India’s Demonetization–What is Next?

by on November 11, 2016 at 8:07 pm in Current Affairs, Economics | Permalink

Devangshu Datta has a good run down of the basic facts of India’s demonetization of Rs 500 and Rs 1,000 notes:

About 85% of all currency in circulation has just been turned into coupons that can only be exchanged in specific places. These notes can be converted into currency again only with identity proofs (which hundreds of millions don’t have) and the additional hardship of standing in many queues for many hours.

Over half of India’s population doesn’t have any sort of bank account at the moment and about 300 million don’t have basic ID such as Aadhaar either and hence, cannot access the banking system at all. About 130 million Indians have mobile wallets (about 25 million have credit cards) and there are maybe 550-600 million debit cards in circulation. So access to cash is very, very important for average Indians.

…India is a cash economy. Well over 90% of all transactions are done in cash.

So how is India responding? Lineups at banks and ATMs are long. Tourists at the Taj Mahal have had minor troubles because ticket collectors aren’t accepting the demonetized notes. Demand for gold is up giving some jewelers a temporary albeit welcome windfall. Perhaps most telling is that at Zaveri Bazaar in Mumbai old notes were going at a 60% discount–that is a very heavy discount and indicates that the demonetization is, as I argued earlier, working as a tax on the black market. Other sources, however, indicate that discounts can be had for as low as 20%. Discounting, however, is illegal and the government is cracking down.

What, however, is the point? As Amit Varma argues:

…most truly rich people don’t keep their wealth in the form of cash, but in the form of real estate, gold, deposits in foreign bank accounts and other benaami investments. They will be largely unhurt…it is the poor who will be hurt the most by this.

And Ajay Shah notes:

Controlling corruption is not about blocking access to a non-traceable store of value. There will always be precious metals, US dollars, bitcoin, and jars of Tide…. Solving the problem of corruption requires deeper changes to institutions.

I see this as the main point of the exercise (quoting Datta):

The Income Tax and Excise Departments’ ability to gather data will increase exponentially. So will their discretionary powers, when they can query people who pay large sums in cash into their accounts.

That is not necessarily a bad thing. A key point is that only 1% of India’s population pays income tax–India would be a libertarian paradise if it had a libertarian government but it doesn’t. As a result, what low income tax payments mean is that India is forced to raise money in less efficient ways and to govern through regulation. Some of the only people who pay tax, for example, are those working in large multinational corporations but those are precisely the high-productivity sectors that need to grow.

India’s dilemma is that its high productivity sectors are taxed while its low-productivity sectors aren’t, so valuable resources are trapped in low productivity sectors. Modi knows this and if he is serious then his surprise demonetization will be followed by more efforts to bring India’s informal sector into the formal sector, leveling the playing field, and increasing total wealth.

AddendumMostly Economics has a discussion of two early demonetization in India, one in 1946 and one in 1978, both were focused on the larger bills unlike the current demonetization.

1 anonymous November 11, 2016 at 8:20 pm

This should have an interesting effect on one corner of the collector’s market for government-sponsored banknotes (paper bills). Not an effect anyone less than a master connoisseur could make a profit off of, but still an effect.

2 Ganesh November 14, 2016 at 7:00 am

you are a biased hack sir and an idiot on top

3 Ganesh November 14, 2016 at 7:00 am

Wrong thread btw..wanted to respond on the article really

4 GoneWithTheWind November 11, 2016 at 8:55 pm

But isn’t the purpose of government to hurt the people and hinder productive people? Well, all that and to protect their own jobs of course.

5 Mark Thorson November 11, 2016 at 9:30 pm

You think this will help Modi get re-elected?

6 Thiago Ribeiro November 11, 2016 at 9:31 pm

No, it is not.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,”

7 Ashutosh Walia November 17, 2016 at 8:21 am

How do you not think so?
This is a fantastic move taken by our Prime Minister, Shri Narendra Modi…
When you say half of India’s population don’t have bank accounts or identity proofs, whos fault is that. It was clearly initiated by the Modi government that people need to open bank accounts and the need for the Aadhar card was ever so necessary from the very beginning of his campaign.
You see there is no point arguing about facts you do not know.
In the future all transactions will have to be made via the bank or through cheque. The maximum note that he might be printing would be 50/- that is hypothetical… and all other payments would be via bank, cc, dc, rtgs etc.
All taxes currently in India only get the government 12 lakh crores. However if a 1.2% transaction tax is imposed and all other taxes are removed the government will earn 15 lakh crore which it will be able to use for the development of India’s infrastructure and india’s economy as a whole.
Can you not see how much India has changed since the time that he has come. Foreign investment, extermination of black money, save the girl campaign, Swacch Bharat abhiyan and there are many more.
How do you feel that with all these changes people will not allow him a second term.

