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1

Published on 1 Comment on DeMonetisation and Digital Payments

DeMonetisation did not promote the uptake of digital transactions

Driving India towards a less-cash, digital payments economy was one of the aims claimed by the Prime Minister when he invalidated 86% of India's circulating currency. The reasoning was that India was a largely cash-based economy; if circulating cash was reduced, people would rapidly move towards electronic, or digital payment systems for their commercial transactions. That at any rate was the hope.

Did it happen?

Rupa Subramanya thinks it did. She claimed as much in a blog in the Hindustan Times. She accepts that the original aim of taking out black money has not been met, given that almost all of the Specified Bank Notes (SBNs) hav now been returned for exchange or deposit. But she goes on to say that her research shows that the secondary aim of pushing the country towards digital payments and away from a cash based economy has been achieved. To quote from her article:

....several key components of digital payments such as Point of Sale Debit and Credit (PoS) purchases, National Electronic Fund Transfer (NEFT), Immediate Payment Systems (IMPS) and mobile banking, are way above their pre-demonetisation trends

.....

The bottom line of the research conclusively demonstrates that there was a structural break after November 2016 with a permanent increase in digital payments and decrease in the relative importance of cash. Whatever you may think of the original goals and whether they succeeded, it’s clear digitisation is one demonstrable success story of demonetisation.

She expresses the use of digital payments not in absolute terms but as a proportion of total M3 Money. However, though she says she has published her findings,  they are not in peer reviewed journals. Rather the findings are published in research papers for the Observer Research Foundation - a think tank. I haven't seen these papers and therefore cannot comment on the methodology of the research. In any case she does not cite a source, nor does her article present the full results of her analysis. Her data source, though is the same that I have used earlier in a series of tweets and in a twitter Moment. This is the Reserve Bank of India's Database on Indian Economy.

I believe her conclusions are premature, they may even be misleading or wrong, based as they are not on absolute value of payments but on payment volumes as a ratio of M3.

I present here my own much simpler and more intuitive analysis of the RBI data set and draw very different conclusions.

Data and Methods: The RBI dataset consists of monthly transaction amounts for each of several different modes of digital transactions. The data goes back to 2004 and the latest available data is for August 2017, 10 months after DeMonetisation. Rather than look at just at the figures a few months either side of D-Day (DeMonetisation-Day if you are a fan or Disaster-day if you are a critic), I suggest it is best to look at the entire period. Since these are time series data (defined as data collected consistently with a defined periodicity - in this case monthly) the most obvious and simple technique would be to chart the data against time, draw a vertical line at D-day and look for a change in the trend . If D-Day did indeed result in qualitative sustained change in aggregate behaviour the change in trend would be obvious. I used the statistical programming language, R and the charting package ggplot2 to draw and annotate the charts. These statistical programmes are widely used in academia and business.

Results: The results of my analysis are best presented as a series of charts. They speak for themselves.

The key point to get is that by looking at the entire time series for each of the main digital payment modalities, two conclusions leap out immediately.

One, that in the first few months after D-Day there was a spurt the volume of payments made by digital means.

Two, for some payment modalities, they have subsequently fallen back to levels that were seen well before D-day. In particular retail electronic clearing, and plastic card volumes are effectively back on the same trend growth they always were since long before D-Day. Mobile banking transactions in particular were going up steeply in the months before D-Day was even a glint in anyone's eye; they went up even more steeply after D-day - and here's the crucial point, they have more latterly dropped right back. If we superimpose what we know about the re-introduction of new currency notes this looks like a perfect fit. As cash was re-introduced into the system, people began giving up on mobile banking transactions.

Another set of charts looks at the volumes (i.e number) of transactions.

Here there appears to be a small shift upward that, despite some month on month fluctuation appears to be settling down at a level clearly higher than anything seen pre D-Day. In the case of mobile transactions it is small-ish numbers and starting from a very low base; in the case of digital transactions its a step change from about 1.4 billion transactions a month to about 2 billion. But the volumes transacted appear not to have shifted much at all - it is in keeping with long-running trend and it is certainly not a step change.

