Higher Rock Education - Economics Blog

Thursday, March 23, 2017

Demonetization Impacted My Life: Money in My Bank - None in My Pocket

Last month we published a blog describing the demonetization of the 500 and 1000 rupee notes by Prime Minister Modi in India. We asked our Indian contributor to write of her personal experience. Here is her story:

During the evening of 8 November, 2016, I stepped out from my work station to take a break. The topic trending on Twitter for the day caught my eye. In bold and caps was the word #DEMONETIZATION. I wondered what demonetization meant and why was the word #demonetization top trending? Sifting through what was posted on twitter an eerie thought crossed my mind; how was I going to pay my bills? It was election day in the USA and Indians were taking great interest in the results. That is until in India a handful of people in the Government demonetized the 500 and 1000 rupee bills, which meant we can no longer use these bills as legal tender. In India, these notes were used for 86 percent of our transactions! Now the Government told us that only Rs.18000 could be withdrawn from the bank at a time until the situation stabilized. The Government's objective is to curb the number of illegal transactions and tax evasion in the country. A move that in the following weeks changed the face of money in India, not literally, Mahatma Gandhi is still the face on the notes, but the lives of a billion plus Indians had changed. (To learn more about why the government demonetized the 500 and 1000 R notes visit Overnight Demonetization – What Was Prime Minister Modi of India Trying To Achieve.)

Everywhere I went that evening - the coffee shop, the local chemist (pharmacist), and the grocer - I saw people in huddles. Many were shocked; others were speculating. A lady next to me wondered how she would buy the next day's groceries. Another person advised restraint in trying times. While all of this was happening, one bright young man decided to dart off and join an ever-growing queue at the neighborhood ATM before it ran out of money. Meanwhile, the more secure tried to decode our Prime Minister Modi's speech to the nation announcing demonetization that evening, some believing it was in the interest of the nation while others disagreed, but all predicted that the cloud of difficult times was looming large.

I am not a student of economic policy and I was somewhat ruffled by what I heard on the streets, so I decided to visit my close friends, a couple – both bankers to know the real reasoning behind this sudden implementation of demonetization. I was a relieved to see them calmer than I had expected. They explained how to manage my cash flow by using the amnesty window where I could exchange old notes for new and generally manage my finances for the next few months. They were confident that both the public and banker would adapt, but they cautioned restraint on spending until the liquidity improved.

In the following week, I ran out of cash and we had to pay our cook, housemaid and gardener (In India such luxuries are common due to abundance of manpower). Unfortunately, ATM's had no cash. Many machines were being refitted to accommodate the new bills.

I went to the bank that my friend works at, which is in a suburb of Delhi, and was astounded to see thousands of people outside the bank parking. Things took an ugly turn when the crowd went out of control and started breaking the barriers made for queues – shouting slogans and demanding the Government to return their hard-earned money. With my heart pounding I called my friend who was on the top floor of the bank. No answer. This made me even more nervous.

In just a few moments while I was still in my car, worried to death for my friends' safety I saw a huge jeep followed by a bus full of police arrive at the parking slot firing their guns in the air to scare and disperse the crowd.

Once order was restored I fell in queue and a din of discontent greeted my ears. "How can the government do this to us?" questioned a retired army officer, "They should have planned this move better." quipped an accountant behind him, "How can you manage a home with this limited budget?" exclaimed a harried housewife, "My money is in the bank and I can't pull it out. This government stinks!" announced a call center executive just off shift. The tide of discontent was rising, the government was being bashed for shoddy implementation of the demonetization program. In all of this one old frail housemaid put things in perspective by saying "Modi (that is our Prime Minister's surname) is doing it for our own good." Her comment fitted well with what a young girl on her iphone 7 next to me thumbed in on twitter #GoodModiBadDemonetization. Finally I was able to withdraw some money from the bank and carried on with life as I somehow went about making ends meet.

That meant that a holiday I had planned together with my friends in the very beautiful hill station Lansdowne in North India had to be shelved. Weeks of planning and excitement and anticipation of a holiday fitted the next twitter trend well #EffectsofDemonetization. It is now 90 days since Modi's announcement. We had a great holiday, and I have to say, the demonic clouds of #demonetization have blown over. However, what remains is the feeling that nothing is certain and the government can change policy at the flick of a twitter post and that brings unease still. The government trumpets that the process cleaned up the 'system' of unaccounted wealth in billions of Rupees. As the powers that be, get more citizens to pay taxes in India, I hope I will pay less.

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