8 Chhavi Methi November 18, 2016 at 1:35 pm

Who sees these changes ? People say that I talk hollow if I favour Modi !

9 I. MALLIKARJUNA SHARMA November 22, 2016 at 2:32 pm

That people say you talk hollow if you favour Modi itself is a proof of how unpopular Modi has become by this wildly mad Tuglaqian measure.

10 Praveen November 21, 2016 at 9:39 am

“When you say half of India’s population don’t have bank accounts or identity proofs, whos fault is that”?
So you mean its the common man’s fault that he has no bank account? How many do you think would have even known of the JanDhan yojna?
Without a financial inclusiveness (access and skill for banking and emoney), how can a government take such a decision which affects the basis of Indian economy?

11 Kamal November 27, 2016 at 4:26 am

Great Modi ji.. so far we saw in movies only against the corruption after 21/2 hrs we will forgot the same. Now it comes in reality.
Now coming to Next Step of Demonetization
Its Simple
Take 1 Year time for implementation and Ban all newly introduced 500 2000 Rs Notes gradually based on the population of state [Hope Goa going cashless from JAN 1 2017]

[Keep & Add 10,20,50,100,250 notes and 1,2,5,15,25,30, rupees coins].

even if they think they cant do transaction more than Rs 250(initially) & later 100]

All transaction More than 250 & later 100 will need to done through Debit Card/Cheque/DD/Online Banking/Mobile Banking/Swiping Machine/Digital transaction(Paytm/free charge/SBI Buddy.. Etc)
I think in Goa they are planning to perform through normal phone other than smart phone

I saw some comments of People not having an bank account it may be for some reason.
1) Those who want to escape from Tax they are not creating Bank Accounts.[to hide their transaction]
2) Those not educated and nor comfortable in handling money through banks [ due to less awareness [indirectly it referring tax only]
3) Time to worry –> Platform / Road Side Shop people. For them there is no necessity to create a bank account because they are earning for the day and spending on the day itself
Just Think .. Before Nov 8 they lived in luxury palace and after Nov 8 they came to platform?

In our 70 years of independence they are still living in same situation. politician who worrying about their living status in parliament .. what they did for last 70 years who ruled most of the years after our independence.

Now they are suffering even not able to withstand for 1month / 1 day its because of worst ruling done by the parties previously.
They Joined all the rivers across India?
They increased the single person income?
They reduced the poverty and suicide of farmers?
They reduced beggars?
They reduced small kids begging on road side?
They reduced prostitution and provided better life for woman?
Finally they increased toilet across all villages?

Sacrificing for less than 50 Days its not a big deal..Now who , they all living with their family only. Our Army people sacrifice their life day by day not only URI. You think comparing to that we not at all sacrifice anything other than talking

12 I. MALLIKARJUNA SHARMA November 22, 2016 at 2:25 pm

Fantastic move – really – excelling the mad Mohammed Bin Tuglaq of yore. The very idea escalated to the level of wild boasting that sudden and in all secrecy scrapping of big notes itself or mainly eradicates or deals a deathblow to black money is utterly wrong and ridiculous. Why people in US deal extensively in cash and even coins! You have even one cent coins there – this apart from the fact that almost all Americans have bank accounts and more acquaintance with modern science and technology than average Indian. Added to that no home work done, no preparations made to smooth the deleterious and painful consequences to the common people – more so when the notes themselves are not to be totally but conditionally abolished and then new notes of same or even higher denomination printed. The idea and the preparations both go together. As Marx always used to remark – the proof (taste) of pudding is in its eating. And here the taste is quite bitter and poisonous and it is proof of the taste of the dirty dish prepared and dispensed by Modi & Co.

13 anonymous November 28, 2016 at 2:06 pm

kaun he ye chutiya sharma lagta he black money wala congressi he…sala khao aur garibo ko garib hi rakho,,,mang kar khane ki adat dalo wala dalla

14 syed qadri November 26, 2016 at 10:42 pm

As per this article, “A key point is that only 1% of India’s population pays income tax–India would be a libertarian paradise if it had a libertarian government but it doesn’t.” The following are a few Libertarian Principles:
David Boaz is executive vice president of the Cato Institute and author of Libertarianism: A Primer, from which this is excerpted.

Individualism: Libertarian thought emphasizes the dignity of each individual, which entails both rights and responsibility.

Individual Rights: Because individuals are moral agents, they have a right to be secure in their life, liberty, and property. These rights are not granted by government or by society; they are inherent in the nature of human beings.

