by Annika Backe
July 27, 2017 – December 30, 2016, was an important day for India. The two highest denominations, the 500 and the 1000 rupee bills, were declared invalid. Therewith, Prime Minister Narenda Modi wanted to sap counterfeiting, corruption and tax evasion. Though this is a noble goal, the repercussions of this measure hit the poorest and the most vulnerable hardest.
Indian Prime Minister Narenda Modi. Photo: Narenda Modi / Wikimedia Commons / CC BY-SA 2.0
With this withdrawal, more than 80 percent of the money in circulation – equaling more than $249 billion – became worthless with a scratch of the pen. Accompanying this, the Reserve Bank of India was planned to issue new notes, including a 2000 rupee note as a new denomination. However, only the new 500 rupee bills were actually released. Since the government had also set cash withdrawal limits, many Indians got little more than the equivalent of $66 at ATMs.
The impact could be noticed everywhere. It proved especially severe to the people living in the country – who constitute nearly 70 % of India’s population. To submit their invalid notes to the nearest bank, they often had to travel long distances. Upon arriving, they saw that their bank had serious problems to exchange their money. It’s important to note that cash is the essential means of payment for the Indians, of which only about 60 % have a bank account. Thus many farmers were no longer able to make necessary purchases.
Another effect was the rise in domestic violence reports. Since they own a bank account even more rarely than men, women have to accumulate cash for themselves. Many of them have to do this in secret. When searching for bills to be submitted, fathers and husbands discovered these hiding places and punished the women right on the spot.
Adding to social tensions were tangible losses on the overall economic level. Production plants were left empty for days. More and more employers experienced financial difficulties and resorted to paying with goods. As a result, the World Bank reduced its growth forecast for 2017 from 7 % to 6.4 %, despite the fact that India, having a population of 1.29 billion, is the world’s most expanding economy.
And once the government realized that not so much money was lost through tax evasion and corruption as expected, it rethought its approach. As the most important step, the cash withdrawal limits were lifted. It took the economy weeks to gradually recover. Experts currently expect India’s growth to amount to 7.2 % again in 2017/18. On the other hand, there are no official figures on how long it will take the main victims to recover from this ill-fated measure.
More information is available on CNN Money.
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