India Cash Crisis

WTN161213_IndiaCurrency500Rupees copy

No longer legal tender

The well-intentioned effort to curb corruption by enforcing traceability is wreaking havoc in the tea lands of India, where very few workers have bank accounts. The government’s surprise move to no longer accept denominations of 500 and 1000 as legal tender has disrupted the country’s entire economy.

The decision voided $250 billion in currency, almost 90% of the country’s paper money. Indians may withdraw no more than 24,000 rupees a week, about $350.

Cash transactions are the rule in Assam and West Bengal and the southern tea-producing states of India, where much of the population is poorly schooled and mistrustful of the digits that dominate financial exchange. For two centuries workers collected their wages on Saturday, visited the local market for essentials the next morning, and reported to work at 5 a.m. on Monday. It has been four weeks since many gardens have paid workers their daily wage.

Last week, the cash crunch forced the closing of a tea garden in the Terai region of West Bengal, where management cited the non-availability of cash to pay wages to 2,500 workers. The region employs 450,000 tea workers on 276 gardens.

Senior officers of Tirrihannah Tea Estate, located approximately 35 km from Siliguri, are reported to have left the garden around Thursday midnight after sending a general notice to the Indian Tea Association and the Darjeeling administration, according to The Indian Express.

WTN161213_IndiaDemonitization_480x274px copyThis week, workers are expected to protest peacefully at the entrance to every tea garden. West Bengal Chief Minister Mamata Banerjee has been at the forefront of the opposition charge against the Bharatiya Janata Party-led government’s demonetization move, leading protest marches and addressing rallies in Delhi and other states, according to Scroll.

Banks, complying with instructions from the Reserve Bank of India, initially told garden managers money will only be disbursed to those workers who have bank accounts (approximately 30% of the 450,000 workers in West Bengal). Shortly after demonetization was announced, banks sent representatives to gardens to sign up workers for electronic deposits. Those who qualified did so but the task is easier said than done considering the level of illiteracy and lack of simple identification required by bankers.

Banks in the region are now on the brink of a liquidity crisis due to massive withdrawals and attempts to convert larger currency to smaller denomination notes. There is urgency because soon the larger notes will no longer be honored. ATMs are scattered miles apart in West Bengal and Assam and few banks have branch offices in rural areas.

Trade unions representing tea workers have for the first time openly opposed a directive for gardens to deposit funds only into bank accounts. They are asking garden managers to continue to pay in cash, itself a challenge as payrolls must now be met with millions of additional small-denomination bills.

In Assam, the state government arranged for deputy commissioners to withdraw money from banks for distribution by garden management that simply did not have sufficient small bills on hand. There are 3,115 ATMs in Assam and all have been loaded with INRs100 notes to replace the larger-denomination bills.

Nationwide there are 200,000 ATMs, half manufactured by NCR in Duluth, Georgia. The Wall Street Journal reports that newly minted 100 rupee notes are slightly smaller than previously issued bills, which means ATM machines can jam.

Navroze Dastur, managing director for India and South Asia at NCR Corp. to the Journal that engineers would have to open up each of the nation’s ATMs and manually reconfigure the cash drawers before they could dispense the new notes—a process that NCR estimated could take two months.

“I don’t think they realized the magnitude of the work involved,” said Dastur.

The plan is to install ATMs at every tea garden, according to a report in The Times of India.

The chief general manager of the State Bank of India, PVSNL Murty, told The Times: “All banks will open ATMs in tea gardens where there is a sizeable population. Banks will also introduce lobby ATMs through customer service providers and banking correspondents. The space for ATMs will be provided by respective tea gardens. There will also be point-of-sale swipe machines.”

Dholaguri tea garden in Golaghat district in Assam was the first garden to receive an ATM. It began making weekly payments to workers Nov. 28.

Sources: The Financial Express, The Times of India, Newsgram, Scroll, Wall Street Journal