India: Government’s Move to Combat Corruption Means Long Lines at Banks

Banks across India on Thursday witnessed serpentine lines of angry and anxious customers two days after Prime Minister Narendra Modi announced that his government was scrapping high denomination banknotes to combat corruption, black money and terror financing.

Describing it as a historical move, Modi said Tuesday that his government was withdrawing 500 rupee (U.S. $7.46) and 1,000 rupee ($14.91) notes in circulation and replacing them with fresh 500 rupee and 2,000 rupee ($29.83) notes to curb financing of terrorism through counterfeit money.

Modi’s surprise address to the nation, telecast live, created a commotion across the country as Indians thronged ATMs to withdraw smaller denomination notes. Although the government has given people until Dec. 30 to exchange the demonetized banknotes, unending lines of customers were seen outside banks when they reopened Thursday following a holiday on Wednesday to allow banks to remove the old bills from circulation.

“The government should have given adequate time to make the transition so that the common man does not suffer. See the crowd here. I have to get to the office and I have no money at all,” S.V. Venkat told BenarNews while standing in a line outside a bank in New Delhi.

Others lauded the move.

“It is a masterstroke by the Modi government to eliminate black money. Those who have millions stored in unaccounted cash need to worry, not those who are clean,” New Delhi resident Gaurav Kumar said.

Announcing the scrapping of 1,000 rupee and 500 rupee notes, which account for more than 80 percent of the value of cash in circulation in India, Modi said government hospitals, railway and airline counters, state-owned gas stations, consumer cooperative stores and government-authorized milk booths would still accept the demonetized currency on humanitarian grounds.

Experts skeptical

And while many praised the Bharatiya Janata Party (BJP)-led government for taking the bold step, financial experts were skeptical about the projected aims of the fresh legal tender.

“This policy is a complete non-starter. Those involved in malpractices in trade-invoicing or real estate will only start a fresh cycle of black money with the new notes that will be issued,” Praveen Jha, a professor at the New Delhi-based Jawaharlal Nehru University’s Center for Economic Studies and Planning, told BenarNews.

“Besides, the available surplus cash could easily be converted into gold from any legally sanctioned trader. Also, the replacement of 1,000 rupee notes with a still higher 2,000 rupee notes in rather contradictory to very purpose of the move. What will stop people from accumulating black money in the fresh 2,000 rupee notes?” Jha said.

G.K. Arora, a financial analyst, said that the government’s move had both micro and macro effects.

“One can see a small impact on prices of essential items which may drop further but it comes at mass-scale inconvenience. It is a major set-back for people from remote villages. They’ve collected their money for so many years and now suddenly they’re being told that that money is no good,” Arora told BenarNews.

“A large chunk of black money is deposited in banks outside the country. That still needs to be tackled,” Arora said.

As part of its election manifesto to rid the country of black money, the Indian government formed a special investigation team to investigate cases of money laundering, soon after coming to power in May 2014.

The Modi government has brought back nearly $20 billion stashed in foreign bank accounts in the last two years, according to the latest figures available.

Regional effect

The effects of the move could be witnessed in neighboring Bangladesh as well as many Bangladeshis holding the demonetized Indian currency were turned away by local money changers.

“Hundreds of people began gathering at money changers in Bangladesh soon after the announcement on Tuesday. They want to exchange 500  and 1,000  rupee notes but we can’t do much since those notes are now banned in India,” Mostafa Khan, president of the Money Changer Association of Bangladesh, told BenarNews.

However, authorities in Bangladesh said they were in constant touch with India to come up with solutions to exchange the demonetized notes that are preserved in Bangladeshi banks.

Even as trade in India came to standstill after the announcement of the withdrawal of the notes, traders welcomed the move.

“There has been absolutely no business for the last two days. Despite that, we support the move because the long-term effects would be good for the country,” Susheel Goyal of the Chemical Merchants Association told BenarNews.

Others agreed.

“It will have economy-wide positive advantages in tackling the scourge of corruption that has taken hold in the country over the last several decades. Such an initiative was recommended by CII (Confederation of Indian Industry),” CII president Naushad Forbes said in a statement.

Kshitij Nagar in New Delhi and Shahriar Sharif in Dhaka contributed to this report.