Undoubtedly, there has been a steep growth in the number of Point of Sale outlets, as shown here:

Starting from a very low base, this is only to be expected given the huge Government push including cash incentives and subsidies for the take up of POS machines. The extend to which these have penetrated much beyond the largest urban centres and the plushest retail outlets is the big question. The last chart above is based on data published by NITIAayog

Conclusions. My analysis leads me to conclude that any effect of DeMonetisation on the use of digital payment systems has been transient, small and short-lived. Some change has occurred (POS terminals for example) but the fact that both retail electronic clearing and card usage is back on what I call 'trend growth' (i.e. on the same trend as obtained before D-day) would suggest that there has not been a structural change that can be confidently ascribed to DeMonetisation.

Post-script discussion. In all the commentary on Digital Payments insufficient attention has been paid to a most fascinating report that was published on Oct 5 by Visa India. Amitabh Kant, CEO of NITIaayog, wrote the foreword to this report. Nobody who read the detailed figures or had taken in the measured  recommendations in this report would have supported a sudden, cataclysmic and disruptive withdrawal of 86% of the currency, certainly not with the intention of promoting a digital payments economy. Among the key findings of the report are:

  • Cash usage costs the economy 1.7% of GDP (Note: borne largely by the State)
  • According to a 2014 World Bank survey, only 0.38 percent of women above 15 years old used the internet to make payments compared with 2.04 percent
    of men; 3.25 percent women had used a debit card versus 5.25 percent of men.
  • The cost of a point-of-sale (POS) terminal in India ranges from INR 8,000 to INR 12,000. The annual operating cost is INR 3,000
    per terminal. Low transaction volumes especially outside of Tier 1 cities, make it unviable for banks to expand their footprint into such segments.
  • RBI and the Govt of India already had a plan to transition to a less-cash economy.
  • If India  invested a total of INR 58,000 crores (USD 8.6 billion) over the next five years through tax
    rebates, it could not only expedite the pace of payment digitisation but also save about INR 70,000 crores (USD 10.4
    billion) in that period through a reduction in the cost of cash with a potential to save 4.7 lakh crores (USD 70 billion)
  • If we invested 60,000 crores and undertook a series of reforms and regulatory changes cash use could come down in 2025 from 1.7% of GDP to 1.3%.
  • In particlar see exhibit 7 of the rport which details the benefits from a sustained programe of policy changes as well as investments to improve the infrastructure for digital transactions. Effectively, a 5 year programme of sustained policy implementation and investment would potentially result in a growth of digital payments for Personal Consumption Expenditure from 4% to a whopping 36%, a drop in cash need from 11% of GDP to 10%.

 

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Published on 4 Comments on Why our area doesn’t seem to be going cashless

Over the last few days, I've had many discussions with various people about going cashless. So far, I haven't met anyone who applied for internet access if they didn't already have or installed a payment app if they didn't already have, contrary to reports in media (which may possibly be largely limited to the metros). Here are some reasons I found out.

Ours is an area that would classify as a town though it has now been clubbed with several other towns into a city. It is close to Mumbai and a lot of people who work in Mumbai but can't afford to live there live here. About half the population is lower middle class and tenants in the properties of people in Mumbai who have purchased flats here as an investment - me too. There are also several people who are quite poor and live in slums and old buildings in small cramped quarters. In other words, there are few people who'd qualify as rich in this area or even well off enough to not care about monthly budgets - perhaps some of the more prosperous shop owners. Our building is probably among the most "posh" in this area and there are maybe 6 cars parked in the compound with a few hundred flats, and 3 of those are cabs.

Note: I am neither for, nor against the use of cashless transactions. It is a useful method for those willing to spend that little bit extra for convenience. It is invaluable for doing online payments and a handy record of spending in bank account doesn't hurt for those, like me, who cannot remember where they spend money five minutes later. However, forcing people to go cashless is extremely unwise, in my view. Regardless, this is merely a disclosure of where I stand and the below are not my views. 