Spontaneous Order: A great degree of order in society is necessary for individuals to survive and flourish. It’s easy to assume that order must be imposed by a central authority, the way we impose order on a stamp collection or a football team. The most important institutions in human society — language, law, money, and markets — all developed spontaneously, without central direction.

The Rule of Law: Libertarianism is not libertinism or hedonism. It is not a claim that “people can do anything they want to, and nobody else can say anything.” Rather, libertarianism proposes a society of liberty under law, in which individuals are free to pursue their own lives so long as they respect the equal rights of others.

Limited Government: To protect rights, individuals form governments. But government is a dangerous institution. Libertarians have a great antipathy to concentrated power, for as Lord Acton said, “Power tends to corrupt and absolute power corrupts absolutely.”

Free Markets: To survive and to flourish, individuals need to engage in economic activity. The right to property entails the right to exchange property by mutual agreement. Free markets are the economic system of free individuals, and they are necessary to create wealth. Libertarians believe that people will be both freer and more prosperous if government intervention in people’s economic choices is minimized.

The Virtue of Production: Libertarians defended the right of people to keep the fruits of their labor. This effort developed into a respect for the dignity of work and production and especially for the growing middle class, who were looked down upon by aristocrats. ( In my personal opinion if the welfare of those who are incapable of participating in any productive activity to people who form their own ‘welfare institutions’.)

Natural Harmony of Interests. Libertarians believe that there is a natural harmony of interests among peaceful, productive people in a just society. One person’s individual plans — which may involve getting a job, starting a business, buying a house, and so on — may conflict with the plans of others, so the market makes many of us change our plans. But we all prosper from the operation of the free market, and there are no necessary conflicts between farmers and merchants, manufacturers and importers. Only when government begins to hand out rewards on the basis of political pressure do we find ourselves involved in group conflict, pushed to organize and contend with other groups for a piece of political power.
Peace. Libertarians have always battled the age-old scourge of war. They understood that war brought death and destruction on a grand scale, disrupted family and economic life, and put more power in the hands of the ruling class — which might explain why the rulers did not always share the popular sentiment for peace. Free men and women, of course, have often had to defend their own societies against foreign threats; but throughout history, war has usually been the common enemy of peaceful, productive people on all sides of the conflict.

15 Thiago Ribeiro November 11, 2016 at 9:27 pm

The Indians are culturally uncapable of any meaningful self-rule and, left to their own devices, they immediately descend into chaos and savagery, exactly as the Brazilain government had predicted it would happen when the Partition happened. As late as 1974, Brazil was defending a peaceful, negociated solution for the anticolonial insurgencies in Africa and Asia because it was clear by then that those peoples were not yet ready for self-rule and needed to be educated for freedom, which the European conquerors, concerning themselves only with exploring their subjects, never did. Brazil only abandoned this position in the middle 1970’s when the colapse of the Portuguese colonial regime made it clear that it was of no use anymore to oppose the decolonization process, which had, by then, become irreversible in all but name. Unfortunately, Brazil’s sane, careful and idealistic take on the need of serious, careful, thoughtful and gradual reforms before the end of White minority rule was ignored by the other great power, who decided to use the then-called “peoples of color” of Africa and Asia as paws in a devilished chess game. Brazil’s position, on the other hand, was principled and based on the best moral traditions of our tradition and represented the faith Brazil and the other peace-loving nations of the world have in man’s ability to create an international order that is fair and democratic.

16 Thor November 11, 2016 at 10:51 pm

Good post. Yes, India also tried to play the Soviets off against the Americans and eventually sided with the East Bloc, which pushed Pakistan to align with the US.

Speaking as a descendant of a Rajah, I can tell you that we were limited in what we could do on the subcontinent. But we succeeded in two regards, arguably our two greatest accomplishments: teaching the Indians to write fine novels in English and building them railways.

17 Thiago Ribeiro November 12, 2016 at 5:23 am

But which good will railways do in the hands of the Indians?

