New Delhi, December 30

Fifty days ago, India yanked most of its currency from circulation without warning, jolting the economy and leaving most citizens scrambling for cash. As the deadline for exchanging the devalued INR 500 and INR 1,000 notes for new ones hit today, many Indians were still stuck waiting in long bank lines.

Empty ATMs and ever-changing rules are preventing people from withdrawing money, and many small, cash-reliant businesses from cinemas to neighbourhood grocery stores are suffering huge losses or going under.

Despite those problems, Prime Minister NarendraModi says his November 8 demonetisation decree has succeeded in uncovering tax evasion and cracking down on graft. The Indian government is urging patience, insisting it’s playing a long game that will eventually modernise Indian society and benefit the poor.

So far, despite the widespread inconvenience and costs, most of India’s 1.25 billion citizens appear to be taking Modi’s word for it. Here are a few things to know about India’s massive cash overhaul:

Hardship for the poor

Modi’s announcement that INR 500 and INR 1,000 bills — making up 86 per cent of India’s currency — were no longer legal tender has posed an enormous hardship for millions of people who use cash for everything from salaries to cellphone charges.

Worst affected were the country’s hundreds of millions of farmers, produce vendors, small shop owners and daily-wage labourers who usually are paid in cash at the end of a day’s work. Many lost their jobs as small businesses shut down, compounding their poverty.

PankajAggarwal, owner of a clothing shop in the Old Delhi neighbourhood of ChandniChowk says his sales crashed by 70 per cent.

Still, Modi appears to have succeeded in promoting the cash overhaul as a ‘pro-poor’ policy, tapping into deep anger among have-nots toward wealthy elites.

“The first two months have been so bad for us, we don’t even have enough money to buy food,” said daily wage labourer Neeraj Mishra, 35. “Overall, I think Modi has done some good. People with a lot of money are the ones to be troubled. I don’t have enough cash for it to bother me much.”

Political scientist SreeramChaulia, dean of Jindal School of International Affairs in New Delhi, describes the strategy as ‘classic populism’. “Some are outraged, but are hesitant to say it because they don’t want to be branded as anti-national or self-centred.”

A bruised economy

The wide impact of the demonetisation won’t be known until the government issues its next quarterly GDP figures in February, but the Reserve Bank of India has already shaved half a per cent from this year’s GDP growth forecast to 7.1 per cent.

Since domestic commerce drives most economic activity, analysts have expressed alarm over the scale of economic and social disruption and are warning a contraction is likely in coming quarters.

“The countless unpredictable consequences that will continue to show in the coming weeks and months mean that it is, in effect, a huge gamble,” said Jan Zalewski, an Asia expert with the Britain-based risk assessment firm VeriskMaplecroft. “Inflicting such huge costs for what is an uncertain outcome is problematic.”

Real estate, tourism, transportation and gold and gems have been hit the hardest, along with informal sectors that rely mostly on cash.

Prices are forecast to rise since the cash crunch is pinching supplies of all sorts of goods.

The country’s banks, however, are seeing banner business. The central bank said old notes worth INR 13 trillion ($191 billion) had been deposited as of December 10, with many more expected by today’s deadline. That should improve bank liquidity and in turn encourage more lending to boost economic growth.

Mixed messages, chaotic rules

The Finance Ministry and central bank have issued at least 60 different directives, some of them contradictory, about such issues as how much money can be withdrawn from bank accounts and which documents are needed for depositing old cash. The mixed messages have compounded the overall chaos and shaken

investors’ confidence.

“There appears to be less trust in many institutions, including the Reserve Bank and other banks. That is one important behavioural change that has been ushered in,” said Mihir Sharma, senior fellow at the Observer Research Foundation, a New Delhi based think-tank.

Financial experts are baffled about how to evaluate the move.

“A major problem with the demonetisation move is that success is so difficult to measure,” Zalewski said. “In and of itself, it can’t end black money, stop terrorism funding and the counterfeiting of notes.”

New bills, old habits

The idea that swapping old currency notes for new ones would wipe out tax evasion has already been proven naïve. Over the last seven weeks, income tax authorities uncovered over INR 32 billion in undeclared wealth in new notes, foreign currency, gold, etcetera.

The Finance Ministry also found enormous stashes of new currency bills secreted away by corrupt bank managers.

A global trend?

A month after Modi scrapped the high-denomination notes, Venezuela’s president announced that 100-bolivar notes that account for over three-quarters of country’s cash would be taken out of circulation. Skyrocketing inflation had taken the value of the Venezuelan notes to two US cents from 10 cents in the past year.

But while India’s cash overhaul has been relatively peaceful, Venezuela’s was not. When no new bolivar notes appeared to replace the old ones, riots and looting erupted in towns across Venezuela.

Ultimately, government extended use of old notes until January 2.

In Pakistan, opposition lawmakers passed a resolution last week calling for withdrawal of the country’s highest-denomination note from circulation. However, government rejected that move, saying there was no need to discontinue 5,000-Pakistani-rupee notes. “The very notion of cancellation of such convenience in transactions is preposterous and unequivocally denied,” Finance Ministry said.