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India Moves to Ease Currency Shortage in Rural Areas amid PM Narendra Modi’s Demonetization Move

Cleaning up the system and getting rid of tax evasion will bring long-term benefits

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FILE - A private money trader counts Indian rupee currency notes at a shop in Mumbai, India. (Representational image). VOA

As India grapples with massive cash shortages, the government has announced a series of measures to improve the supply of new currency to the vast rural areas that have been worst hit since high value currency bills were scrapped earlier this month.

Economic Affairs Secretary Shaktikanta Das said on Wednesday that the large countrywide network of post offices would be used to distribute money. “The new denomination notes… have been made available in 155,000 post offices across the country to disburse cash, specially to rural people.”

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The government also said farm cooperatives would provide more than $3 billion in credit to farmers to buy seeds and fertilizer for the winter crop.

There has been mounting hardship in villages, where people hold virtually all their savings in cash. Worries are also growing that food production could be hurt due to delays in planting crops such as wheat.

Indian lawmakers from opposition parties hold placards in the parliament premises during a protest against the government demonetizing high-value bills in New Delhi, India, Wednesday, Nov. 23, 2016. VOA
Indian lawmakers from opposition parties hold placards in the parliament premises during a protest against the government demonetizing high-value bills in New Delhi, India, Wednesday, Nov. 23, 2016. VOA

Cash has been in short supply since 85 percent of the country’s currency went out of circulation in a matter of hours when high denomination bills of about $7.50 and $15 were scrapped on November 8. The move aims to bring billions of dollars of unaccounted wealth into the mainstream economy, stamping out tax evasion and curbing corruption.

The brunt of the cash crunch has been borne by rural areas, where two-thirds of India’s 1.3 billion people live, but where the network of banks is poor, making it a challenge to get new currency bills.

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Many villagers have been trekking long distances and waiting in serpentine lines in neighboring areas to exchange their cash for new bills, sometimes to find that new notes run out before their turn comes.

The worst affected are those at the bottom of the rural economy – daily wage workers. Demand for farm labor has fallen as the planting season slows down and even well-off farmers say they do not have enough currency to pay salaries or conduct transactions in the market.

A farmer in Haryana state’s Karnal district, Ishwar Dayal, says although he is allowed to exchange roughly $500 in a week from the bank, that amount is difficult to come by as banks run out of currency. That is hampering his operations. “Our rotation in the village depends completely on cash transactions. Whoever we have to deal with, they have no checks, no check books; they only have trust in taking or giving cash,” he said.

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Facing a barrage of criticism for poor preparation and implementation of the massive task of replacing 23 billion old notes, the government has said it could not have printed new bills in advance for fear of the move becoming public.

And as the countrywide scramble for new bills continues, political opposition to the action has been mounting. On Wednesday, more than 200 opposition lawmakers protested outside parliament. A top leader of the opposition Congress Party, Rahul Gandhi, criticized it as the “world’s biggest impromptu financial experiment,” saying it had caused hardship to a billion people.

The government says cleaning up the system and getting rid of tax evasion will bring long-term benefits and more revenues to spend on the welfare of poor people. (VOA)

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Demonetisation, Aadhaar Spurred Digital Payments Growth: RBI

Pointing to a major area for improvement, the study showed that only three per cent of the population in India used the Internet to pay utility bills in 2017

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long term impact on Real Estate
Demonetisation aided with RERA and GST will put long term impact on Real Estate. Pixabay.

After the demonetisation of Rs 500 and Rs 1000 notes in 2016 pushed digital payments, Aadhaar-enabled electronic know your customer (eKYC) resulted in an exponential growth of such payments in the country, according to a new report by the Reserve Bank of India.

Transactions in which both the payer and the payee use digital modes to send and receive money are referred to as digital or electronic payments.

India recorded an accelerated growth rate of over 50 per cent in the volume of retail electronic payment transactions in the last four years, said the report titled “Benchmarking India’s Payment Systems”.

The growth in 2018-19 was largely due to the steep growth in Unified Payments Interface (UPI), it added.

“In India, the smartphone revolution has seen an explosion in digital payment options, from e-Money to the Unified Payments Interface (UPI) to a combination of the two. After demonetisation, the use of e-Money picked up on a very large scale,” the findings showed.

The digital landscape changed with higher usage of e-Money, UPI, Aadhaar Payments Bridge System (APBS), RuPay, and Bharat Bill Payment System (BBPS), among others.

With 3,459 million e-Money transactions, India was only behind Japan and the US (data on China not available) in 2017 with respect to volume of e-Money transactions, the report said.

The study revealed that over the years, the number of debit and credit cards also increased considerably in India.

Aadhaar Card Reader Logo. Source: Wikimedia

India had 331.60 million and 19.55 million debit and credit cards respectively at the end of 2012. The numbers grew to 861.7 million and 37.49 million respectively at the end of 2017.

By March 31, 2019, the number of debit and credit cards issued were 925 million and 47 million, respectively.

However, the study showed that the cost of digital transactions was a factor inhibiting their growth.

Merchants have to cash out or transfer to their banks accounts at a cost and at times these costs are passed on to the consumer.

“A few countries have tried to regulate costs to ensure that the charges are not usurious, but the jury is still out on whether such a regulation promotes the growth of digital payments. With banks pushing and merchants pulling, it isn’t clear if such caps will discourage the use of cash,” the report added.

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Pointing to a major area for improvement, the study showed that only three per cent of the population in India used the Internet to pay utility bills in 2017.

The report compared the payment ecosystem in India with the systems and usage trends in other major countries such as Australia, Brazil, Canada, China, France, Germany, Britain and the US. (IANS)