ROBERT SMITH, HOST:
This is the second part in our series on India's cash experiment. Last time, we told you the story of the mysterious man who came up with the idea of reducing India's dependence on cash. Today, we talk about how that idea played out in real life.
STACEY VANEK SMITH, BYLINE: India is so addicted to cash that regular people keep piles of it in their houses under the sink, in drawers.
SMITH: Most people don't use banks. They don't have credit cards. Cash is how people save money, little stacks of paper.
VANEK SMITH: So imagine the chaos when India's prime minister, Narendra Modi, got on TV one night and said pretty much all the cash you have is worthless. It was called demonetization.
SMITH: Modi said he was doing this to fight corruption, known around there as black money. Black Money is money that's outside the tax system.
VANEK SMITH: Modi said you have eight weeks to round up all of your old cash and trade it in at the bank for these new bills we've just minted.
SMITH: As you can imagine, in the weeks afterwards, there were giant lines at the banks, panic. But even six months later, people were discovering old money in the bookshelf or something and freaking out.
VANEK SMITH: When I visited New Delhi, you could see people lined up in front of the central bank. The deadline to change old money had passed months ago, and each person there had a story about why they had missed the deadline, like Gurdeep Sagoo. Gurdeep came here today on behalf of his mother. She was sick during the money chaos, and he had this official-looking paper from the doctor.
And so what is it? What does the paper say?
GURDEEP SAGOO: Paper said that she was in a coma.
VANEK SMITH: She was in a coma, so she could not change her money.
SMITH: Fourteen thousand rupees, about $210, his mother's life savings. She had hidden it in her house, but she didn't tell anyone because she was in a coma.
VANEK SMITH: Gurdeep took the day off of work and came to the bank to plead his mother's case, but bank officials said no dice, it's too late. The money is worthless.
How does it feel to look at that money now?
SAGOO: Well, it's blank paper. It's my hard money from my mother.
VANEK SMITH: I mean, how do you feel about all this?
VANEK SMITH: Upset. Demonetization caused all kinds of chaos in India. Businesses went bankrupt because nobody had cash to buy anything. People died of heart attacks in the long lines. Some people committed suicide when they realized that they didn't have enough time to change out all their money. About half the country doesn't even use bank accounts.
SMITH: And the government had not prepared for this. They didn't make enough new cash, so parts of India were without money for weeks. And the new cash they printed didn't fit into the old ATMs. As public policy goes, this was a disaster.
VANEK SMITH: And I expected Gurdeep to be really angry at the government for taking away his mother's life savings and for all the trouble this caused but he wasn't.
SAGOO: On the whole, it was a good way.
VANEK SMITH: Really?
VANEK SMITH: Why? OK, why? You have to explain this to me because it doesn't make any sense to me.
SAGOO: Well, black money and other monies that has to be replaced but with the condition that it should not affect the common people.
VANEK SMITH: But it did.
SAGOO: Yeah. It's still affecting.
VANEK SMITH: But you still like it.
SAGOO: Even then. Even then.
VANEK SMITH: Gurdeep was not an exception. Almost everyone I talked to in India told me the same thing. Yes, it's been hard for me. Yes, a lot of people were harmed, but the government did the right thing.
SMITH: Which is striking. I mean, six months ago, the prime minister of India basically dropped a bomb on the economy. Now polls show he's never been more popular. Somehow, this whole thing, it was a hit.
(SOUNDBITE OF FLAVIO LEMELLE'S "CHEEKY TONGUES")
VANEK SMITH: Hello, and welcome to PLANET MONEY. I'm Stacey Vanek Smith.
SMITH: And I'm Robert Smith.
VANEK SMITH: Prime Minister Narendra Modi said this economic shock therapy was necessary. It was the only way to solve the country's corruption problem and pull India's economy into the 21st century.
SMITH: Today on the show, six months later, we will give demonetization a report card. Did it work?
(SOUNDBITE OF FLAVIO LEMELLE'S "CHEEKY TONGUES")
SMITH: When Prime Minister Modi decided to take away his country's cash, he said this will make India better. And he gave three main reasons for that.
VANEK SMITH: The first reason was corruption because without cash, it is harder to hide money from the tax man. It is also harder to pay a bribe or run a black market. Criminals love cash, so take the cash away, it makes their lives harder.
SMITH: The second reason was the modernization of the Indian economy. Businesses, he said, could be more competitive, could grow faster if they used banks and electronic payments instead of paper.
VANEK SMITH: The third reason was that Modi said regular people would be safer and better off if they were not keeping their life savings in a drawer, if they had access to modern financial help.
SMITH: So that's why Modi made cash scarce in India - eliminated the large bills, put limits on new bills and basically let everyone figure out how to deal with this new cashless society.