18 Thor, Please keep your stinky dick in your pants. November 13, 2016 at 10:13 am

We all know current economic status of “Great” Britain 😛

19 The motherfucker November 12, 2016 at 9:35 am

Ull assoles living out of India .U think we should have still been under the British , that ull built the railways and taught us English, the CEOs of major corporate companies are Indians and by the way our Constitution is one of the best, we may have a lot of corruption problem,but there isn’t any less in Brazil or other parts of the world, at least we are trying to do something about it,and by the way our railways transport over a billion people to their destination safely and is the largest among all the Asian countries,or in fact in any parts of the world.Before u ever judge us remember we are one of the largest Democratic nations..Peace out bitches

20 Thiago Ribeiro November 12, 2016 at 1:41 pm

Hahaha. One of the best constitutions. Oh, God. I really love how the savage is impressed by how well the run the trains the British gave them.
https://www.google.com.br/search?q=indian+train&espv=2&source=lnms&tbm=isch&sa=X&ved=0ahUKEwib0ofZ7qPQAhXks1QKHRZSC10Q_AUICSgC&biw=1366&bih=662#imgrc=-_ddpBboS_n6QM%3A
Suffices to say the Indian worker is dramatically less pproductive than the Brazilain one. Brazilians are smarter, stronger, taller, faster and braver than the Indians.

21 haha November 12, 2016 at 4:48 pm

As an Indian, I think this (“Brazilians smarter, braver, …”) is indisputably true. I also enjoy high caste Hindutva racists who yearn to be recognized as honorary whites being slapped silly in internet squabbles by other racist whites. Gentlemen, please continue.

22 Thiago Ribeiro November 12, 2016 at 5:06 pm

We are superior in every conceivable way.

23 Huh November 13, 2016 at 5:53 am

Completely agree. That’s why EU and USA outsources their services to…. emmm… Brazil?

By the way nice pictures! You must be having a ‘selective google’ app in your phone!

24 To Dear Thiago, November 13, 2016 at 10:01 am

I may agree with you on stronger part because it is a genetical advantage and this might also be a possibility that you guys belong to previous phase of revolution than ours ( closer to the monkeys ). So you guys might be strong. Another aspect to confirm you guys really belong to previous phase of revolution than ours is your mental capability which can be explained as no Brazilian is currently a CEO of any major corporation in the world or have done anything very illustrious in the recent years other than writing some stupid philosophical novels that too in Portuguese. You guys are so pathetic that you used to speak some rubbish language prior to Portuguese rule and then made Portuguese as your National language ( I appreciate your self respect 😉 ) which was once upon a time was forced on you. On the other hand we Indians have been speaking in numerous prosperous languages.
On the economic note : I can not spare much of my precious time to talk to a fool like you so please read below article and understand if possible. If you can not understand some logical part feel free to ask.
http://www1.folha.uol.com.br/internacional/en/business/2015/01/1570578-india-to-overtake-brazil-as-worlds-seventh-largest-economy.shtml

Thank you.

25 Thiago ... Please. I dont think you even have a high school degree ;) November 13, 2016 at 10:05 am

Do you have one ? 😛

26 Rajiv dhall November 18, 2016 at 10:08 am

I TOTALLY AGREE.
COME AND MEET JUTS OF INDIA. BRAZILISN BABOON.
THEN U FIND OUT THE MIGHTY MUSCLE.
I LOVE SCREWING BRAZILIAN WOMEN.DOGGY WAY IS LOVELY.WE SHOULD IMPORT SOME TO INDIA.

27 kj November 15, 2016 at 4:28 am

Oh Thiago, is that why Columbus tried to reach India? The countless westerners who tried to come to India were all out of benevolence? 😀
Are you a real Brazilian or a European import’s progeny who killed and looted the Americas?
You read the British authored slanted history of “India”. No point in educating guys like you. Revel in your drivel. We don’t care.

28 Bikram sahu November 17, 2016 at 3:40 am

Sahi pakde hein….. India is great !!

29 KVind I November 27, 2016 at 11:27 am

Thiago Ribeiro is incapable (not uncapable) of writing in English but still that does not prevent “it” from writing in English! The cultures of the Portuguese, Irish, Italians, Greeks, and Spaniards are such great wizards in economics and self-rule that all economic news that the PIIGS is trouble is but just a rumour.

Hail Thiago, the most enlightened of “it” all! And of course, there is also the Thor!

30 Areendam Chanda November 11, 2016 at 10:10 pm

I also find it hard to believe that those with “black” money are simply storing them in suitcases. Surely, they are earning a return somewhere. In other words, all that will be recovered is some flow and some “buffer” stock and not the actual stock.

I also wonder how much of the reduction in “de facto” money supply will lead to deflation vs depressed demand. There may be a large downward adjustment in the price of property and some luxury goods (cars and, perhaps gold, given for it). A school friend of mine explained how cars (even BMW’s and Audis) are purchased using black money- the dealer “keys” the car and then sells its at an official discount. The buyer then pays the discounted portion in cash. I suppose these practices will come to a halt (at least for the time being). Car dealers will now be forced to give more legitimate price breaks to move inventory but that will not nearly be as much.

