t take any cheques or cards,” he said. “Only cash.”
Most of the gold, silver and diamond dealers approached in Chandni Chowk said that while a percentage of their transactions had switched to digital cards, cash still dominates.
Last year Kapil sold jewellery worth nearly 10 million rupees but declared sales of just 500,000 rupees.
But it is not just the sellers who prefer the tax-friendly cash system. “Customers still want to pay in cash to save paying tax,” Ranjeev Panjali, whose family has been in the jewellery business for the past 60 years.
The government followed up the banknote action by banning all cash transactions above 200,000 rupees in March. It has promoted e-wallets and offered a variety of incentives for businesses that adopt digital payments. The government said that the amount of tax collected in February was 10% higher than for the same month last year. It insists it is looking for longterm change.
But the action so far has not deterred wily and wary Indians. All sales witnessed during a visit to the gold market on a recent afternoon were in cash.
“Demonetisation has had no impact at all,” said the proprietor of a store who declined to give his name. “You can never remove cash from our system.”
Cash withdrawals from bank machines are rising. In March the figure stood at 2.2 billion rupees, up 0.6% from the same month last year.
And the government action hit the economy, at least temporarily. India’s impressive growth fell to 7% in the final quarter of 2016 from 7.3% in the previous three months.
That could yet be revised down as the full picture emerges.
Agriculture and real estate are as sensitive to the cash economy as Old Delhi gold dealers.
“Property sales have slowed in Delhi, but not just because of demonetisation,” said a real estate agent in the capital, who asked that his name not be revealed.
“Cash is more difficult, but more often than not there are big piles of notes on the table,” he added.
Ironically, jewellers made money in the initial days of the government cash ban as stunned consumers swapped suddenly worthless notes for gold, a traditional safe haven.
“There is not a single shop in this entire market that didn’t make money during demonetisation,” one shop owner, who declined to be named, said with a laugh.
The owner said he doubled sales last year to 20 million rupees owing to the government action.
The government’s “longer-term success will depend on whether Indians return to cash in large numbers”, the Stratfor consultancy said in a recent report.
It predicted that Modi will not give up attempts to “steer India’s economy away from cash”.