Prime Minister Narendra Modi asked India for 50 days of patience when he pulled the 500- and 1,000-rupee notes – the two largest denominations that comprise 86 percent of the country’s currency – out of circulation on four hours’ notice last month.
“Punish me if I do not deliver,” he said, according to India Today. Now 37 days in, things have yet to settle down.
According to Modi, the demonetization policy will root out corruption and “black money,” or unreported, untaxed cash. These, he said, are the biggest obstacles to eradicating poverty. But instead of eliminating corruption, the ban seems to have created opportunity for it.
Indian authorities yesterday arrested a bank official on charges that he illegally exchanging old bills worth about 15 million rupees ($222,000) for new ones without the required tax documentation. He was also accused of hoarding an additional 16 million rupees of new bills. Meanwhile, millions of people are scrambling to find cash for food and other basic transactions amid a severe shortage at ATMs and banks.
Yesterday’s arrest was the latest in a string of cases involving bank officials and post offices, with authorities seizing nearly 174 million rupees ($2.5 million).
The cash shortage has also created illegal opportunities for the poor. Known as “cash mules,” some people have been renting out their bank accounts or standing in long bank lines for a commission.
“The government is not going to go after poor people like me,” one man said to the BBC. “I am just making a small amount, rich people are the ones who are crying because their money has become illegal.”
The shortage is also seen by some as a good opportunity for India – an economy in which 95 percent of transactions were cash – to go cashless.
“[Switching to pre-paid, credit and debit cards, mobile banking, and Internet banking] will alleviate the pressure on the physical currency and also enhance the experience of living in the digital world,” the Reserve Bank of India (RBI) said in a statement, according to the The Hindu.
Daily transactions on the mobile e-wallet platform, Paytm, have skyrocketed 350 percent to nearly 6 million since the currency ban, with half a million new users joining every day.
“Earlier, we were the innovator, now we are the mainstream,” Shekhar Sharma, founder and chief executive of Paytm, told the New York Times. “This is the start of the golden age for financial technology companies.”
But many are saying the transition is too much too fast. Over the weekend, card networks went down for two hours, leaving many stranded without cash as a backup. Many hospitals, even in larger cities, are refusing to accept credit cards for things like medication, CT scans and MRIs. Security concerns linger, too, with mobile services like Paytm.
Meanwhile, many of the poor feel left behind, despite Modi’s repeated pledges to them.
“We took the decision on currency notes to strengthen the hands of the poor of the nation,” he said at a farmer’s rally on Saturday, according to multiple outlets.
According to the World Bank, nearly half of India didn’t even have a bank account before the currency ban. Electronic payment options are not an option for many of the illiterate poor. And street children are earning a fraction of their usual daily earnings, as potential benefactors feel the cash crunch themselves.
Millions of poor, rural Indians had their life savings wiped out by back taxes when they went to exchange their now “black money” for new bills.
“To tarnish these as ‘black money’ and throw the lives of these hundreds of millions of poor people in disarray is a mammoth tragedy,” former prime minister and Modi’s political opponent, Manmohan Singh, wrote in an opinion piece for The Hindu.
Supporters of the currency ban argue that Singh’s apathy toward corruption forced Modi to take extreme measures, and projections show India’s economy will likely bounce back in 2018 with a wider tax base after the expected slump from demonetization.
In the meantime, India’s “honest citizens” are racing to exchange their banned currency before the Dec. 30 deadline and hoping they can keep up with the new economy.