note demonetisation

'Is the pain worth it?': 50 days after demonetisation, rural South India has a few questions

Low bank deposits remain a concern in three towns on the Karnataka-Tamil Nadu border.

On November 9, life suddenly came to a standstill in Chikka Tirupathi, Bagalur and Hosur. As in the rest of India, the first day of demonetisation in these towns abutting the Karnataka-Tamil Nadu border was marked by problems in conducting day-to-day trading for small businesses and a frenzied hunt for Rs 100 notes for families.

The response to the government action was mixed on that first day. As the cash crunch sank in, small traders figured out that their businesses would take a hit until they replaced their Rs 500 and Rs 1,000 notes. Slightly larger enterprises, such as Jivita who runs a tailoring shop in Bagalur in Karnataka, were more optimistic. “We have enough money for rotation [working capital] for a week,” she said.

On the whole, it was a day of uncertainty. Notebandi was a sweeping decision. People weren’t sure how long it would take to exchange their old cash and for the situation to return to normal. At a branch of the Indian Bank in Bagalur, a bank official was calm. “We will open tomorrow morning,” he said. “People can come with their passbooks and exchange their notes.”

How things look now

On December 28, travelled the 30 km stretch between Chikka Tirupathi and Hosur one more time. How were people we spoke to on Day One doing on Day 50?

The first person we met was Shankar, who runs the Ishwar Digital Studio in Chikka Tirupathi, a Karnataka temple town about 20 km east of Bengaluru. On the first day of notebandi, his earnings had plummeted from Rs 2,000-Rs 3,000 to Rs 100. Since then, there has been some improvement. His daily income has now climbed to Rs 500. In recent days, his cash position has improved as well. Three days ago, his bank began disbursing Rs 10,000 per demand slip.

That said, problems persist. Shankar shoots photographs and videos for functions. Many of his customers have deferred payments. “I usually collect 50%-75% of my fees an hour after the function, and the rest when I deliver my photos and videos,” he said. In the last 50 days, though, he is yet to recover Rs 100,000 from six of his customers, despite giving them his bank account number. This is because some have not received their salaries while the others are themselves waiting for cash to be credited into their bank accounts.

As a result, he has had to cut back on his food, buying only Rs 1,000 worth of it instead of Rs 5,000 earlier.

On that first day, Shankar had spoken mostly about working capital difficulties people were likely to face. Fifty days later, his support for demonetisation is more qualified. He said friends, too, were even more in favour of the government policy after the income tax department raids.

For his part, he said the government must also crack down on gold and land holdings. “Families should not be allowed to hold more than 1 kilo [of gold],” he said. “And no one should have more than 2 acres [of land].” He also suggested changing the Rs 2,000 notes every five years. “The Rs 500 and Rs 1,000 notes continued for 20 years,” he said.

The photo studio owner believes that without these measures, India will go back 20 years. “The Rs 2,000 note will add to the black money problem – a man can walk around with a crore in his pockets,” he said.

The view from the bank

About 10 km down the road, the mood at the Indian Bank branch at Bagalur was mixed as well.

Cash availability at the branch has improved in the last two weeks, said a bank official. “We have been able to pay people as much as the Reserve Bank of India’s cap on withdrawals allows,” he said. What has tempered his optimism, though, is low deposits. Daily deposits in savings accounts have come down to Rs 50,000 from around Rs 20 lakhs before demonetisation, he said, adding, “People are worried that if they put money in the bank, they might not be able to get it out.” This echoed what found in Andhra Pradesh’s Chittoor town, where too withdrawals outstrip deposits.

M Jayaramaiah, who runs a hardware store in Bagalur, nodded in agreement at the bank official’s talk of low deposits. “People are afraid,” he said. “They have never seen such a situation. They will keep some cash at home. They cannot go stand at the bank for another four days.”

This is a serious problem. Banks use the cash that is deposited for disbursals. Right now, disbursals at this Indian Bank branch have improved because it is getting additional currency from the Reserve Bank of India, the bank official said. But there will not be an endless supply of these notes, he added.

In part because, post-notebandi, cash availability in India’s banking system is highly uneven. As found in Bihar, larger centres get far more cash than smaller ones. Similar patterns are playing out in Tamil Nadu as well.

There is an acute shortage of cash in several blocks of Krishnagiri district, about 50 km from Hosur, reporters in the area said. Here, rural women have been camped outside banks for days. At some point, the Reserve Bank will have to start feeding cash to these branches.

Here lies the nub. If deposits at the Bagalur branch do not pick up before the cash flow from the central bank slows down, “the branch might again find itself capping withdrawals”, the bank official warned. If that happens, the credibility of the branch – and of India’s banking system – will again take a beating.

Traders have many questions

When Prime Minister Narendra Modi announced the demonetisation of high-value bank notes on November 8, hardware store owner Jayaramaiah welcomed it. In the intervening days, his business has been modestly affected. On the first day, daily sales fell from Rs 20,000-Rs 25,000 to zero, he said. About two weeks later, his shop was doing about Rs 10,000 worth of business a day. Now, it has gone up to Rs 15,000-Rs 20,000.

There are other changes. Earlier, his suppliers would take half their payment in cheque and the rest in cash. Now, he said, it is 100% by cheque. He has downloaded the State Bank of Mysore’s phone-banking app but is yet to start using it. “I could not activate it and the bank manager asked me to come in January when things are less busy,” he said. “He said he will activate it then on my phone.” He has not tried PayTM. “I have no confidence in the private financial sector,” he explained. “They or their staff will sell my pin number and bank account number.” In contrast, he added, “There is confidence in a government bank. We can file a case if something goes wrong.”

Fifty days later, has Jayaramaiah’s view of notebandi changed? He continues to support it but is more critical than before. “Us traders have been affected but the worst hit are the workers in both construction and agriculture,” he said, adding that it would take another two to three months for the situation to return to normal. “Modi should have said 100 days, not 50 days.”

With business down 30%, the flower traders of Hosur make about Rs 1,000 a day. Photo credit: M Rajshekhar
With business down 30%, the flower traders of Hosur make about Rs 1,000 a day. Photo credit: M Rajshekhar

This pattern of sudden loss and gradual revival is seen among the flower sellers of Hosur too. The town in Tamil Nadu supplies flowers to all the major cities in South India such as Chennai, Bangalore and Hyderabad. In the immediate aftermath of demonetisation, sales fell by 80%, according to flower trader Manjunath. But they are back up again, with sales down by just 30%.

These are small businesses. The traders work out of a small yard covered by a corrugated sheet, in front of the bus stand, and earn about Rs 1,000 a day. Of that amount, the area’s strongmen take away as much as Rs 300 a day, they complained.

Much like the people of Banka, a town in Central Bihar, people in this part of South India are still trying to figure out if notebandi was a good idea or not. This shows in their myriad questions: Will the government crack down on gold and land? Have crime and corruption come down? Does the Rs 2,000 note make sense? How did some people end up with lakhs and crores in new notes while others had to stand in long queues? Based on all that, is the pain of demonetisation worth it?

Now to see what the prime minister has to say about that.

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