Millions scramble after India scraps largest banknotes
New Delhi — Indians awakened to confusion Wednesday as banks and ATMs remained closed after the government withdrew the highest-denomination currency notes overnight to halt money laundering in a country where many in the poor and middle-class still rely mainly on cash.
Roadside vegetable sellers, kiosks selling biscuits and tea, small mom-and-pop stores selling groceries, all saw a sharp drop in customers on Wednesday, the day after Prime Minister Narendra Modi’s surprise televised announcement.
As of midnight Tuesday, all 500- and 1,000-rupee notes had no cash value. People holding the discontinued notes can deposit them in banks and post office savings accounts before the end of the year. But anyone making large bank deposits might invite the unwelcome attention of Indian tax authorities.
Finance Minister Arun Jaitley told state-run news channel Doordarshan that if the money deposited in banks was illegal then the depositors would find themselves in “trouble.”
Banks and ATMs were likely to stay closed Thursday, too, to help prepare for the swarms of people who will rush to deposit their 500- and 1000-rupee bills and withdraw money to spend once they reopen.
When ATMs open Nov. 11 there will be an initial cap of 2,000 rupees ($30) on withdrawal per card, which will gradually be increased to 4,000 ($60) rupees within a week.
The government will issue new banknotes of 500 and 2,000 rupee denominations soon, Jaitley said, adding that the new currency should be available in banks within three or four weeks.
For a few days, the old bills can be used at hospitals, gas stations, crematoria and for other businesses and services deemed essential.
But many, like student Ankit Saini, woke up Wednesday morning with money in their wallet. Just in the wrong denomination.
“I have three 500-rupee notes and only about 40 rupees (about 60 cents) in small change. I can either buy lunch or a bus ticket home,” he said as he chose food over transport at a roadside food stall in central Delhi. “But what will I do tomorrow?”
“Maybe what Modi has done is good for the country in the long run, but what about ordinary people like us today?” asked Om Prakash Singh, an office manager. “I have 200 rupees to get through the next two days and even after that who knows how long the lines at the bank will be.”
The move is expected to bring billions of dollars into an economy and tax base long hobbled by corruption and money laundering.
Businesses routinely use cash to avoid paying taxes. Raids on corrupt politicians and businesses regularly uncover millions of dollars’ worth of rupees in dozens of boxes of cash.
Modi said authorities have discovered 1.25 trillion rupees, or about $18.8 billion, in illegal cash over the last two and a half years. Counterfeiting was also a major concern, he said, and, in an indirect reference to rival Pakistan, accused a neighboring country of circulating fake Indian currency to damage the Indian economy.
“We as a nation remain a cash-based economy, hence the circulation of fake rupees continues to be a menace,” India’s central bank said in a statement late Tuesday night.
In the past, other governments such as Myanmar have taken notes out of circulation to undermine challenges to their power and regain stronger control over the economy.
Much of India’s illicit money stores are believed to be used for land purchases, or secreted away in overseas accounts. The scrapping of bank notes could send real estate prices crashing, an expectation reflected in slumping stock prices of major real estate companies on the Bombay Stock Exchange by early afternoon.
Shares of real estate giants DLF Ltd, Housing Development & Infrastructure Ltd. and India Bulls Real Estate Ltd. had all dropped more than 20 percent from their closing Tuesday.
But the move will also hurt the poor, many of whom do not have bank accounts and keep their savings in cash.
“We are not the ones with the black money and if we don’t earn for two days we don’t eat,” said Bachchu Lal, as he stood next to his hand pushed wooden cart. He had only one customer in the first few hours of Wednesday morning, usually a busy time.