VANEK SMITH: So I went to India six months after demonetization had happened to check in on these three goals, to see how India was coming along and see how demonetization was working. My first stop I went to talk to some farmers. Most of the population of India farms these little, tiny plots of land.
Oh, there's a tractor that just pulled out in front of us.
I drove out to Ghaziabad. It's a rural area outside of New Delhi. And here farmers work little half-acre plots all right next to each other. They grow tomatoes and celery and sugarcane. I found about a dozen farmers all standing together under a giant fig tree in the middle of all the fields.
ASSAR PREMI: My name is Assar Premi. My age is 93.
VANEK SMITH: Ninety-three. Assar says he and his friends meet here every morning and every evening.
PREMI: They're my friends. Sit here, discuss everything here.
VANEK SMITH: Really? Do you sit here many evenings?
VANEK SMITH: What do you talk about?
PREMI: About our relationship, sometimes politics also.
VANEK SMITH: (Laughter).
Relationships and politics. Things are hard here. The farmers don't have much land. The crops they raise barely cover their expenses. And everything, all of the business here, it's all done in cash.
SMITH: After Prime Minister Modi said a lot of that cash would be worthless in those first few weeks, farmers had a tough decision to make. I mean, obviously they had to work. They had to tend to their fields. But they also had to do something about their life savings in cash that was about to be rendered worthless.
VANEK SMITH: Garunder Shodi, one of the farmers here under the fig tree, said he and all the farmers he knew had to leave the fields and go get in line at the bank.
GARUNDER SHODI: There were some people who suffered a lot. There were queues since morning 6 o'clock, 5 o'clock, till night, 10 o'clock. There are people, hand-to-mouth people - there are so many poor people.
SMITH: And these are people who could not afford to miss a day's wages standing in line totally panicked. And nobody had money to buy anything. Farmers couldn't sell their crops.
SHODI: The small farmers also suffered. Seventy trucks of tomatoes were thrown on the road by farmers. Because of dismonetization (ph), there was no buyer.
VANEK SMITH: No buyers for the tomatoes. And it's not like farmers can just be patient and wait it out. They have to harvest the food when it's ready. And when there were no buyers they just had to destroy their crops. During this time, farmers saw sales of produce drop in half.
SMITH: I almost feel like the government wanted to punish people for using cash. It was such a pain for everyone in those first few weeks that it almost seems like they were trying to send a message, that hey, look, like, you would be way better off if you just used bank accounts, if you just had a credit card.
VANEK SMITH: But after the lines at the banks got shorter, all the farmers I talked to just went back to using cash, like Harinder Singh, who grows greens and onions and these things.
HARINDER SINGH: (Foreign language spoken).
VANEK SMITH: Oh, eggplants.
SINGH: (Foreign language spoken).
VANEK SMITH: Yes, it's a little guy.
And through a translator, Harinder told me that he is just too old to start trying to pay for things in a new way.
SINGH: (Through interpreter) Cash is something I understand, so I would rather deal with cash. I don't understand these other things, so I'm happy with cash.
VANEK SMITH: Harinder said to him, credit cards seemed dangerous, like someone could steal the number and use it. He wasn't exactly sure how they worked and it kind of freaked him out. He wants to stick with cash.
SMITH: So we're going to try and grade how Modi's done on his objectives. And so one of the reasons for demonetization was to improve the lot of regular people in India, to improve the lot of farmers. I'm going to call this grade an incomplete because it seems like things were very bad and then went back to normal, mostly. People are still using cash.
VANEK SMITH: Right. Nothing really changed, although the government has claimed that millions of people opened bank accounts in rural areas. From everything that I've seen and read, incomplete sounds about right.
SMITH: OK, next up?
VANEK SMITH: The suburbs of New Delhi, which were actually not too far from the fields. You could actually see a lot of the high-rises from the eggplant patch. And when you drive through them, it's really striking because it's all these, like, nice kind of high-rise buildings and they're all vacant.
Empty building. Empty building.
I wanted to see these buildings because they have become, like, a symbol of corruption in India. One of the main reasons Modi gave for demonetization was to fight corruption, black money. And Modi and his advisers felt like corruption was siphoning off the economic success of his country. Now, there are a lot of ways to hide cash in India, but these apartment buildings, this is where most of the black money in India was stored.
AKHILESH TILOTIA: But real estate, of course, is the big gorilla.
VANEK SMITH: Akhilesh Tilotia is the author of "The Making Of India." He says in fact, high rises like these are where most of the black money in India is stored, something like 25 percent of the country's GDP.
SMITH: So here's how it works. Say you want to buy an apartment and the price is $125,000. Well, officially, you only pay $100,000. The extra $25,000 you slip to the owner in cash. Nobody talks about it. It doesn't get taxed.
