Jugaad in Demonetization


The morning of November 9th was chaotic. Not only was Donald Trump on the verge of a historic victory, but, as I found out when I tried to pay for my morning coffee, the government of India had announced the discontinuation of all 500 and 1000 rupee notes in circulation. Long lines of frustrated people stretched out of banks and along the street.

At first, the multitude of knock on effects from demonetization did not occur to me. What was going to happen in the villages and communities so reliant on cash? What were the microfinance institutions going to do? I myself had 5000 rupees in unusable notes. The only way that demonetization was going to work was if no one knew about it and the Modi government had seemingly managed to keep it tight lipped. Even the heads of banks didn’t see it coming until they saw the news. The goal was to purge the system of black money and counterfeit notes and to ultimately reduce corruption and terrorism. So I was curious, how would the villagers overcome this problem? How would people try to launder their money? And how would the government try to stop them? It seemed the perfect situation to see the art of Jugaad at work.

I found this comprehensive breakdown of instances of Jugaad reported in the news courtesy of the blog “randomwalks”:

1.  8th night (Day of announcement)

  • At Crawford market & Zaveri Bazar in Mumbai, people were selling 500 & 1000 Rupee notes at 20% or more discounts. There were cases reported of 1000 Re note going for 300 in legal tender
  • People buying large cartons of cigarettes from pan vendors accepting 500/1000 denominations. Not sure whether their spouses were so happy about it!
  • People throng Jeweler shops to convert cash into gold. The ask rate for gold in the meantime went up 20% to 30% in grey market. Spouses may have got into some happy surprises if some of it makes it way to ornaments!
  • Petrol pumps sees huge queue with people uploading petrol and offloading cash! 

2.  9th (Day 1 : Bank closed)

  • People with black cash make a rush for hawala traders to park their money in foreign currency. No intelligent guesses here, that the exchange rates were 20%-30% more than the usual hawala rates
  • Empty malls, but long queues at chemist shop & government hospitals to make last best use of cash in the informal market
  • 20% rise in air ticket sales as people start buying tickets in cash with the hope of cancelling them later. Some even bought weeks/ months in advance. Think of what jugaad can do when we all know well, that organizations keep asking its employees to book tickets in advance to minimize cost but have always found it difficult to implement!
  • Some smarter people start buying wait listed first AC train tickets in cash at railway counters. Again the hope is that post 1% or the small cancellation charge; the entire amount will get converted to legal tender post cancellation. The Rail & Air authorities took a day’s time to understand the trend and put in some rules for cancellation!

3.  10th (Day 2, Banks opens, ATM closed)

  • People deposits 500/ 1000 notes with their known next door kirana shops to open a credit line for their daily groceries. Good for kirana shop as well as they get assured business (no exchange/ return allowed)
  • Some people really lost it!!! Sweeper finds 52000 dumped in 500/1000 denominations
  • People queue up at municipal corporation offices to pay their property tax dues. In some cases, they were paying off dues for years which till that date the municipal authorities have failed to recover!
  • Surely the government messed up the implementation of the rules. People made up 2/3 rounds of different bank branches showing a big thumb to the 4000 limit the GOI had placed for one time exchange in cash

4.  11th (Day 3)

  • Dead Jan Dhan accounts flushed with money as middlemen/ agents/ black cash holders starts depositing in less than 50,000 cash of 500/1000 Rupee notes at rural bank branches in various accounts. The actual account holders got a good commission though!
  • Payments of civic bills, utilities bills in cash shores up. 217 crore deposited to various Mumbai civic authorities in 1 day 

5.  12th (Day 4)

  • Candidates in various upcoming elections start bribing the ruling councilors in gold bars of 100/200g to woo them

6.  13th (Day 5)

  • People starts shifting to card payments only to find that first time usage is always a challenge. Expired PIN and other usage issues, leads to crash of payment servers
  • Householders pays their maids etc in cash advancing for the next year even
  • Instance of a NPA defaulter for 4 years, turning up at the bank branch to clear off dues…all in 500/1000 Rupee notes. The same person had expressed ‘inability to pay’ earlier when notices were sent!
  • Instances of daily wagers etc given 50/100 notes to stand in line & exchange on behalf of black money hoarders. The identity card of these daily wagers perhaps gave the best ever return on that day! 

7.  14th (Day 6)

  • Barter system peaks up at villages. 3 kg cauliflower for 1 kg of fish. But I eat my fish with cauliflower, so not sure what would have been my going rate!

8.  15th (Day 7)

  • In Kolkata, a septuagenarian shows up at his estranged wife place to pay his long standing alimony due in 500/1000 notes. Unfortunately for him, the wife was not impressed. The man was send to jail the next day!
  • Cash mules in action: Elderly woman, truckload of people arriving at branch with huge cash and high number of ID cards for exchange and deposit to different accounts.
  • At a small Mizoram village, paper being used temporary as promissory notes to get over cash crunch, papers bears amount & signature of the issuer

9.  16th (Day 8)

  • Politicians with black money queue up to remote cooperative banks (which are still run on physical ledgers) for backdated FD/DDs to make use of their 500/1000 notes
  • A few in UP, ring up real estate agents to offer cash component at 40% discount. Converting black cash to real estate/ lands etc.

Demonetization has brought out the best and worst aspects of Jugaad. My favorite anecdote was the story of the septuagenarian who tried to take the opportunity to make good with his estranged wife. Clearly she did not appreciate the intent. This was a very comprehensive list but I thought I’d add two more:

  1. To counter the large lines, people would leave their shoes in a row and go for a tea, allowing the shoes to save their space. This was an innovation that I would like to see working elsewhere.

  2. The government used finger paint on the fingers of people so they could not keep coming back to make deposits

Ironically, demonetization itself is aimed at curbing the jugaad economy by curbing the prevalence of bribes, black money dealing, and the informal economy. There are some concerns now that demonetization has stalled economic growth without cutting down on corruption and black money. This is because the most sophisticated criminals have their money in overseas accounts and those in the middle have found ways to get around the system. At the same time who were saving up their money in cash for a wedding will suffer and the poor who do not have bank accounts and who only operate in the informal economy have also suffered.

I suppose it was inevitable counter reaction and the effectiveness of the policy will ultimately rely on the government’s ability to suppress the tricks of those trying to beat the system whilst helping those who haven’t been operating in bad faith. This will ensure that the shock to short-term demand is no greater than what is inevitable.