Domestic workers

I spoke with several of these. My regular maid usually gets paid into her bank. Another I hired to help her out financially takes cash. Apart from these two, I spoke with about 4-5 others. Only one of them who was previously getting paid in cash is getting paid by cheque this time (she will be withdrawing the money for use, not spending cashless). Among the others, reasons varied. They found the bank intimidating and cash easy and familiar - is a common sentiment. All but one of the others didn't have their own bank accounts and did not want to deposit their income into the accounts of their husbands or other family members. The remaining one had a bank account in her village, and when she applied for a new cheque book, it got delivered to her village address, so she wants cash till she has a way to withdraw money. Only my maid has a smart phone that is compatible with an app (she didn't buy it, she is using my old one) and she uses it without an internet connection. The phone automatically connects to the WiFi when she comes into range, but she has never shown any interest in using the internet and is reluctant to do it now. In any case, I would never advise her to begin her introduction to the internet with a high stakes thing like payments.

Vegetable vendors

I've spoken with about a dozen of these. Most of them didn't know about apps. I informed them. They don't think their transactions are large enough to afford commissions to receive money on. Additionally, there aren't people buying. No one seems to have asked them if they will accept an app payment, so they don't think there is any point in using it unless people in the area adopt it.

Grocers

Business is very low for grocers, but none of them showed any interest. When people have money, groceries are a priority, and they usually offer credit to regular buyers at such times, so they don't think an app will add any business for them. Like the vegetable vendors, no one has offered to pay them by app so far.

Car mechanic

I spoke with one. Business is down enough to be as good as zero. No work other than emergencies like punctures is happening. No one has offered to pay him by app before, but he would consider it if there promises to be a good amount of business. We speculated on the possibility of vehicle owners being likely to own phones that could install such apps and perhaps trying to pay that way if he put up a board, but he didn't sound anywhere like he was headed for a download. He would have to upgrade his own phone first - it is not a smartphone. Another reason he was reluctant is that he would likely have completed the work first and then if the payment did not happen, he could suffer a loss. I explained that there was very little chance of that happening, but it is unfamiliar tech and he is not internet savvy and I couldn't with any sense of ethics recommend it beyond discussing it as a possibility for the same reasons as my maid - first experience of the internet being payments is asking for trouble.

Garments shop

I spoke with two. Both had near zero business and were very interested in the app. They had smartphones and had even experimentally downloaded after seeing all the ads. However, the problem is that no one is coming to their shops at all. Whether paying with cash or cashless. There are no customers at all.

Housewives

I spoke with several asking if they had considered buying using an app. All of them had some money (one of them having borrowed from me). All of them had priorities and were managing those priorities in the cash they had, which admittedly is very little. None of them were interested in using an app to buy anything. They would rather cut corners and buy when they had the money. Some were making do with dal and pulses and onions and potatoes they could get on credit from the grocer and skipping buying vegetables when they didn't have money, but they weren't interested in installing an app so they could buy clothes - for example.

I am also a stay at home mom, but I am cashless enabled, so to say, so writing my experience separately, because it is different from theirs. I follow news rapidly, and anticipated the problems with cash that would happen, so within the first few days, I had my money converted locally - without paying a single rupee as commission - in medical shops and such. I further withdrew money from ATMs at the crack of dawn to find smaller queues, knowing that people would be needing to borrow as well as my second maid would need a salary. I have cash. There is a Reliance Fresh where I can swipe my card, but I have not used any cashless payment at all since demonetisation, because I believe those unable to accept cashless methods are really suffering for business, so I'd rather spend in their shops.

People with jobs in offices

Most of these in our building are male, but there are a few women too. They mostly seem more inclined to save mone rather than use cards or apps. Most of them have cards. Most of them use cards to withdraw money from ATMs as possible. None of them use cards for anything except withdrawing money from ATMs, though they are aware, and one of them had used cards to make payments before and knows how to do it.