Finally, the timing is completely off. The average Indian household I know usually goes to the bank at the beginning of the month to pick up cash for their monthly expenses. Implementing this policy at the beginning of the month when household stockpiles of cash are the highest seems a rather inefficient choice. I guess they were planning this and they were worried word would get out.

31 karimpootam November 12, 2016 at 12:17 am

Indeed. The timing is terrible. A lot of contract labourers also get their payments around the 7th-8th of the month. The primary employers settle the bills with the contractors and the cash disbursements to workers happen around now. These are typically very poor people, many migrants with few support networks or identification or bank accounts in their place of work. They need cash for food and medicines. Many don’t even know the local language. There are reports of separate queues in front of banks for these migrant workers while locals and more middle class folk get priority access.

Among the more fortunate of the poor, like my maid, they’re stuck with worthless currency they’d drawn to pay big monthly expenses like rent. She’s more fortunate since she has access to people who can help explain the next steps that need to be done to convert the currency and may be able to loan her some cash as well.

32 Kris November 12, 2016 at 7:31 am

I also find it hard to believe that those with “black” money are simply storing them in suitcases.

I would too, if I didn’t know of people (through my friends and relatives) who have admitted to doing exactly that in private. The “suitcase” is metaphorical, of course, but a lot of small-scale traders and businessmen do have cash stashed away outside banks, and away from the government’s eye.

33 haha November 12, 2016 at 5:24 pm

In Kolkata the city I am most familiar with, most successful doctors have piles of black money that are routed to buying lands in the outer suburbs and foreign vacations. So yes, a substantial portion is under “mattresses.” Most of them probably do not declare more than 40% of their income to the authorities.

34 Alain November 11, 2016 at 10:41 pm

Liberals who live off of graft are against this move by modhi?

Must be working. Bravo.

35 Ricardo November 12, 2016 at 12:25 am

I don’t know how useful it is to talk about this in terms of “rich” versus “poor.” It is easy to imagine poor Indians having some cash savings at home but a bit more difficult to imagine many of them have it in the form of fat stacks of 500- and 1000-rupee notes. These notes are not that useful in everyday life — anyone who has been to India can attest to how some vendors and shopkeepers even in normal times will outright refuse these bills or at least try to make you feel guilty for using them for a small purchase. Obviously, rich people who are engaged in legitimate activities won’t be hurt much by this nor are they the intended target.

36 Anonymous November 12, 2016 at 5:04 am

Times have changed ; whenever I visit India, where I am from , I am surprised how quickly a rs.500 ( approx a little less than $8) disappears.. Since ATMs generally disburse more of the Rs.500 notes , its not uncommon to pay maid srvants etc (see karimpootam’s comment above) with Rs.500 notes.
You are correct thats mall shopkeepers resent having to give change for small purchases , but its not true that they are uncommon with the poor.

37 Rahul November 12, 2016 at 1:35 am

The bizarre thing about the exercise is that it is not truly a de-monitisation – a new INR 2000 note has been introduced, soon to be followed by new INR 500 and INR 1000 notes.

It’s weird that Modi would spend the political capital to do this, but not think through the execution (which has been sloppy to say the least).

You can be sure that a) the informal sector will treat these new notes with great suspicion (so much for trust in the Central Bank) b) gold coins will become even more popular than they already are, possibly even de facto units of currency.

38 Srikanth November 12, 2016 at 1:54 am

The value of high denomination notes is around 14 lac cr rupees.. On January 1st 2017 when this exchange closes. If the banks have not received that much and there is a no show , then it means that people had money with them and not bothered to deposit it back .. And that’s usually illegitimate money …

So all this talk of hard cash is not available with people is all not true .. Every one especially those who deal in black money have tons and tons in cash with them ..

39 Umashanker November 12, 2016 at 2:34 am

My concern is that the current situation might increase generation and circulation of fake notes in lower denominations. This is bound to happen given the desperation among the common man.
Hope the officials are taking care of this.

40 Solomon November 12, 2016 at 3:09 am

85% of cash is as Rs 500& 1000. So, 15% cash is as Rs 100 & below. Rs 2000 introduced is not effectively usable as change is not available in lower denominations. New Rs 500 is yet to be printed. The Indian, cash based economy has to survive with 15% of cash existing before this decision till situation improves.

41 Thiago Ribeiro November 12, 2016 at 9:26 am

It is doable, Brazil’s economy survived the freezing of saving accounts, which decapitalized enterprises and the middle class consumers, weakening the businesses and fighting rampant inflation. It is a matter of political will above anything else.

