The Cash Conundrum

November 8 2016. I was casually roaming around on the beach at Havllock Island , Andamans while taking a post dinner stroll. My smartphone, as exhausted as me due to a day long travel and clicking snaps in this heavenly locale, suddenly beeped and ushered in a text message . A look at the bright screen and a streak of thoughts crossed my mind "oh God... 500 / 1000 rupee currency going out of system post mid night " !! My friend , who was walking a little ahead of me, also howled in a moment " See this.... 500 /1000 s are off from tonight ... !!! A Good Samaritan forwarded a Whatsapp message to him. What followed in next few days , was of agony and tension, as this part of the country still did not have a proper Net connectivity and therefore use of cards were restrictive. With tourist season in full swing , hotels and resorts, filled to the brim and we could see anxious faces crowding up at the Reception desks. Some ganged up in huddle and you could hear the whispers in the air about the sudden bolt that fell from the blue !! 

Finally we landed up at Kolkata on 12th November , to be welcomed by the sheer nervousness that gripped the city by then, when the banks re opened shutters for public transactions. You could see the serpentine queues in front of the ATMs and the bank branches. Rumours running thick and fast ; frustration ,despair giving ways to cynicism and temper. And one could see the common man literally "on the street" to fend for protecting or salvaging his money from turning duds. Weekend parties ( though reduced in numbers due to paucity of time and disposable cash ), office lunch times and workstation chit chats drew regular dose of nourishments from media reports , canards , personal experiences and last but not the least social media, playing also truant !! 

Away from this hullabaloo of the city , the village continued to bear the brunt of the cash crunch more ! The small time traders, farmers , day laborers, fishermen,artisans - the entire class of people , who majorly constitute the grass root level of the society, were in for a shock. Over the time their access to a proper banking system was missing. Government schemes and announcements notwithstanding, they were to be primarily a class which was "financially excluded" ! The bank branch was perhaps a good ten miles away and getting support from the officials, well, a godsend boon of sorts. As a result , the cycle of transactions was predominantly cash settled. It received a major blow day after day as the entire chain of buyers and sellers had only impaired currencies which didn't represent any value. The much touted " plastics" were also not a option for them. The situation had gone from bad to worse in the following days. My friend, a highly placed Govt official and in that capacity, manning by polls in one of the rural constituencies, dithered over the phone ; reason being no payments could be made to the drivers and helpers of the vehicles, requisitioned for the election as all these payments used to be in cash,which was elusive.

I spoke to another person, who headed a Micro Finance Institution (MFI). These MFIs gave credits of small ticket size ( Rs 60000 - 1 lac) to individuals through self help groups. Villagers staying in the largely un banked areas were beneficiaries of these funds which served their needs of working capital. As per him, the entire mechanism of lending and repayment were cash driven. Due to this situation. the cycle had broken down and the default level which was appx 0.5% in normal course of business, had already touched 4%. 

The rural economy was in for a big jolt !! It would take well above 2 financial quarters to have the machinery back on track with proper lubrication - ie stabilization of money supply. Personally all would like to see villages, moving towards a cashless society, but without the proper infrastructure in place, physical & technological, such an attempt overnight, would only create confusion .