I didn't find any credit card users other than myself in our building and among people I spoke with. One woman whose husband works abroad has an add on card to his credit card for emergencies, but she has never used it. She is also the one who has used a debit card for purchases before.

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Published on 4 Comments on The cashless India jumla as an answer to #demonetisation mess

The government began with focusing on fake currencies and black money as the reason for demonetisation. As deposits started rapidly piling in banks and it looked increasingly unlikely that there was a lot of black or fake money being caught, the goalposts started shifting.

Soon it became evident that the supply of legal notes was nowhere near adequate and worse, going by the capacity to print notes, it would take another 5 to 6 months to return the amount of money withdrawn from the country. Then came disclosures of problems with notes, inappropriate prioritization of the 2000 rupee note, which is available relatively abundantly, but without the intermediate 500 rupee notes, only serves to reduce the limited liquidity with the existing 14% of notes left to people.

Suddenly the talk seemed to turn to a cashless India. Government spokespersons on TV as well as Modi himself have given up all talk of black money and suddenly demonetisation is all about a cashless India (which got rapidly ridiculed with comparisons to the cash-less reality) and upgraded to a less-cash India. This is a terrible idea.

Necessity is not utility

If it were useful for India's sellers to accept cashless payments by paying a charge on the transactions, they would already be cashless. The government wouldn't have to recommend it at all. The fact is, cash transactions are highly efficient. They work instantaneously and reliably with no other infrastructure needed - bank accounts, devices, connectivity, electricity to run said devices.... and they are FAST. Taking a note or five from a wallet, handing it over, acceptig change back takes way less time than devices connecting, verifying, blah blah blah. Even swiping a card takes more time. AND unlike cash, you pay a fee every time it is used. Whether it is the buyer or seller charged, the cost will ensure the buyer pays for it. No seller is an idiot.

A few sellers may have adopted these methods in a bid to increase the business the government killed, but it is highly unlikely that they will prefer these methods to cash, if they hadn't found them useful before. A few businesses catering to buyers likely to own cards may continue, but that is an entirely different planet from cashless India.

To give a very crude example:

Bottom line is that cash works. Starving the country of cash will not work because hoarders will hoard and the government will have to issue adequate cash to keep country running. This kind of deprivation will in fact cause more people to hoard. A domestic example (I'm full of them) - before the demonetisation, I'd been a happy mostly cashless user for over a decade. I live in a small town and yet my maid and grocer are paid with online transfers by the month. I very rarely had any cash other than the notes in my wallet which usually ran out and I lived a day or two on simple credit if needed - since I had no daily expenses as such beyond vegetables. Today, I have over 10 thousand rupees in my drawer - because I know I need to pay the other maid (whom I hired merely because she was desperate) in cash in another week or so, but then people will be crowding to draw salaries. I have also kept enough cash at home, because unlike normal times, when I could hop over to an ATM and withdraw when I needed, there is no telling when I may find an ATM with a queue I'm willing to brave. This is happening everywhere. 20 days of banks giving out money the best they can, and our local market looks like this:

People aren't even thinking of spending. They will not spend on anything unnecessary, no matter how much cashless you scream, till they feel reassured that they have enough cash for contingencies. That is going to be a long, long way away.

Inadequate penetration of debit cards

India has 24.5 million debit cards, most of them saturated in urban areas, and people often owning several among those who do. My home for example has two adults and 8 debit cards between us. so 24.5 million being the number of cards is unlikely to be anywhere close to actual card users. Further, cash withdrawals at ATMs is most of the use these cards are put to with 88% of transactions and 94% of the total monetary value of all debit card use. Which brings us right back to cash.