VANEK SMITH: So as the owner, you get $25,000 in untaxed money under the table, which is great. And as the buyer, you count on being able to do that same thing when you sell your apartment someday. But when Modi rolled out his demonetization plan that whole system just kind of shut down.
TILOTIA: I am stuck. If you were sitting with an inventory of cash that becomes exposed, and suddenly that black money has disappeared because now you can't transact that house at a higher amount. You will find that builders are willing to offer anywhere between 10 to 30, 40 percent discounts.
VANEK SMITH: That's a lot. That's a lot.
TILOTIA: Yes. And so that has had a rather terrible shock for people who were hiding or putting away their black money in some of these places.
VANEK SMITH: Akhilesh says India's whole real estate market is frozen. No one is buying or selling anything, which sounds really bad.
SMITH: I mean, it is bad for the economy. Although from the government's point of view I can see how they might consider this a success, you know, thwarting this big pool of black money. And eventually prices will adjust and things will return back to normal but without the whole kickback part.
VANEK SMITH: That is true. But it is still hard to know whether the actual goal of getting rid of corruption in India has been successful. I mean, the government was hoping that tax evaders and criminals would be stuck with these huge stacks of cash that they wouldn't have time to turn in, or when they turned them in the bank would suddenly see that they had all this cash that they hadn't been taxed on.
SMITH: In other words, they would learn that crime does not pay.
VANEK SMITH: They would learn that crime does not pay. But Bhaskar Chakravorti, an economist at Tufts University, says even after all that drama almost all of the cash in circulation in India still made its way back into the banking system.
BHASKAR CHAKRAVORTI: Not all of that was legal cash. It just happened to be the case that India has - is extremely innovative in getting it on constraints.
VANEK SMITH: Innovative. For instance, I talked to one banker who told me that he'd seen a bunch of his colleagues at the bank taking huge amounts of cash from rich clients and just changing it into new bills for a little fee. There were also stories of rich families asking their maids and drivers and cooks to stand in line for them and change out their cash.
SMITH: So giving a grade to Modi's corruption goal, needs improvement...
VANEK SMITH: Needs improvement.
SMITH: ...Is what I would say.
VANEK SMITH: Yeah. That feels right. And that's not terrible for six months later.
SMITH: Not bad. Yeah, it is a long-term problem. Our next and final stop is a market in the city of New Delhi, where we will meet people who actually are making the best of a cashless economy after this.
(SOUNDBITE OF HARLIN JAMES AND PAUL LEWIS' "YADA YADA")
VANEK SMITH: For my final stop, I wanted to see how things had changed for the urban middle class in India. Remember, Modi believed that getting rid of large amounts of cash would help India move into the 21st century. Businesses, he said, could be more competitive and grow faster using banks and electronic payments. So I went right into the heart of New Delhi to this market to see what people there would tell me. Rawinda Bhardwaj is 66 and he owns a pharmacy stall in the market.
RAWINDA BHARDWAJ: I'm running my pharmacy shop here since the last 35 years.
VANEK SMITH: Yeah, you have a lot of prescriptions, I'm seeing, all the way up to the ceiling.
This market was in a very middle-class neighborhood. It was a nice market. But even still, almost all of the businesses had only taken cash, including Rawinda. He was a cash man. He didn't like credit cards, didn't really understand how they worked. Mobile payments were totally out of the question for him.
SMITH: But then demonetization happened. And in the weeks afterwards, you know, Rawinda's customers still needed their prescriptions, their medicine, and cash was no longer an option for him.
VANEK SMITH: So Rawinda made himself figure it out. He started taking credit cards, and he even signed up for this mobile payment service called Paytm where people could pay for their prescriptions on their mobile phones.
Has it been good for business to take the cards?
BHARDWAJ: It's very good for business.
VANEK SMITH: Now, six months later, about half of Rawinda's customers pay with Paytm or credit card. And he says they even buy a little bit more than they used do.
Oh, these are your receipts.
BHARDWAJ: Yes, receipts. This is all by credit card, by Paytm, by debit card, by check.
VANEK SMITH: Rawinda now checks his deposits on his phone. He no longer has to walk to the bank with cash deposit every day. And he loves this. He's become such a convert that, in fact, he has stopped using cash himself.
BHARDWAJ: My personal, all credit card.
VANEK SMITH: Oh, you don't use cash anymore?
BHARDWAJ: No, no, no, no need of cash - credit card.
VANEK SMITH: Most of the stores in the market now take credit cards, and all the stores in the market take mobile payments from this company called Paytm. In fact, everywhere I went in India everybody was talking about Paytm and how big they'd gotten since demonetization. So I thought I would go check out the company.
Oh, Paytm. Here we are.
For Paytm, demonetization was like the greatest gift ever because when the government got rid of most of the cash in the country, it didn't really offer an alternative. Madhur Deora is the CFO of Paytm. And he said when Modi made his announcement, the company knew this was their moment.
