Rani, a domestic help in Delhi’s Punjabi Bagh locality, ran out of money two days after the Narendra Modi government demonetised Rs1,000 and Rs500 currency notes effective from November 9. She realised that she would not be able to report for work the third consecutive day if she joined a queue to withdraw money or exchange the three RS500 notes she had. She got two boys to stand in two different queues for exchanging her money, promising them some cash in return. But the ATMs and banks ran out of money quickly. The demonetisation policy was taking a toll across the country.
There have been a few casualties of the crisis, including a Bhopal banker who died of heart attack triggered by stress, a child who could not reach the hospital because the parents did not have the money to pay for ambulance and an old man who died waiting in a serpentine queue in scorching heat. A soon-to-be-bride’s father died from stress—he was flummoxed how he would exchange the money he had withdrawn for the big day.
The government was caught unprepared as it failed to ensure an adequate supply of cash, hurting the most those who received their remuneration in cash. It was just as unprepared in facilitating cash withdrawals, which people would make about a week to ten days after their salaries were credited into their accounts. Banks were crowded and did not have the value and volume of the currency required. ATMs went dry in no time.
When Modi warned the nation on November 8 that there would be “temporary hardships” despite the measures the government had taken, he did not spell out its enormity. Worse, he did not give any indication that the secrecy, essential to implement such a huge decision, would affect contingency planning. In the closely guarded assault on black money, other divisions of the government, particularly the banking sector, were caught napping.
Though the Reserve Bank of India had dropped hints from May this year about the issue, steps necessary to replace the high denomination notes were not taken on a reasonable scale. In May, an RBI team had surveyed 4,000 ATMs across the country, covering geographic and bank categories, and found that one-thirds of them were not working. S.S. Mundra, deputy governor of the RBI, had spoken about taking necessary action about the non-functioning ATMs. The RBI had also tried to incentivise the banks to set up ATMs which dispensed only Rs100 notes, by offering to bear half the cost.
On November 2, an RBI circular asked banks to step up the supply of Rs100 through ATMs. Finance Minister Arun Jaitley, however, said the problem was not with the supply of currency as much as with the machines that dispensed the notes. “It takes about two to three weeks to recalibrate the ATMs. The central switch needs to be changed and each machine has to be worked on individually,” said Jaitley. He explained it was a slow process because of the different size of the new notes. “It could not have been reconfigured ahead of time as it would have given the whole game away,” added Jaitley.
As the rumblings of the middle class, who felt they had lost control over their hard-earned money, grew louder, almost translating into a trust deficit, Modi intervened. In a speech marked by theatrics, he asked people to bear with him for 50 more days. The government subsequently announced some relaxation for using the old notes to pay for certain essential services and government utilities. It also increased the amount people could withdraw from Rs2,000 to Rs2,500 a day, and Rs20,000 to Rs24,000 a month. Modi also asked his ministers to work actively to assuage the angry public.
The demonetisation drive caught the opposition parties, too, in a bind. If they opposed the policy, the BJP would say they were hurt by the move because they hoarded currency notes. BJP president Amit Shah said those who opposed the demonetisation drive were anti-nationals. The opposition, therefore, opted for the safe route of speaking up in support of people who were facing tremendous hardships, but stopped short of organising a protest rally against the policy.
At the best of times, about 40 per cent of the nearly two lakh ATMs in India do not work, said bankers. “Almost all the ATMs of public sector banks in the countryside—save those of the SBI—do not work,” said the manager of a public sector bank. He said the ATMs, which should have been the heroes in the move towards plastic money, have suddenly become villains of the piece, thanks to poor planning by the government and the RBI. “They should have ensured the movement of currency notes to every part of the country, installed machines that would dispense new notes as a routine measure, and then unveiled this scheme. It was not a difficult thing to do,” said the manager, adding that perhaps Modi could not wait because the headlines would otherwise have gone to the new American president.
While it is not clear how much of black money will be wiped out, stories abound of how enterprising people are making money out of the situation. A number of dormant Jan Dhan accounts with zero balance became suddenly active witnessing a surge of cash. “BJP leaders helped open many of these, so they must have used them to convert their own money,” said an Akali leader from Punjab.
Even as the government and the RBI tried to take steps like transporting cash to remote locations by helicopter, it has become clear that 50 days would be too long a period for the common man to waste standing in queues for his own legitimately earned money. The opposition is certain to use the issue to keep the government on the back foot in the winter session of Parliament.