It was 5 p.m. on a hot summer day in May, and we were cashless in India.
My family and I stayed in Shiridi, a city north of Mumbai. We proceeded to a local store to buy books and prayer supplies at a cost of 1,200 rupees (about $25) with our trusty Visa card. After punching in our PIN, an error message appeared on the payment terminal: “Restricted card.” We tried again and again, getting the same message each time. With no Indian cash on us, we left our purchase and hurried to our hotel to call Scotiabank.
The bank assured us that the card was not restricted on our end. So we went to the local ATM to withdraw cash. And again the same message appeared. We went to an ATM far away from Shiridi, and a man outside the bank, seeing us inserting our chip card repeatedly, informed us that the ATM was empty.
This situation has been all too familiar for many travellers, local Indians, and businessmen since the Indian government demonetized 500-rupee and 1,000-rupee notes last November in a bid to crack down on black money (money on which taxes have not been paid), counterfeit money and terrorism-related transactions. The move took about 86% of the country’s cash out of circulation, boosting demand and restricting availability.
Borrowing cash from our driver became the norm during our stay in Shiridi until we were able to get back to the Mumbai airport, where ATMs were well stocked and our access was not restricted. We also exchanged the limited Canadian cash we brought with us to hold us over until we had access to a stocked and non-restrictive ATM.
B.C. researcher Nemy Banthia has also experienced first-hand the effects of the government’s money ban. Banthia, CEO and scientific director of the India-Canada Centre for Innovative Multidisciplinary Partnerships to Accelerate Community Transformation and Sustainability (IC-Impacts), a research centre dedicated to improving water quality and infrastructure in Indian and Canadian communities, was there when the government launched its black-money crackdown.
“It was just a sudden thing,” Banthia said. “I remember I didn’t have money for a taxi. All the money I had with me was worth absolutely nothing in the end. For a country where 91% of transactions are in cash, it’s a real problem because many taxis and vendors would not accept credit cards or cashless transactions.”
All citizens in India were given 50 days to exchange their now-worthless notes for new cash, and citizens were allowed to exchange their notes only once. Banks weren’t warned of the impending demonetization. The move led to long lines at banks and ATMs, which were unable to dispense the new 2,000-rupee note due to its larger size. Banthia blames the fiasco on poor planning.
“I think it’s just too much, too sudden a change. You can’t converge a country into a cashless economy overnight.”
The demonetization has changed the way Indians are doing business, as vendors are switching to a card system to retain business. But that option is not possible for all Indian vendors, according to Rajiv Kozhikode, associate professor of international business at Simon Fraser University. For some Indian businesses, the switch to a card system requires better Wi-Fi connectivity, which some rural cities cannot accommodate.
Foreign travellers and businessmen are making the switch to vendors and companies in India that allow card transactions or e-transfers. It’s a matter of adaptation, Banthia said.
“It’s [about] adopting to a system where now you can only purchase products from people who actually take your card or would go for a bank transfer or a telegraphic transfer.”
Although foreign travellers and businessmen may be happy to know they can use their credit cards in a cashless society, those transactions come at a cost – and, more often than not, vendors don’t want to take foreign cards.
“The percentage levied on transactions on foreign cards tends to be higher than domestic cards,” Banthia said. “Some of these vendors don’t like [foreign cards] because they lose about 4% when they take a foreign card as opposed to the 2% when they take a domestic card.”
While ATMs in India are now able to accommodate 2,000 rupee notes, and paper currency is starting to become more available, the nature of business and travel in India is still constantly shifting. India is introducing new mobile money technologies that are meant to make cash and cards obsolete.
Prior to demonetization, Kozhikode said, the Indian government encouraged everyone to open bank accounts. With the new mobile money system making its rounds in India as a form of bank-to-bank transfer, citizens are going to have to start using their bank accounts more often. This will help keep track of transactions, leading to more accountability and transparency, Kozhikode said. The levy on mobile wallets is also less than the one for credit cards and the system is more secure, Banthia said.
For those wishing to travel and do business in India, Banthia has some advice:
•Remember that India has changed. There are restrictions in cash movements and cash availability. Do your homework before you go.
•Deal with only those vendors who accept your card.
•Ask vendors whether they take foreign cards.
•India is moving away from this cash economy to a cashless economy, so be aware.
•If you are going to India often, just open an account in a local bank. It’s much more secure; it’s much more trustworthy. And you can track it online. •
Kirthana Sasitharan is a master of journalism student at the University of British Columbia. She is pursuing a summer internship with Business in Vancouver.
