Saturday 3 December 2016

Demonetization on Payday: A Photo Essay

Demonetization on Payday: A Photo Essay

Written by Dr. Seshadri Kumar, 03 December, 2016

Copyright © 2016 Dr. Seshadri Kumar.  All Rights Reserved.

A few days ago, I wrote a blog article talking about why Indian PM Narendra Modi’s widely-discussed “demonetization” plan was a huge mistake, and suggested an alternative. In it, I discussed the fact that India was completely unprepared for the cashless economy that Mr. Modi was trying to force down its throat. That assertion was made on the basis of exhaustive data, such as the number of bank branches in rural India, the number of Indians who had a bank account, and the like. The study made use of an index prepared by the Reserve Bank of India (RBI), called the JAM-preparedness index, which measured the extent to which India was prepared for a cashless world, relying on the three main infrastructural legs of the Jan Dhan Yojana bank account (J), Aadhar card (A), and Mobile transactions (M). The RBI report mentioned in that article said that even urban India was nowhere near ready for a cashless world, while rural India was woefully unprepared, with all of rural India deemed less than 5% ready by the government’s own estimate.

However, some friends of mine said I was quoting dry statistics, and wanted to rely more on anecdotes. My response to that objection was and is that large-scale, broad-based statistics are more representative of the truth than isolated anecdotes, and that my earlier article, basing itself as it does on hard evidence, is more representative of the true state of India than a friend’s or a relative’s first-hand account.

Although I still believe this, I thought I would also get some anecdotal evidence on the state of things following Modi’s now infamous demonetization move.

So I decided to do a first-hand sampling of banks and business on the first day of December, 2016, or pay day - most businesses deposit their employees’ salaries in their bank accounts by the first of the month, if not a few days earlier. December 1, 2016, was the first payday in India after Modi’s announcement on November 8, 2016. This was thus the first time many employees needed cash for their main monthly expenses after the demonetization exercise began – for monthly rental payments, food from ration shops, fees for children’s schools, and many other needs which often need to be paid around the first of the month. While many people can take care of these through cheques and debit cards, many are still dependent on cash despite having bank accounts, judging by the number of employees trudging to banks to withdraw cash on payday.

I am currently on vacation in Bengaluru, so I decided to investigate in my local area, viz., Malleshwaram. I walked down Margosa Road from 18th Cross to 6th Cross, walked on 6th Cross to Sampige Road, and walked up on Sampige Road back to 18th Cross. I chose this route because Margosa Road had most of the banks in Malleshwaram, whereas Sampige Road was the business hub of Malleshwaram. In addition to looking at banks, I also wanted to talk to businesses and find out from them what the impact of demonetization on businesses in this highly urban area had been. Here are the results.

Banks and ATMs

I went to several banks in the area on my expedition, starting at 12.00 noon and ending at 1.30 pm. Some banks had more than one ATM outlet. These are the banks I encountered:

1.     Kotak Mahindra Bank
2.     HDFC Bank
3.     Canara Bank
4.     Bank of India
5.     State Bank of India (SBI)
6.     AXIS Bank
7.     Bandhan Bank
8.    State Bank of Hyderabad
9.     Yes Bank
10. IDBI Bank
11.   IndusInd Bank
12.  ICICI Bank

Most banks did not have working ATMs because of lack of cash. One employee at a HDFC bank told me that they were waiting for the supply of the new Rs. 500 rupee notes and for the ATM machines to be recalibrated for the new notes, which might take a few more days. The only banks that had functional ATMs were State Bank of India, Bank of India (both public sector banks), and IndusInd Bank (a private bank).  The bank employee at HDFC also told me that they were limiting withdrawals to Rs. 8000 because of shortage of cash, even though the government rules allow up to Rs. 24,000. It appears that the bulk of the new currency is going to state-owned banks.

Banks are also managing long lines by innovative ways. The HDFC bank I went to would not let anyone linger near the entrance. The employee there explained that they were issuing tokens for service at 9.30 am, 11.30 am, 1.30 pm, and so on. At these times, the bank would issue a limited number of tokens, and only those fortunate to get these tokens would be served. Thus there were no long lines. Bank of India had a seating area inside, and you could take a token for the specific transaction you were interested in: cash under Rs. 2000, cash between 2000 and 4000, 4000 and 10000, and so on.

The only denomination of currency available at all of the banks I went to was the Rs. 2000 note. Nobody had any other denomination available for withdrawal.

So, out of 18 ATMs that I saw, only 3 were functioning on Payday. All banks were allowing cash withdrawals, but mostly with reduced limits in spite of the government notifications.