42 ChocolateSeller November 12, 2016 at 3:12 am

The thinking that “nobody would keep cash in suitcases” and that “everything gets converted to gold or real estate” seems logical to an outsider. However, the fact on the ground is that most black money holders still hold significant proportion of it in cash, waiting for the next big opportunity to buy real estate (or politicians waiting for elections). The Govt knows that there is so much currency in circulation and even if people end up buying all the gold they can for it, those currency bills have to go somewhere (the jeweller, the jewellery maker, the gold dealer / importer) and has to get accounted somewhere, because after 30th December, nobody has any use for them.

In effect, SOMEONE is going to pay the tax on the unaccounted currency bills in circulation.

Another major issue is that since the Govt is re-introducing new currency bills, money will become black again. What one has to remember that all money does not go “black” immediately. It becomes “black” over a period of time (under-invoicing, selling without invoices etc etc.). Even if completely unchecked, it could take a few years to reach the current proportions again. But do not expect the Government to keep this completely unchecked – as Alex points out, the Government’s ability to track transactions increases significantly with this exercise.

Finally, there is a big signalling effect here, and that is “This time the Government means business!”. Before this, every time that the Govt brings in any initiative (not just about corruption / black money) the public usually takes it with a shrug “oh, what are they going to do, nothing really changes”.

The rich man (code for “black money holder”) certainly suffers, and rightly so.

Of course, the honest rich man (salaried class, with no unaccounted money)and the poor also suffer – having to stand in queues to get adequate change, no business / work for a few days (the cab driver spending 3 hours in queue to change money etc.). However, if executed to its stated goals, this is nothing short of a revolution and every revolution comes with a lot of pain. This is probably the least amount of pain that we could have, with a revolution of this kind.

43 raa November 12, 2016 at 5:45 am

This exercise could boost the fisc. Suppose 10% of the 14 lakh crore is neither exchanged or deposited in banks – this amount dies off. Currency in circulation is RBI’s liability – Rs.1.4 lakh crore of liability gets knocked off- this essentially is profit. RBI pays dividend to the govt.and the govt can use this to cut fiscal deficit or boost spending.

44 OutCrier November 13, 2016 at 1:15 am

The notes have been “de-monetized”. They can no longer be used as legal tender (I.e. medium of exchange). However, RBI’s promise to exchange value for that money stands (the store of value function). So those bank notes (which from RBI’s point of view are more like promissory notes) continue to be on RBI’s balance sheet as liabilities. So no fiscal windfall.

45 raa November 14, 2016 at 7:50 am

A lot of people may not deposit money in banks due to fear of prosecution by tax authorities. Most of the guys having back money will have a significant proportion in assets…they are likely to burn the cash as if they deposit this in banks then their assets will also come under investigation. so to that extent some cash is likely to get extinguished

46 Arjun Narayan November 12, 2016 at 11:38 am

> …most truly rich people don’t keep their wealth in the form of cash, but in the form of real estate, gold, deposits in foreign bank accounts and other benaami investments. They will be largely unhurt…it is the poor who will be hurt the most by this.

This bit is somewhat incorrect. It is true that rich people keep their wealth in the form of real estate/etc, but most of the real estate wealth still has a “black” component. For instance, if one was buying a house for $100,000, it is quite normal to negotiate what percentage of that transaction will be done in black money. So you might pay $40,000 nominally (with an additional $60,000 transferred in black money).

If the supply of black money is curtailed, this means that an eventual future sale will have to happen entirely in non-black, which means that that transaction will have to pay capital gains stepped up from the old non-black-only price (e.g. a future sale at $120,000 will pay capital gains on the $80,000 delta from the old non-black component).

47 P KOTESWARA RAO November 12, 2016 at 2:59 pm

why cant introduce a scheme of collecting the tax on progressive slab rates in respect of cash deposited in banks till
December end as it will induce everybody to come clean by paying the tax. As the high denomination currency gets lost its value
because of death warrant on them every body will come out clean by paying the tax as against the non disclosure of unaccounted
money in earlier disclosure schemes.Now most of the people are splitting their cash to smaller extents and depositing in their friends and relatives accounts and avoiding the tax altogether resulting to reduction of overall tax collections.It will unearth every 500 and 1000 note existing in the system bringing it to the bank vaults as the friendly tax slab rates with immunity will be a win win proposition.

48 Nandini November 13, 2016 at 1:33 am

All this money deposited in the bank then u pay tax for it May be u will not draw it make a fixed deposit as ur not sure when modi is going to demonitize 100 rs and withdraw the new 2000rs . So banks make a tds since most are not pan holders they don’t get deposited into govt account but banks keep it in their accounts specially opened for this .What happens to this money? Bank is making so much unclaimed money .no body is signing form not to cut tax . They don’t know such a provision .