MADHUR DEORA: Then we sort of jumped into action. So we had front-page ads in the next day's newspapers.
VANEK SMITH: Paytm wasn't exactly a household name, and so a lot of the ads were just like, hey, we are here. You can pay for stuff with us. Other ads were these kind of DIY instructions to businesses and employers, basically, explaining as simply and clearly as possible how to use the Paytm phone app, even how mobile payments worked.
DEORA: One of the ads that we did we feel quite proud off. A quarter of that page was a cut out. So merchants could literally cut a quarter of that ad and just put that up and just fill in their name and their mobile number that they could put on the wall.
VANEK SMITH: Once their name and their mobile number was on the wall, customers could use that information to pay them through the Paytm app. It was very simple. And businesses were desperate to do this. They were all signing up - little roadside vegetable stands, hardware stores, taxis - even temples started letting people leave offerings with Paytm.
SMITH: Now, I know India is a big country, but the growth rates that Paytm was seeing was pretty amazing. Half a million people were signing up every day. A hundred and twenty million Indians now use Paytm.
VANEK SMITH: And for the government, this is also good news because, unlike cash, Paytm transactions are trackable. They are taxable. Between the credit cards and the mobile apps, it was like this whole unseen part of the economy was suddenly out in the light.
SMITH: So if you look specifically at the part of the Indian economy that was sort of on the verge of moving away from cash, anyway - if you look at them - the people we're talking about here - I mean, I'd give the grade satisfactory.
VANEK SMITH: Yeah, satisfactory, for sure.
SMITH: And as we talked about at the beginning, Modi does deserve some extra credit because, I've got to say, I've never seen a political official who changed an economy overnight, and people still approved of him. People still forgave him for what he did.
VANEK SMITH: And it wasn't just a question of forgiveness. This move actually made Modi more popular. His approval ratings are now at 69 percent, which is incredible for a politician. And almost everyone I talked to in India supported Modi's demonetization plan, even people who'd really suffered because of it - actually, especially people who'd really suffered because of it.
And when I asked them why, a lot of them told me that they stand in long lines all the time and deal with frustrating bureaucracy all the time. But all of a sudden, they're standing in line for a reason - to thwart corruption, to punish tax evaders. All of a sudden, standing in line and going through all this bureaucracy had a patriotic purpose.
SMITH: You know, this explains a lot. When I was listening to the last episode, which was about Anil Bokil - he's the architect of this whole plan - he had this strange moment with you when he was talking about demonetization in an almost religious way.
(SOUNDBITE OF ARCHIVED BROADCAST)
VANEK SMITH: Is it exciting to watch it play out in real life?
ANIL BOKIL: We don't rate our joy in excitement. We call it enlightened. I'm enlightened.
VANEK SMITH: You're enlightened?
BOKIL: I'm enlightened.
SMITH: And now I kind of understand it. Enlightenment means finding sort of a greater meaning and purpose in even the difficult things in life, and that's essentially what India is doing right now.
VANEK SMITH: Yes. And I heard this from a lot of people, including Gurdeep Sagoo, the man whose mother lost her life savings because she went into a coma at the wrong moment. He was standing there with his mother's worthless cash in his hand, and he said he was just so fed up and so frustrated with all the corruption in his country. And it finally felt like things were changing, like Modi was fixing it. I asked him what he was going to do with all the old bills that had belonged to his mom.
SAGOO: Maybe I'll put a frame. This was 1,000 rupees. No, these are 500 rupees.
VANEK SMITH: You'll frame it?
SAGOO: Maybe for my next generation.
VANEK SMITH: Oh, so that your family can see what the old...
SAGOO: Yeah, for family, just for the sake of showing of the people.
VANEK SMITH: Just for the sake of showing the people. Like, here it is. Here is a token of the sacrifice we all made for the country - that we all made to make a stronger India.
(SOUNDBITE OF MARC FERRARI, RYAN CURRY FRANKS AND SCOTT NICKOLEY'S "MISS YOU")
VANEK SMITH: We love to hear what you think of the show. You can email us firstname.lastname@example.org or find us on Facebook or Twitter.
SMITH: Also, this week marks 30 years since Terry Gross started the NPR program Fresh Air. We're celebrating by sharing our favorite interviews and moments using the hashtag #freshair30. You can find the Fresh Air archive and new episodes on NPR One or wherever you get your podcast. Those of us who ask questions for a living are still in awe of Terry Gross.
VANEK SMITH: Today's episode was produced by Elizabeth Kulas. PLANET MONEY is edited by Bryant Urstadt and produced by Alex Goldmark.
SMITH: I'm Robert Smith.
VANEK SMITH: And I'm Stacey Vanek Smith. Thanks for listening.
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