Indian shortage of change (attn xash)

[hawthorne]

In another thread xash said

I don't know about banks, but it is common practice to buy 95 coins for a note of 100. I'm not sure about the legality of doing this, but due to the shortage of change here, many businesses indulge in this practice. [emphasis added]

What is the deal with that?

I noticed this in India when I was there earlier this year. Everyone seems to hoard Rs 1 and 10 and the 20 and 50 paise coins. Even in places where "breaking" a Rs 500 (~$US12) note isn't a "let me go next door and see if they can make change" event. Having a nice roll of 1s 10s and 20s seemed to be something people who had plenty of money (including foreign tourists) valued and had trouble maintaining.

Is this a permanent thing? Is there some government policy behind it? Some sort of inflation control in the (huge) poor-but-getting-by sector?

[xash]

I'll come back to this tomorrow. Too sleepy to post right now. [2.30 a.m.]

[groman]

I'd like to know the answer to this too.

So, *bump*.

- Groman

[xash]

This is certainly an issue here. Often, services will be refused if you can't provide change.

You need change for everyday stuff like: bread (Rs.10), milk (Rs.10), taxi to station (Rs.20), bus/train ride (Rs.8), cigarette (Rs. 5), quick breakfast (Rs. 20), etc.

Now, let's assume you're a taxi driver. You start off your day with Rs. 50 in your pocket, in change. If your first passenger has only a Rs. 500/- note, you're screwed, 'coz no one's going to give you change early in the morning. So, instead, you refuse the passenger. Also, if the passenger had only a Rs. 100 note, and his ride cost him Rs.50, you have to give him all your change. So you're left with a Rs. 100 note and no change. You're screwed again. Although it's easier to get change for Rs. 100, you're still going to waste your time and energy trying to get someone to give it to you.

Now assume millions of people that have the same predicament. Nobody wants to give out change, everyone wants to keep change.

The service providers (e.g. taxi driver) need to be able to service their customers. The customers (e.g. passenger) need to be able to avail of services. So both try to retain change.

In the morning it's almost impossible to get change (because most service providers start with a small kitty). Towards evening it gets easier.

Rs. 500 is also refused often because of the proliferation of fake notes of this denomination (the highest denomination in common use).

This behaviour is noticed mainly with respect to essential services. The customer doesn't have this problem if s/he goes to high billing places, like an uppity restaurant, or a night club, etc. Here, the service provider takes the hit of 95 coins for Rs. 100 in order to be able to service all customers.

The shortage of change might be artificial, in that everybody is hoarding. I'm not sure how the government views this, or what their plans are to address this issue.

I'll ask around and see what others have to say.

[kniz]

I noticed the same custom in Venezuela. Anything less than 5000 Bolivares is avoided like the plaque. During a weeks stay, I received 2 coins in change and prices were set to come out so nothing less than 1000 Bolivares (approx. 50 cents) would be given in change. The coffee shop at the airport sold coffee at 1500 Bolivares and a piece of cake at 3500 Bolivares. I'm sure they were pleased when I purchased both for 5000 Bolivares. There is a paper bill for 500 Bolivares, which explains the rarity of coins. Obviously the idea of a sales tax would be very unpopular.

[hawthorne]

What xash has said already permits a bumpy WAG: there are no viable financial services available to tuk-tuk drivers and other businesses who operate in the handful of rupees -type sectors. Many of these folks live pretty much hand to mouth, buying roti and dahl at the end of the day's work. They don't have the resources to start the day with much of a float and the change accumulated yesterday takes a while to circulate from the shopkeepers they gave it to last night.