49 MSSNPrasad November 13, 2016 at 1:38 am

Please go through the blog

50 MSSNPrasad November 13, 2016 at 1:38 am
51 mkt42 November 13, 2016 at 4:55 am

If the wealthy aren’t the ones who are holding the 500 and 1000 Rs notes, then who is? From the statistics, it seems that there are a lot more of those notes in circulation than could be held by the poor in India.

52 dcpi November 13, 2016 at 9:51 pm

I don’t know anything about India or “black money”, but I do know this. Cash is just a thing, it cannot be corrupt. Only people can be corrupt. You don’t fix corruption by playing games, but by changing people through incentives and culture. Obviously then, this effort will fail.

And the unintended consequence will be less faith in cash going forward, and therefore more friction in trade, less wealth creation and an unhappier populace. Put fools in charge, get foolish results.

53 Abhishek.S November 14, 2016 at 2:47 am

True.

54 Jack November 14, 2016 at 5:09 am

Demonetization is a stripping of currency units of its status. It is necessary for the national change in currency. It is that the old unit of currency is replaced by new one. The Indian Government has Demonetize the 500 and 1000 Rupees to take out the black money Although we know that there is only 10% of black money in cash still 90% are in other investment. It is a good step taken by Government of India and people are in great support with the Government. People has already rushed in Banks and ATM’s to exchange money. The situation will take little time to get settle. But there is unnecessary crowd in front of Banks and ATM there is a guideline by RBI which people needs to follow and avoid unnecessary crowd. https://www.tomorrowmakers.com/articles/financial-planning/the-500-1000-rupee-note-demonetization-decoded-infographic- . Follow the guidelines hope it help you.

55 Shivam November 14, 2016 at 6:11 am

Learn About Why money Laundering is the 51st shade of Grey. A beginners guide to money laundering tactics.
https://medium.com/@karma.strikes/why-money-laundering-is-the-51st-shade-of-grey-e848f260452a

56 Witty November 14, 2016 at 9:11 am

To be fair, I don’t know how things will work out with this demonetization of such important currency. I am more concern about the public, so I will not exactly call this brightest move to spot black money. Anyhow, I worry less about these things since I don’t belong from India, but even if I was I would be least worried due to all transaction I do is through bank and been a Forex trader, it’s easier for me with OctaFX broker with having all options.

57 Indian November 14, 2016 at 9:29 am

to the brazillian fuck who thinks of his country as a paradise
let me remind u that u are nowhere near in india terms of anything, u people face poverty too. and ur people are so inefficient that u can not tackle the issue with such a lesser population, second we are better in terms of economic conditions than u people, the only thing that hinders our growth is our incapability to tackle a multi diverse culture, whereas u people have a lot to tackle about that includes your ignorance and some blimey fucks such as you to stop talking shit and start making sense, and i recommend u better start making sense it would do ur country a lot good.
thankyou

indian

58 Hitesh Shah November 14, 2016 at 11:02 am

Benefits of demonetization far outweigh the difficulties faced by common man (including me ) currently .
Here is brief Demonetization Cost benefit analysis
The difficulties to common man are worth taking considering
1. Benefits in future for them
2. Hardships to black money hoarders in converting their black money to white in terms of risks , costs , time and hardships associated with it .
Immediate pains for common man are
1. About 2-3 times withdrawal at banks after standing in long serpentine queues in next 50 days .
2. Immediate short term business loss due to liquidity loss.
3. Judicious use of cash to be made during next 50 days.
Future gains for common man.
1. Govt with more tax money will spend on infra spending leading to more employment which will usher in peace and prosperity in society.
2. Consumption pattern shifts to essential items rather than ostentatious luxurious items which brings peace and parity in society .
3. Black money are invested in dead investments like gold /real estate /diamond which suffocates circulation money in the economy . These very investments are used to exploit the poor and honest.
Immediate hardships for Black money hoarder
1. He/she has to find low income trust worthy people who can give their bank accounts for depositing the black money .
2. With so much difficulty in getting money from Bank , there will be heavy reluctance by people to help black money hoarders which in turn leads to increased costs / difficult and / risks associated with it .
3. After using these tricks he looses some part of his black money to either govt (if deposited in his/her own account) or to some low income person in the form of reward for playing proxy and facing all the difficulties of bank withdrawal. This is direct transfer of funds by black money hoarder to other low income groups on their own.
4. Arrangements with proxies to convert black money into white is illegal and unenforceable in court thereby increasing substantial risks for them.
5. With so much difficulty , the proxy depositing will take longer time and there will be tremendous delay in getting the money back through proxies .
If u see future benefits for common man and immediate difficulties for black money hoarders , the benefits far outweigh the immediate difficulties faced by common which is about 8-10 hours in query over 50 days .

