India throws lifeline to farmers and marrying couples, allows higher withdrawals after shock cash ban
India announced new measures on Thursday to allow farmers and marrying couples to withdraw more money from banks, as frustration mounted over a cash crisis triggered by the withdrawal of all high-value notes.
The shock move last week, which saw 85 per cent of the cash in circulation suddenly withdrawn, has led to huge queues forming outside banks as people rush to exchange old notes for new, and has thrown plans into disarray as the wedding season gets under way in the country of 1.2 billion people.
The instant ban announced by Indian Prime Minister Narendra Modi was billed as a sweeping move against corruption that would force Indians who hold large amounts of undeclared wealth to deposit the money at banks and make their assets official.
But it has stunned hundreds of millions of poor and working-class Indians who live an almost entirely cash-based existence, paying in bills for everything from rent to groceries to cellphone credit.
The government has placed a weekly limit of 24,000 rupees (US$350) on withdrawals as banks struggle to cope with a shortage of cash and many ATMs run dry.
The plan was shrouded in such secrecy that even India’s financial institutions were ill prepared, creating long, sometimes unruly lines outside banks, ATMs and chronically understaffed post offices that are authorised to exchange the now-worthless notes and dispense new ones.
Indian media report that at least five people have died of exhaustion while waiting to change money outside banks, and that three children have succumbed to illnesses that private hospitals wouldn’t treat because their families had only old notes.
Credit and debit cards are unaffected, but only half of Indians have bank accounts. Even for those fortunate enough to find some cash a newly released 2,000-rupee banknote is in effect useless for daily purchases because most merchants can’t make change.
Adding to the headaches, the 2,000-rupee note and a new, revamped 500-rupee note are of a different size, meaning it could take weeks to reconfigure the country’s 200,000-plus cash machines to dispense them. For now, that has made the 100-rupee note the basic legal tender for most transactions, reducing the world’s seventh-largest economy to trading largely in the equivalent of US$1 bills.
But 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.
“Various representations were made to the government,” 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.”
The sudden withdrawal of the two highest denomination noteshas created huge problems for families planning weddings in India where most people still use cash, even for large transactions.
That however did not stop a mining tycoon from hosting a lavish wedding ceremony for his daughter on Wednesday, taking over a royal palace in the southern city of Bangalore at a reported cost of US$75 million.
Agriculture has also been hit hard as farmers struggle to buy seeds and fertiliser with the winter crop-sowing season now under way.
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.
“Agriculture is an important component of our society,” he said.
“We are at the commencement of rabi [winter crop] season, and therefore to ensure that sowing takes place properly and farmers get smooth supplies like fertilisers, the farmers can withdraw up to 25,000 rupees per week.”
There was bad news, however, for anyone who did not fall into those two categories.
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.
Blue-collar workers are not showing up for jobs, unable to scrounge up money for bus fare or fuel to power their motorbikes. Mumbai’s cash-based taxis and rickshaws have also struggled as middle-class customers opt for card-based services such as Uber.
Even filling up the tank has become a chore as gas stations, which have been authorised to accept the old bills for a limited time, refuse to make change, said Lallan Jaiswal, a cabby sitting idle by the roadside, his khaki uniform slung over the driver’s seat. “They fill up the tank only if we buy gas worth 500 or 1,000 rupees,” Jaiswal said – the equivalent of a day’s worth of fares.
Neighbourhood grocers who deal mainly in cash have offered to sell goods on credit, while some customers are bartering phone credit – bought with a credit card – for vegetables.
Such solutions fit into India’s tradition of jugaad, or ad hoc fixes. “But the middle class always suffers the worst,” said Kiran Gosrani, owner of a grocery in central Mumbai. “The big fish always get away.”
Indeed, many Indians are skeptical that the drastic action will end the scourge of so-called black money – the vast amounts of off-the-books wealth that accrue at the rate of an estimated US$460 billion a year, more than the economy of Thailand.
Black money is an outgrowth of an economy in which cash accounts for two-thirds of the value of all transactions, one of the highest rates in the world, according to PricewaterhouseCoopers. In the US, it’s 14 per cent.
Additional reporting by Associated Press