Inadequate penetration and extreme difficulty obtaining credit cards

A few days after demonetisation was announced, I got a call from SBI offering me a credit card. The limit was to be from 30 thousand to a few lakh - I forget details. Interested, I agreed. Ignorant of the ways of credit card companies, I expected that they would estimate my limits by my salary or deposits, etc. Turned out that they blocked a fixed deposit and issued a credit card against it for less than the amount of the fixed deposit. Unclear why anyone would use a credit card at all instead of their debit card, in that case. I got several other offers. Curious about this phenomenon, I replied to the offers with varying information about my income. Unsurprisingly, I found that I had to be rich enough to be able to spend the money directly in order to be able to use it on credit at rates that would put a shady rural moneylender to shame. It makes no sense and I don't think I'll be using that card. I think this option of going cashless is irrelevant to most of India's population - other than the corporate salaried class - got more interest out of them if I said I worked in an MNC - which, let's face it, may be the loudest population of India, but hardly the top empoyment.

Online and mobile banking

Let me narrate here an incident in my home recently. My maid, who pays for her gas in cash and uses her debit card strictly to withdraw money from the ATM as needed, got an SMS from her gas provider saying that she could pay for the gas online. The conversation went something like this:

The fact of the matter is, online transactions are complex and to the internet illiterate are a financial catastrophe waiting to happen. It is far better for people to learn about internet security with Facebook accounts and verifications and email passwords and lost passwords and recovery and hacked Twitter accounts than to begin their internet experience with a high stakes gamble like the contents of their bank account because their government forced them to do it for survival.

Make no mistake, if people don't have cash and get taken in by this propaganda, very soon you are going to have operators of cyber cafes with passwords to a hell of a lot of accounts as aunties line up their with electricity bills and bank slips containing their login ID and passwords in hand to pay the bill so that their electricity is not disconnected or to charge their Paytm account so they can pay their grocer. And they would not have the knowledge of how to change their password either. They would learn eventually, likely with hard lessons that leave them with nothing to protect, and this is not the way to do it. Too much risk.

Literacy rate in India

India's literacy rate stands at 74.04% - but this is an illusion. A lot of "literate" people of poor economic status are barely able to read and rarely in English, which is currently required to transact efficiently online, understand bank statements, secure their accounts, change passwords and PINs and more. Some things like using cards or withdrawing cash from ATMs can be done in Hindi or other languages, but even examining transaction slips and more still happens in English. Internet banking is mostly in English.

Computer literacy is even lower. Smart phone usage may be slightly better, but it is still under 30% of the population.

Electrification and internet penetration in India

I am not even going to talk of percentages here. To go cashless, an absolutely uninterrupted electric supply and internet connectivity is non-negotiable. And, to put it very very mildly, we are nowhere near 100%

Business margins

Business margins over every single transaction are absurd replacement to freely exchanged cash. For high value and infrequent sales, it may make sense. To buy your vegetables, Paytm may earn more than the vegetable seller's profit at the end of the day. Tomatoes are selling at 10Rs a kilo. One kilo is a hell of a lot of tomatoes.

Business readiness

Twitter is currently awash with stories of cashless fails. I had one yesterday. I couldn't find my debit card, so rather than risk it being stolen and misused, I blocked it. Five minutes later I found it. But while I can block it online, I cannot unblock it using the same security available to my entire bank account with access to online banking. If a thief has access to online banking, they don't need to unblock cards, they can simply transfer all the funds out. The bank has my phone, my email AND my access to online banking secured with passwords and OTP, yet something as simple as unblocking a card can't be done within minutes of blocking it and I must go to my home branch 2 hours away. If the card got blocked by someone while trying to pay after two hours of filling a shopping cart, would be a really fantastic cashless experience! This is the country's biggest bank!

If I was in a city and living cashless as Modi recommends, what was I to do? Beg for money to get home in spite of having plenty? Banks like Bank of Baroda or Indian Overseas Bank don't allow online generation of PIN for ATM cards - you must go to the home branch. How is a cashless India even possible with the biggest jugglers of money being so primitive?

Other issues like Paytm account blocking in the event of a lost phone being completely abusrd, to inexperienced sellers charging over a lakh rupees instead of over a thousand rupees accidentally and not knowing how to reverse charges. There are plenty of nightmare stories.

