People are ending up standing in queue to get money for their day to day expenses. Many have returned empty handed after standing in the queue for 8 hours. People have died for lack of money. People have died because their then legal tender is no longer being accepted. Poor people have stopped eating two meals a day because of lack of cash. Daily wage people are finding it difficult to make their earnings, because they cant be paid due to paucity of cash.
Bank branches are not able to service the large number of people turning up at the door. I visited my branch yesterday, and it had plans to service only 130 people a day ( 130 for cash deposit and 30 for withdrawal).
As for the new notes, Rs 2000 have been dispatched to banks. This amount in a single note is a bit steep for a poor country like India. Rs 500 notes are yet to come into active circulation.
It will be worthwhile to remember that the Euro Zone decided to stop the production and issuance of the 500 Euro note since it was considered to be promote illicit activities. The old 500 Euro notes continue to be legal tender. And here we are, making a Rs 1000 note as a null and void tender, and introducing a Rs 2000 note instead.
Do we have adequate literacy to support digital money? Have we promoted electronic channels for payments? The irony is profound. I pay a tax of Rs 11 if I book my train tickets on the internet. Instead, if I pay in cash, I avoid this charge. Isn't it ridiculous?
- Assume the average wage of an Indian person to be Rs 10000 per month, or Rs 450 per day.
- I assess each person to invest(spend)(waste) [whichever way you perceive] at least two days in this entire exercise to deposit, withdraw and exchange money in the next 2 months.
- Assume 800 Million (60% of the nation's population) stand with the GOI in nation building exercise.
- This means a loss of productivity of 0.72 Trillion Rupees ( Rs 450 salary per person per day * 2 days * 800 Million People )
The banks are increasingly becoming flush with cash deposited by people. They have hastily reduced the term deposit rates. Yet, they are extremely cautious while reducing the lending rates. Call it making hay while the sun shines. I sincerely hope that they translate the excess cash into lower rates of interest for borrowers. The cash is expected to make the banks profitable again, after quarters of losses.