Last Tuesday, while Americans were casting their votes, India’s government declared 86% of its currency illegal. 500 and 1,000 Rupee Notes, worth about $7.36 and $14.72 respectively, were outlawed overnight. The same piece of paper was worth 500 Rupees at 11:59 p.m. and worth zero Rupees at 12:01 a.m.. Indian’s Prime Minister, Narendra Modi calls this demonetisation. Critics called it the economic equivalent of shock and awe.
The new policy was a complete surprise to this country of 1.25 billion people. Millions of new 2,000 Rupee bank notes were printed and distributed with almost no one knowing about it. Reportedly, even senior members of the Prime Minister’s cabinet had no idea what Wednesday the 9th held for the nation. This was necessary, the Prime Minister argued, because any word of the change in policy would allow those who were hoarding cash to exchange it for gold or other commodities.
As you can imagine in a economy that is 90% conducted in cash, this announcement placed the country in immediate turmoil. There was (and still is) a run on the banks. Whole segments of the economy went dark.
India took this draconian step to combat rampant tax evasion. India’s surprise move was an effort to push far more of India’s citizenry onto the tax roles of the country. Only one percent of Indians paid any taxes in 2013. The impact on the government’s ability to function is huge. It is not unusual for substantial portions of property purchases to be made in cash. This shadow economy is estimated to be equal to as much as 20% of India’s GDP.
People with stashes of 500 and 1,000 Rupee notes are allowed to exchange a very modest sum of those notes at the banks for 2,000 Rupee notes and to deposit the remainder into an account that will record the balance for tax purposes. Anything not exchanged or deposited is now worthless. Sly.
Particularly interesting for this international family law attorney was the sudden exposure of a widespread practice by Indian housewives. It seems that a huge percentage of Indian housewives had been stashing money away, bit by bit, for a rainy day or for mad money or for their children’s education or for whatever. Bit by bit, these sums became substantial, considerable even. And interestingly, the husbands uniformly did not know about this practice. When the millions of Rupees hoarded over dozens of years in well hidden caches were suddenly contraband and outed, the wives became instantly outed, too.
The queues at the banks have been enormous, wrapped around buildings, traversing blocks down the road. The queues have largely been made up of Indian women, women who had been hoarding bits of cash over decades. So far there have been no report of violence or mahem. The women have been exceptionally quiet and orderly, just somewhat dismayed now that they have to tell their husbands about their once-hidden haul.
It is quite the treat to see how similar families are all around the world and sometimes, how different cultures can be. India’s sudden government policy opened a surprising window into a piece of India that had been kept well hidden in a secret box for decades.