MUMBAI — Banks reopened to long lines and angry customers throughout India on Thursday after the government’s surprise move to demonetize high-denomination currency as part of its fight against corruption and “black money.”
The government announced on Tuesday what it called a “strike” against those who keep unaccounted-for cash in India, where many jobs are in the informal sector and few pay taxes. The country’s central bank temporarily shuttered banks and ATMs and voided its large bank notes, issuing a 2,000-rupee note (about $30) on Thursday as the largest bill.
Panicked customers lined up at banks — sometimes for hours — to exchange and deposit old notes. Fistfights broke out at gas stations when clerks ran out of change; at toll booths, operators simply let cars stream through.
Gold and silver prices soared as investors sought to move their money into tangible assets — partly a response to the currency switch and partly a reaction to global uncertainty after the U.S. presidential election.
Indeed, some of those lined up at banks praised the government’s move, exhibiting the same populist, anti-elite fervor that drove U.S. voters to Donald Trump and U.K. voters to Brexit.
“I’m happy about it. The country’s rot is at its roots. Now the roots are going to be treated,” said Kalindi Jagdish, 63, an interior designer who caters to Mumbai’s wealthy and is often paid in cash.
At a news conference Thursday, Finance Minister Arun Jaitley called for calm, reminding consumers that they had until Dec. 30 to change their legitimate bills into new currency. The move brings “ethics and transparency” and is a decisive step toward a “cashless” society, he said.
Experts predicted that the worst-hit would be wealthy real estate professionals, doctors and lawyers — who are often paid in cash and stash their money in overseas accounts. Only those with large sums “will have to face the consequences under existing laws,” Jaitley said.
Prime Minister Narendra Modi has long made fighting black money a priority — as the country moves to legitimize its shadow economy, change an age-old culture of corruption and attract foreign investment. A voluntary disclosure program has netted $19 billion, a fraction of the estimated $400 billion to more than $1 trillion in black money.
Dinesh Rana was driving around Delhi on Thursday with a sack full of his boss’s money, depositing 49,000 rupees (about $735) in separate accounts at five banks. Anything over 50,000 rupees would have garnered official scrutiny.
“Rich people are worried,” he said. “They are trying to get rid of cash or spread it around.”
Some economists questioned whether the government’s move would be effective in the long run.
Neeraj Hatekar, director of the economics department at the University of Mumbai, said the demonetization program will be effective in ridding the system of counterfeit bills — about $20 million was seized last year in his state, he said.
But it would probably not have much effect on India’s black market economy overall — as a lot of the illegitimate funds are in real estate or gold.
“Will it shut off new black money that’s being created? It won’t,” said Rama Bijapurkar, a market strategist and consumer expert in Mumbai. “But as a one-time shut-off, it’s a masterstroke.”
The effect on regular folk was immediate and widespread, especially in villages — whose predominantly cash-based economies ground to a halt as residents scrounged for coins to pay for basic supplies.
Wives who secretly squirreled away hundreds in kitchen kitties — away from the control of husbands — suddenly had to admit to their secret stash or ponder opening a bank account. The government has made a major push to provide bank accounts to those who previously did not have them, but 233 million still remain “unbanked,” Bijapurkar said.
Dashrat Kumar Pal, 40, a steel company clerk in Delhi, said a lavish wedding party for his niece had been canceled in favor of a small religious ceremony because the family did not have enough cash to pay the vendors.
“The big party we had planned is called off,” he said glumly. “The cooks, the music band, the florist — all of them want to be paid in cash. Where do we go? What do we do?”
He went on, “Now we are calling everybody and canceling.”
The government’s move was a boon to India’s growing online-payment industry, which has long operated on a cash-on-delivery model designed to address low credit-card use.
After the government’s announcement, downloads of digital payment apps have soared.
Paytm, an online payment system, saw a 200 percent increase in application downloads and 1,000 percent growth in the amount of money flowing to digital wallets since Tuesday evening, according to Madhur Deora, its chief financial officer.
“The government’s decision will structurally change the digital-payment behavior of Indians,” said Rajnish Wahi, senior vice president for corporate affairs at Snapdeal, a major online retailer.
Suchi Goenka, a restaurateur in Mumbai, said that although she supported the government’s plan, it will take time for the country to reconcile to the change.
“In India, we prefer cash,” she said. “We were brought up that way.”
Lakshmi reported from New Delhi.