New Delhi relaxed withdrawal limits at banks for marrying couples and farmers yesterday (November 17) amid growing frustration over a cash crisis triggered by Prime Minister Narendra Modi’s decision to demonetise all high-value notes. The rest of India will have to survive on Rs 2,000 withdrawal. However BBC reports indicate that most rural banks are short of any cash!
India’s cash economy has been thrown into turmoil since Mr Modi announced last week that 500-rupee and 1,000-rupee notes would cease to be legal tender and would have to be deposited at banks by year-end, leaving about one-seventh of the currency in circulation.
The shock move last week has thrown plans into disarray as the wedding season gets under way. The government has placed a weekly limit of 24,000 rupees on withdrawals as banks struggle to cope with a shortage of cash and many ATMs run dry.
This has created huge problems in the country of 1.2 billion people, where most still use cash, even for large transactions.
But Mr Shaktikanta Das, secretary in the Department of Economic Affairs, said families planning a wedding would now be able to withdraw up to 250,000 rupees in one go.
Indian defence jets have been put on standby to airlift cash from mints across India to remote corners of the country. “Depending on urgency, security and non-availability of commercial aircraft, requests for support from the Indian Air Force (are) within standing procedures,” a spokesman for the Reserve Bank of India said. Since the crackdown, new currency bills have had to be airlifted by helicopter from Patna after reports of shortages in Bokaro and Jamshedpur, in Jharkhand state, a finance ministry official said.
DEMAND FOR ROLEX WATCHES
There has been a surge in demand for luxury watches after Mr Modi’s sudden announcement as wealthy Indians rushed to make costly purchases with unaccounted cash. One luxury watch outlet in north-west Mumbai saw 45 Rolex watches sold on a single day – what would usually be sold in a month – according to a representative of a watchmaker, who was present when the sales took place.
A new gold rush emerged soon after Mr Modi’s announcement. “Customers were lining up with bags of cash. Some jewellers even had to call the police to organise the crowds,” Mr Chirag Thakkar, a director at gold wholesaler Amrapali Group, said by phone from Ahmedabad in Mr Modi’s home state of Gujarat.
Customers paid as much as 52,000 rupees per 10g, almost double the current price, he said.
Compounding the problem of pumping new money into the system was the need to reconfigure the country’s 220,000 cash machines so that they can dispense the new notes, which do not fit into existing ATM cash trays, according to Mr Navroze Dastur, the managing director for India and South Asia at NCR Corp, which supplies about two-thirds of the country’s machines. It will take as long as a month to adjust all ATMs.
RETURN OF THE RETIREES
State-run banks called retired employees to man new makeshift counters where the banned currency notes are being exchanged for new ones.
Bank employees have been working long hours without breaks to ease the transition, and the government has told lenders to provide them with transportation and food.
About half of an estimated 9.3 million trucks under the All India Motor Transport Congress were off the road eight days after the announcement, as drivers abandoned vehicles midway into their trips after running out of cash, according to Mr Naveen Gupta, secretary-general of the group. India’s roads carry about 65 per cent of the country’s freight.
TURNING TO RELIGION
Some religious institutions have opened up their donation boxes to help people meet their day-to-day needs. Lenders are also reaching out to religious places to ask them to deposit funds given by devotees to bring currency back in circulation and ease the shortage.
“Various representations were made to the government,” Mr Das told journalists in New Delhi. “(We) decided that for marriage ceremonies, up to 250,000 rupees will be permitted to be withdrawn from the bank account and it has to be drawn… from the father, mother, or the person getting married.”
Agriculture has also been hit hard as farmers struggle to buy seeds and fertiliser with the winter crop-sowing season now under way. Mr Das said farmers would now be able to withdraw a slightly higher amount – 25,000 rupees – and would be given more time to repay government loans for crop insurance.
There was bad news, however, for anyone who did not fall into these two categories. Mr Das said the amount an individual can change from old notes to new would be reduced to 2,000 rupees from 4,500 rupees, in an attempt to ensure that more people could get hold of at least some cash.
Indian ingenuity is being stretched by Mr Modi’s crackdown on unaccounted money. Economists have said the move will be beneficial in the long run as it is targeted at weeding out tax evasion and corruption.
Unaccounted money makes up nearly a fourth of the US$2 trillion economy.