Kotak Mahindra Bank ATM. Notice the shutters completely down and the guard outside.
Another Kotak Mahindra ATM, out of service as indicated by the half shutters
A third Kotak ATM. Note again the half shutters
Fourth Kotak ATM, attached to a branch. A guard sits in front of a cashless machine.
A non-functional ICICI bank ATM
Citibank ATM
HDFC ATM. The sign says "ATM out of service"
Another HDFC ATM. The sign on the door says "ATM. No Cash. Out of Service."
YES Bank, but NO cash
AXIS Bank ATM. The ATM is behind the closed shutter on the left.
Bandhan Bank. The ATM is behind the closed shutter on the right.
IDBI Bank. The ATM is behind the guard on the left, shutters half down.
State Bank of Hyderabad. Note the sign that says "No ATM."
IndusInd Bank. The only private bank with a functioning ATM.
State Bank of India (SBI) ATM on Margosa Road
SBI ATM on Sampige Road
Bank of India ATM. The other public sector bank with a functioning ATM.

Business Outlook

While walking up Sampige Road, I had a chance to chat with many shopkeepers and ask them how demonetization had affected them. With a few exceptions, most businesses said things were down in the three weeks following demonetization, with an average drop in business of 50%.

Poorvika Fashions is a store that sells a lot of knick-knacks. The owners were very down on the outlook. I asked them how much current business was relative to a level of 100% before the demonetization. They said business was now at 30% - a drop of 70%!!! Most people pay cash at their store, and cash is hard to come by.

Poorvika Fashions, whose sales are down by 70%
All decked up and waiting for customers...
Business is down 60% at this photo frame shop
The owner of this store was very glum as he told me tbat business was down 50%
Prateek Arts and Crafts is a shop specializing in carved wood. They sell a lot of mandaps for home worship. The owner told me that normally, they sell 4-5 pieces in a week. Since the demonetization has happened, they haven’t sold a single piece. “Not even Rs. 100 worth of stuff,” said the owner. I asked him whether he has managed to pay the craftsmen who work in his factory and make these art pieces. He said that so far they have managed to scramble cash from different places to pay them, but he hopes things will improve soon.

The owner of Prateek Arts and Crafts has tons of time to kill as business has completely vanished since November 8
This well-known sports and toys store on Sampige Road has seen business drop by half since November 8
This travel agency is one of the luckier businesses - says business is only down by 25%
There were a few shopkeepers who were not so perturbed by the move to demonetize. One of them was a BATA showroom, who said they had seen no difference in business. Another was a small clothing store selling mostly salwar kameezes. 

The third was the owner of an imitation jewellery store, Sri Lalithambike, who specializes in one gram gold jewellery. The owner is a Gujarati transplant who said that there had been no difference in his business. He said he had seen a dip on November 9th and 10th, because people were confused about the new state of things, but then things picked up. He was even happy to pose for a picture. We had a nice chat, and he asked me to point out in my article one potential problem that he had thought of, and I said I would.

He pointed out that he had been using digital technology for a long time now, and even he was recently fooled by scamsters who managed to get him to pay for something through PayTM. He told me that if this could happen to a net-literate person like him, imagine the plight of those who are suddenly moving to technologies like email, internet banking, and PayTM – they could easily lose their life savings to scam artists.

I also talked to the owner of a Kirana store who did not want him or his store to be photographed, but told me business was down by 50%. He said the shortage of cash was the main culprit. He said some people try to give him a Rs. 2000 note to pay for a Rs. 200 bill. He cannot accept that as he does not have enough Rs. 100 notes in change. He said he does sell goods on credit to some customers – but only to regulars. I told him I was from Pune, and some shopkeepers there make use of a black market where you give Rs. 500 and get four Rs. 100 notes in return – was he aware of such schemes? He said no, he had not heard of it in Bengaluru.

The owner of Sri Lalithambike, posing in front of his shop
Overall, businesses have lost a lot in the last 3 weeks and, unless liquidity returns soon in the form of Rs. 100 and Rs. 500 notes, could stand to lose a lot more.

Concluding Thoughts

My 1.5 hour stroll in one of the busiest business areas in Bengaluru showed me that banks are still not functioning anywhere close to normal, three weeks after the demonetization announcement. Out of 18 ATMs that I saw, only 3 were functional, and this was on Payday. Most banks were not allowing withdrawals up to the maximum allowable limit specified by the government because they had no cash. This will doubtless cause more hardship to the already suffering public.

My conversations with most business owners told me that, on average, most had suffered a 50% drop in business in the last 3 weeks. One just needs to imagine what the nationwide impact of a 50% drop in business for 3 weeks will be – and what the impact on the GDP will be if this were to continue for months.

Business down by 50%. Only 3 out of 18 ATMs working. 

If this is the state of things in a busy shopping area in Bengaluru, one of the biggest cities in India, and an IT hub to boot, just imagine the state of things in a rural area where most people do not have bank accounts and where internet penetration is very poor.

The worst is yet to come.

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.
For more articles by Dr. Seshadri Kumar, please visit


  1. Good to see an on-ground picture... Medium & large scale businesses are in news as well (reduced shifts & production of automotive sector... due to lower demand)

    1. Thanks, Rahul.

      Yes, there is an overall depression of spending that could very well lead to a recession.

    2. Thanks, Rahul.

      Yes, there is an overall depression of spending that could very well lead to a recession.

  2. Good to see an on-ground picture... Medium & large scale businesses are in news as well (reduced shifts & production of automotive sector... due to lower demand)

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