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India's Cash Crunch Starts to Choke the Food Supply Chain

The Wall Street Journal. logo The Wall Street Journal. 17-11-2016 Raymond Zhong, Krishna Pokharel

India is learning the hard way just how much it runs on paper currency.

Ever since the government declared 500- and 1,000-rupee notes null and void for regular transactions last week, Madan, who goes by one name, said business at his tiny store in Delhi's old district selling knockoff Puma sweaters had collapsed to a level not seen since a terror attack in the city five years ago.

With so few people taking rides on his cycle rickshaw, Rajendra Ram has had to scrimp and borrow just to stay fed. He has mostly gotten by on tiny cups of sweet tea.

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Anil Kumar sells balloons on the street, 10 rupees for two. Sales have collapsed. Few people have extra small bills, and as a result neither does Mr. Kumar, for making change. On a recent afternoon, he found himself with just 30 rupees, or around $0.45, in his pocket.

“It makes no difference to the rich, who can get all their money changed with a phone call,” Mr. Kumar said of the currency recall. “It’s only the poor like us who suffer.”

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Prime Minister Narendra Modi has urged regular folks to accept a dose of hardship for the chance to punish tax cheats and government officials fattened by bribes.

But at Delhi's Azadpur wholesale produce market, many traders and farmers said they felt unsure how much more hardship they could bear. All of the city's fruits and vegetables transit through the market before reaching grocery stores and restaurants, and much of the frenzied buying and selling that allows that to happen was occurring on the basis of uneasy IOUs.

The pushcart vendors who buy from Jitender Prasad Singh, a pumpkin trader, are running low on cash. His sales have plunged 50%.

As workers in the market weighed vegetables and negotiated prices, Ashok Verma, who helps growers sell their produce to traders, sat and read a newspaper. That is a sign, he said, of how slow business has been.

He estimates he has given out hundreds of thousands of rupees in credit to buyers. How long that can be sustained? “There’s no guarantee at all,” Mr. Verma said.

“Humans have been known to be very creative with abstract notions like money,” Credit Suisse strategist Neelkanth Mishra wrote in the Indian Express newspaper on Wednesday.

Karamath, a 36-year-old trucker, left southern India with 21 tons of coconuts on the evening that Mr. Modi announced the cash replacement last week. He had 35,000 rupees in large bills with him—all suddenly invalid—for fuel, food and paying fines or bribes to police.



He managed to sell off some of his 500-rupee notes at a discount. After hours of delays at state toll booths that were scrambling to find change, he reached Delhi a day behind schedule and was feeling unsure when, and how, he’d get paid.

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Farmer Yasin Alli was sitting in Azadpur next to a heap of turnips that he’d brought from his fields northwest of the city. He wrote off 10 acres of spring onions and radishes this week because of poor sales, he said, and his financial prospects are bleak. If his turnip and spinach sales don't pick up—he has already slashed prices—then he might plow under the rest of the spinach crop before it is ready for harvest so he can start planting the next season's wheat.

Muni Ram, a 60-year-old street vendor, walked by and asked for 10 kilograms of turnips. He drew an old 500-rupee bill from his breast pocket and pleaded. “Who else will take this, brother?”

Mr. Alli was unmoved. “You want the goods? Pay me.”

Mr. Ram said he would come back the next day and buy 20 kilograms of turnips—provided he could pay his entire bill then. Mr. Alli grudgingly agreed.

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ALSO SEE: Interesting facts about rupee

In November 1994, printing of Re 1 note was stopped mainly due to higher cost and for freeing capacity to print currency notes of higher denomination. Interesting facts about the rupee

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