Security issues

Internet banking is a lucrative area for hackers, and India is not extraordinary on security. Just weeks before the demonetisation was announced, an ATM hack had defrauded many people of their money. While banks blocked cards and issued new ones, there is no information on any investigation or arrests made. Or, for that matter, for most cyber crimes beyond "objectionable" content on social media, which is usually busted because of a lack of anonymity - a newbie mistake, no hacker into financial systems will make.

There are security issues with banking apps

I'm just going to paste this here.

 

Forget cashless India. Go pre-dawn to some ATM that gives out Rs 2000 notes - they have shorter queues. Do this a few days and you'll have some cash to use till this nightmare is done.

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Published on 2 Comments on The grand demonetisation jumla

Two nights ago, Modi suddenly appeared on TV and told people that the currency notes for Rs. 500 and Rs. 1000 would not be legal tender after midnight and anyone accepting them did so at their own risk. Then followed information on how how people could deposit them into banks or exchange them for legal 100 rupee notes at banks and post offices. There also followed information on places that could still accept the notes for an additional 72 hours, like government hospitals, petrol pumps, railway counters, etc. Banks wouldn't work the next day and ATMs wouldn't work for the next two days. New currency for Rs. 500 and Rs. 2000 would be issued after three weeks. Don't panic, he said, you will get your money back or something. He has vanished since then, even gone abroad while the country faces chaos and did panic.

What this meant was that the people had absolutely no chance to organize themselves and plan their finances for the near future. People stopped accepting those notes well before midnight. Others rushed to ATMs, which was a bad move, since most ATMs nationwide give only Rs. 500 and Rs. 1000 notes and only a select few dispense Rs. 100s - which was the need of the hour. Those emptied fast.

What ensued was absolute chaos. While stating that petrol pumps and railway counters and such would accept the banned currency, the government had done zero to ensure that they had adequate legal currency to offer back in change and necessity soon forced these places to stop accepting the banned notes, regardless of what the Fuhrer had decreed. As outrage grew, hasty additions were made to the list that would accept the banned currencies like all hospitals, medical stores and such. Frankly, on the ground and in order to be able to do any business at all, it translated to pretty much anyone with enough change to return for the banned notes accepted them.

It didn't work, as people held on to the increasingly scarce Rs. 100 notes for necessity and local economies ground to a halt. By morning, the situation was clear. Shops accepting cards and such (mostly in the metros) continued to do business, while small town areas like ours were completely shut in the day - there was no money to do transactions with anyone.

By the evening, the classic Indian jugaad had helped some more, and solutions like doing purchases worth the cost of the banned notes was practiced (absolutely everywhere, not just in government listed places). A few places like medical stores took to issuing notes signed by the owner for the balance amounts that could later be exchanged for medicines. But such trade was largely limited to essentials. The economy basically ground to a halt.

The complete abruptness of the move resulted in enough lack of information to do irreparable harm. From money being abandoned or burned to a heart attack from shock that the hard saved 2k a woman was to deposit in the bank was no longer a legal note. Another woman in Telangana sold her land for 50 lakh in cash and committed suicide on discovering the ban, believing that her notes were now worthless. People with weddings in the family were completely stumped for money. Necessities from cooking fuel to vegetables were out of the reach of people. There simply wasn't enough cash for transactions to happen.

There was panic over urgent needs for cash, medical emergencies, travel, weddings and other functions, bill payments and more. Many couldn't afford food. Sellers of perishables made huge losses because their investment spoiled before people had money to buy it.

A thriving black market bloomed overnight that will vanish just as untraceably later over - ironically - national currency. People desperate for money to buy things accepted change for a lesser amount (varied from Rs. 300 to Rs. 450 for every Rs.500 note). Television channels were monuments to the absurd, loudly proclaiming "noton ki jabardast black market" (Black market of currency) one moment and how this move was preventing corruption black money (the government script) at the other.

Supporters of the ruling party took to suggesting anyone who criticized this to be hoarding black money. Others helpfully suggested cashless wallets (incidentally, the Prime Minister appears to have promoted one coinciding with this ban, raising all kinds of questions from quid pro quo to propriety). There was an abundance of information on how to deposit, withdraw or exchange cash. Except.... the banks were closed, as were the ATMs.

