The pain of breaking a 500 rupee note

Most businesses seem to have a permanent shortage of small change and look at 500 or even 100 rupee notes as if they were foreign tender. Even the 5, 10 and 20 denominations notes that do exist are invariably thin, torn, frayed, filthy (of course) and made completely miserable from use.

The first thing this tells me is that the vast majority of the transactions in india only use 1, 2 and 5 rupee coins and 10, 20 and 50 notes. This makes sense as at least 27% of the population live on less than 18 rupee per day. There’s an entire layer of the economy that functions almost exclusively on those amounts and so for many businesses especially street businesses, a tourist with a 500 rupee per day budget waving a 100 rupee note is from a completely different world.
However many small shops selling a 10 or 15 rupee items are still generally reluctant to break 100 notes. And the layered economy doesn’t explain why the notes are so crappy.

Having been to the absolutely hopeless State Bank of India and some of the other only marginally less hopeless local banks, I can’t help but blame this national change shortage on the moribund state bank retail branches. No one in their right mind would want to put themselves through such a Kafkaesque nightmare just to replenish cash and change denominations. I came away from one failed attempt convinced that it was Government mint policy to dissuade banks from retiring notes.

The result is that old notes keep circulating until some unlucky sod finds no-one else willing to take the evil smelling tattered rag. The effects are not just limited to that either, doing business becomes just that little bit more painful to the extent that I often do not buy something because I know that the little store will and can not break a 100 for me never mind a 500.

Now multiply that tiny lost transaction by say 800 million consumers out of 1.3 billion population and the effects on GDP especially on micro business-owners can only be huge. Fortunately, more and more foreign banks are appearing and some of the new local banks seem to be quite modern but I can’t see smaller rural towns ever finding another bank other than the State Bank of India.

But then I guess they have far more pressing problems.

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