India's cash ban on high-value bills faces backlash

Prime Minister Narendra Modi's decision in November 2016 to withdraw India's high-value rupee bills was intended to root out widespread tax evasion in the country. But the ban has had an impact on businesses in Asia's third-largest economy, leading to a growth slump to levels not seen since Modi was elected. 

Now, as businesses from street-side stalls to wholesalers rekindle their love affair with cash, Modi is coming under pressure to explain whether the most controversial policy of his tenure was worth the pain.

A steel producer, who spoke on condition of anonymity, stated that his efforts to keep business above board backfired when his buyers insisted on paying cash – and keeping their payments off the books.

"They said, 'we have cash at home, and if you want to be paid, we can pay you in cash immediately, but we cannot arrange a bank payment'," he said.

TRT World' s Radhika Bajaj reports from Mumbai.

India's business style

In a country where only three percent of people pay taxes, the government decision which meant high-value notes could not be spent and instead had to be banked, would encourage a switch to traceable digital payments.

Modi personally championed credit and debit cards in the aftermath of demonetisation, beaming down from billboards encouraging Indians to embark on a digital revolution.

But sales from plastic have declined 13 percent from highs in December 2016, when new cash notes remained scarce.

Mobile banking figures for August, the latest data available, showed $16 billion in transactions – a 20 percent drop compared with November.

Many poorer Indians, reliant on cash, were left scrambling to buy basic necessities as their meagre savings evaporated in an instant.

"Was it worth it? Certainly not," said Sunil Sinha, principal economist at India Ratings & Research.

Authorities also expected a portion of non-tax payers would fail to bank their unusable cash for fear of exposure.

But, in August, the Reserve Bank of India announced that 99 percent of the devalued bills had been returned, undermining Modi's claim that stashes of black money would be uncovered.

Now traders say they are operating much as they did before the ban, with cash once again king, as fears of being stung by the taxman have faded.

"We're in a wait and watch phase before we decide if we should increase the cash portion [of the business] or not. It depends how closely the government monitors this," said a dry fruit importer in a traditional market in Delhi's old quarter.

"Everyone does this. This is how business is done in India." he added.