By the end of the day, the devastation this move had caused people - and particularly the poor - was so obvious that the need to rapidly return cash to people was beyond obvious, and the government decided that the banks would immediately start supplying the new currency notes for Rs. 500 and Rs. 2000 when they opened. This announcement was pretty much a declaration of the failure to curb black money (or whatever it is the government imagined it was curbing) by strangling the cash flow of the whole country, as the Prime Minister himself had stated that the higher value (also debatable when a large pizza costs more than Rs. 500) notes encouraged hoarding and that is why their ban was a step toward clean money. Not only would new higher value notes be right there, there was one that was higher than the value of any currency circulating so far. But then our ruling party isn't famous for logic.

The new day began with more of the same. Cash shortages. ATMs closed. Banks, supposed to open early, as per government propaganda, mostly didn't. In any case, by 11am, news of banks running out of cash started hitting social media. The situation on the ground is mostly unchanged, because the few people who have been able to exchange currency simply haven't got enough currency in hand to spend it unless necessary. Being able to officially exchange only Rs. 4000 in 14 days makes a mockery of living costs in India. Though of course, people immediately found ways around that - going to multiple banks, using different ID proofs each time, etc. But the fact remains that not even 1% of the population was able to get their hands on usable cash. And no one has so much that they would send it right back into the market with transactions (I also suspect the black market the government has so helpfully invented traps and trades any that circulate, instead of merely using it to provide change at real value).

While some got their cash without much hassle, many spent hours in queues and increasingly angry crowd only to discover that banks had run out of money. Daily wagers lost wages trying to get money, only to not get it and be forced to try again tomorrow. The alternative, of course was to lose anything between 10% and 20% of the value of their hard-earned money and change it in the black market. And this black market was the complete creation of Modi and his government because of their absurdly short notice on the ban and closing of banks immediately after announcing it. While the government propaganda suggests that such suddenness was necessary to prevent illegal hoarders from planning their moves, they can still plan their moves, since the government not being able to replace it rapidly will mean that they have a long time to plan and do it in, just like the other citizens - and particularly the government, which doesn't seem to have realized the mathematical difficulty of replacing 86% of the nation's currency with 14% of the nation's currency and been caught completely unprepared for the results of their own actions.

What is worse, is an insecurity and mistrust about the government and national currency. Talking with people on the street "How can they do this? How can they just cancel our money any time they want?" was a recurring sentiment. People are scared of losing their money. Even when they get their hands on legal cash, it will be a while before anyone forgets that their hard earned money could be rendered worthless on whim and they could suffer for necessities even after working hard and earning enough and the government actions have shown that it is inclined to act on such whims for the sake of drama that is literally funded by the people with insecurity, deprivation, losses of income, inconvenience, sometimes loss of life or social status or money in the black market. As an angry woman put it "How can the government force me to buy my own hard earned Rs.500 for Rs. 400 or not have food for dinner? What is the meaning of this? Why have government guaranteed notes if they can be banned without warning?" People are angry about the ruling party. What is worse, they are in a new position of having to factor in such losses. Ironically, this appears to have made people MORE inclined to hoard money, not less. Most people I asked said that they would now try to keep a larger emergency buffer of money at home and this time would make sure that they had notes of different denominations. Though of course, they still had nowhere near enough for immediate needs, let alone the hoarding they were planning.

Regardless, by afternoon, the government was now making noises about a Rs. 1000 note as well to be introduced. Essentially, it means that the whole tamasha does mostly nothing useful. Not just are the denominations targeted to remain in circulation, an additional and higher denomination has been added while talking of high value notes increasing corruption.

Given that one five hundred rupee note will be replaced by five one hundred rupee notes that no one wants to part with, at the slow pace people are getting money, it is going to be a long and painful time before normalcy returns.

This is what happened. Part 2: will look at this situation with more analysis of other factors and fact checking.