On November 8, Prime Minister Narendra Modi announced that rupee notes in the amounts of 500 and 1000 would no longer be accepted as viable currency throughout India. With the intention to flush out money from the black market, this unprecedented move has unfortunately resulted in at least 33 reported deaths.
Rs500 and Rs1000 used to be the country’s most commonly used currency notes accounting for more than four-fifths of the bills in circulation. This ban was billed as a sweeping move against the rampant corruption and money laundering in the country, forcing Indians holding large amounts of undeclared wealth to deposit their money into banks to make their holdings official- and therefore eligible for taxation. People must now exchange these old notes for new Rs500 and Rs2000 bills with added security features.
Although Modi’s intention with this unusual move was novel, it has stunned hundreds of millions of poor and working-class Indians who live almost entirely cash-based lives, paying for necessities, utilities, phones, and groceries with the notes. Markets are at a standstill, as no one has the money to pay for what they need or want. Chaos followed Modi’s declaration a week ago.
The plan was concocted under such secrecy that even India’s financial institutions were not prepared. Printing of the new notes began in August, with only one government printing facility performing the task, using paper imported from Germany, London, and Italy. This severely limited the amount they were able to create. Additionally, to protect against the corrupt getting their hands on early versions, none were distributed to any institutions beforehand. ATMs weren’t even calibrated to dispense new money. After the announcement, most banks, shops and bazaars ended up having to shut down for 24 to 48 hours in an attempt to prepare themselves for the switch, which just worsened the already hectic situations. Long, crowded, unruly lines formed outside banks, ATMs, and even the newly authorized post offices to exchange the now-worthless notes. Because ATMs are being calibrated by hand, and banks are scrambling to get the new currency, many locations can only dispense the new bills for an hour each day.
It’s in these long queues that people have begun dying. Although some deaths are allegedly out of shock (so claim the families), most can be linked to exhaustion, dehydration, and heat exposure, with a handful of reported suicides and one murder. The Indian Express compiled a list of some of the incidents:
- Four days before his daughter’s wedding, Sukhdev Singh died of a heart attack in Tarn Taran, Punjab, as he was unable to buy groceries and other items due to the shortage of new currency notes.
- A two-year-old died in Sambalpur, Odisha, after an autorickshaw driver refused to take the family to the hospital as they did not have lower denomination notes to pay the fare.
- A farmer from Raigarh, Chhattisgarh committed suicide as he was upset over not being able to exchange Rs 3,000, which he was supposed to send to his stranded children in Tamil Nadu.
- In a Bulandshahr hospital, a child died because the parents had only old currency notes.
- A one-year-old boy suffering from high fever in Mainpuri, Uttar Pradesh, died after doctors stopped treating him as his parents ran out of Rs 100 notes.
- A man from Howrah, West Bengal killed his wife after she came home empty-handed from an ATM.
- A 47-year old farmer, who had to pay for farm labor, died of heart attack while waiting to exchange old currency notes in Tarapur, Gujarat.
- A State Bank of India cashier in Bhopal died of heart attack, supposedly brought on by stress and anxiety.
- Having waited for five hours in a queue, a 75-year-old man in Alappuzha, Kerala collapsed and died outside a bank.
These losses are heartbreaking, but they may be the necessary casualties of an attempt to rein in the elite. By forcing the exchange of old bills for new ones at designated locations, the government can now monitor these transactions and question those making exchanges in large amounts. However, as half of the population does not have bank accounts, this is becoming a double-edged sword.
As previously mentioned, many wealthy Indians do not declare or deposit their money to avoid paying taxes. This has trickled down into a cash-driven economy for the middle-class and poor- around 80-85% of all transactions are cash based. Incidentally, this same demographic does not deposit money into financial institutions because they have so little of it- it’s hard to justify starting a savings account when, after rent, groceries, phone bills, commuting bills, and general living costs you only have a few rupees left. Many of them are illiterate and have never been taught the importance of saving, or the benefit and security of bank accounts.
This has generated a shadow economy that is detrimental to the health of India as a country. With the added complication of low-income and remote areas of India not being serviced by large banks, Modi’s support and popularity in the country have taken a huge hit- along with the Bombay Stock Exchange (BSE). Immediately following the currency announcement, the BSE crashed nearly 1,689 points.
We need to put our “big picture” spectacles on, though.
Prime Minister Modi’s grassroots campaign highlighted his fight against corruption in the banks and government, privatization of businesses, and Hindu values. Born in a small town to a street merchant who struggled to support the family, Modi began selling tea at a local bus station to help his family’s needs. He is seen as an efficient and morally upstanding politician who has pledged to turn India’s economy around.
This currency ban is a dramatic representation of his promises to deliver, despite repercussions. By forcing the public hand, officials are tracking anyone who exchanges more than 250,000 rupees in cash and forcing them to provide proof of their source of income. Those who can explain how they earned the money and prove that taxes were paid can keep it, but those who can’t are now being penalized. This influx of cash can now be used to benefit India’s economy, allowing them to provide public services, make investments, further education, create jobs, develop infrastructure and increase the global strength of the country through various financial ventures. With an estimated 23.2% of India’s business conducted through the shadow economy with black market money, the potential revenue from forcing legitimate transactions is quite lucrative.
Critics are already crying foul and pointing out the various ways to work around the system. This much is true- those who wish to conduct business illegally will always find a way. Many are upset at Modi’s declaration of the current bills as illegal, as previous countries gave time periods and continued to accept the money to remove it from circulation. But the unexpected move from the Indian central government needs to be viewed for its impact on the country as a whole. This plan is inflicting so much pain on tax avoiders that they will have to change their behavior, regardless of how little or large their income is. If people are motivated to open accounts and keep their money in the banks, more will be available for lending and people will become accustomed to paying taxes.
Fighting tax evaders, corrupt officials, and money launderers requires an aggressive tactical move. Not to trivialize the unfortunate few who are losing their lives, but the strangled businesses and inconvenience to the public may just be what India needs to turn its economy on its head. Dramatic changes are needed to make India competitive on a global stage, and maybe this is the start of a new era. Prime Minister Modi’s actions are generating fury and hatred right now, but in the long run, this could be what India needs to change for the better. Only time will tell whether Modi is remembered as a villain or a hero.