Indians still faced cash shortages and queues at banks yesterday, which was the last day for exchanging old 500- and 1,000-rupee notes as part of a controversial move to bring the vast black economy out into the open and to curb endemic corruption.
Prime Minister Narendra Modi says last month's decision to remove the notes from circulation would transform the economy, but for millions of Indians, the measure has been painful. While queues are shorter, cash shortages are causing frustration. Many ATMs have notices saying "No cash".
Curbs also remain on the amount of cash that can be withdrawn from bank accounts, including a daily 2,500-rupee (S$53) limit at ATMs. People can still exchange notes at designated Reserve Bank of India counters till March 31 if they have a good reason for not meeting the deadline yesterday.
Demonetisation led to the removal of 86 per cent of currency in circulation, a major shock for a nation where most transactions are made in cash, particularly for millions of farmers. Many predict it would take six months or longer for the situation to completely normalise.
Under the demonetisation plan, old 500- and 1,000-rupee notes are being replaced with new 500- and 2,000-rupee notes, though supplies of new notes have struggled to keep up with demand.
SHORT-TERM PAIN FOR GREATER GOOD
The main objective of addressing black money cannot be questioned and hence it was a good move. The implementation has caused hardship but can be considered to be temporary for a larger good. Whether it can address the issue in future is uncertain, as unless we change our systems and ensure there are zero bribes, we will never be free from black money.
'' MR MADAN SABNAVIS, chief economist at Care Ratings.
The government has come under fierce criticism, with some opposition figures calling for Mr Modi to quit over losses to the economy and livelihoods. They point to his appeal for 50 days to carry out the demonetisation exercise and his pledge to be held accountable for any lapses.
At a rally on Nov 13, Mr Modi said: "I have asked for just 50 days. If even after Dec 30 there are shortcomings in my work or there are mistakes or bad intentions found in my work, I will be prepared for any punishment at any crossroad of the county that you decide for me."
Mr Modi this week defended the banknote move. In an interview to India Today magazine released on Thursday, he called demonetisation "a long-term structural transformation" to clean up the economy.
Finance Minister Arun Jaitley told reporters on Thursday that tax collection was already up, including a 14.4 per cent jump in income tax receipts between April 1 and Dec 19.
The black economy is estimated to be equal to, if not more than, the size of the formal economy, with unaccounted money used in property transactions and buying gold.
While demonetisation has been politically popular, critics have warned the move could cut India's growth rate.
Supporters maintain it will clean up a system rife with corruption and will have negligible impact on the economy.
Economists and analysts remain divided on how it would impact the formal economy, but noted much more needed to be done to curb the generation of black money.
"The main objective of addressing black money cannot be questioned and hence it was a good move," said Mr Madan Sabnavis, chief economist at Care Ratings.
He added: "The implementation has caused hardship but can be considered to be temporary for a larger good.
"Whether it can address the issue in future is uncertain, as unless we change our systems and ensure there are zero bribes, we will never be free from black money."
Yet some predict a bigger impact on the economy, with slowing consumption, a key driver of growth.
"The Indian economy was trying to perform against all the odds. Globally, things have been dismal, so whatever momentum the economy was getting was from the domestic market," said Professor Biswajit Dhar of Jawaharlal Nehru University.
"Now comes a situation where there is a severe demand constraint which has been imposed."