59 Hitesh Shah November 14, 2016 at 11:04 am

Benefits of demonetization far outweigh the difficulties faced by common man (including me ) currently .

Here is brief Demonetization Cost benefit analysis

The difficulties to common man are worth taking considering
1. Benefits in future for them
2. Hardships to black money hoarders in converting their black money to white in terms of risks , costs , time and hardships
associated with it .

Immediate pains for common man are
1. About 2-3 times withdrawal at banks after standing in long serpentine queues in next 50 days .
2. Immediate short term business loss due to liquidity loss.
3. Judicious use of cash to be made during next 50 days.

Future gains for common man.
1. Govt with more tax money will spend on infra spending leading to more employment which will usher in peace and prosperity in
society.
2. Consumption pattern shifts to essential items rather than ostentatious luxurious items which brings peace and parity in society .
3. Black money are invested in dead investments like gold /real estate /diamond which suffocates circulation money in the economy .
These very investments are used to exploit the poor and honest.

Immediate hardships for Black money hoarder
1. He/she has to find low income trust worthy people who can give their bank accounts for depositing the black money .
2. With so much difficulty in getting money from Bank , there will be heavy reluctance by people to help black money hoarders which
in turn leads to increased costs / difficult and / risks associated with it .
3. After using these tricks he looses some part of his black money to either govt (if deposited in his/her own account) or to some low
income person in the form of reward for playing proxy and facing all the difficulties of bank withdrawal. This is direct transfer of funds
by black money hoarder to other low income groups on their own.
4. Arrangements with proxies to convert black money into white is illegal and unenforceable in court thereby increasing substantial
risks for them.
5. With so much difficulty , the proxy depositing will take longer time and there will be tremendous delay in getting the money back
through proxies .

If u see future benefits for common man and immediate difficulties for black money hoarders , the benefits far outweigh the immediate difficulties faced by common which is about 8-10 hours in query over 50 days .

60 Siva November 14, 2016 at 3:11 pm

Demobilization is a good move but not a sufficient one to tackle black money. Indian economy suffers from black money and most importantly idle money which is invested in real estate and gold which are not productively utilized. The best way to cut the root of this is to make it mandatory that idle plots should be confiscated by the govt. so that like any developed countries we will not see idle plots in place of farm lands. Further there should be curb on properties like a family should be permitted to buy a maximum of two houses in total and a maximum of one per city. Measures like these are already practiced in other places which our law makers and politician do not want to discuss sadly.

61 Avdhesh Tondak November 15, 2016 at 1:25 am
62 P Garg November 16, 2016 at 10:53 am

Big Picture View

I am not saying that Modi’s move is wrong, it is a good step. Just looking at its impact in the big picture.

US economy is around $17T, US individual wealth is around $48T(per 2016 world wealth report).

India’s economy is around $2T and individual wealth around $5T – $5200B per world wealth report.

India’s Rs 500 and Rs 1000 notes being demonetized are around $220B.

If 10 or 20 or even 50% of it gets destroyed with Modi’s move India’s wealth will be reduced from 5200B to 5100B. Big deal.

This is a game like musical chairs – whoever did not convert his black money to other kind of assets when the once in 40 years sudden action happens will lose some of his assets.

Big picture impact does not seem very big. Until Indian culture of bribes changes, it is like illegal immigration – you give them amnesty every 10 or 15 years and the new cycle starts.

India had demonetized large bills in 1978 also but then they were only 2% of the money in circulation; this time it is 86%.

Now the musical chairs players will need to be more careful. They should be safe for at least the next 5 to 10 years.

The new Rs 2000 notes have to nanoGPS or RFID chip in it. It is all rumors. Technology for nanoGPS does not exist and RFID chip used for stores to alert them of theft will not serve any purpose. So Pakistan will resume their printing of fake notes in a few months.

63 Abhishek Kapoor November 21, 2016 at 12:39 am

India has a very high wealth GINI. Those losing their wealth will disproportionately be poor.

And the exchange will not be a one-to-one exchange either. Those who are poor will get disproportionately exploited. Already there’s plenty in the news about how poor people have had to exchange Rs. 500 for 300-400 worth of goods. Being a middle class individual, I’ve had to face no such hardships: people/places that don’t have online payments are happy to extend credit to me or take the old currency that they will then have to laboriously stand in lines at the bank to exchange.

And so, the usual inequities in society pass on the burden of this frankly horrendous move downwards onto those who, ideally, should have been least affected by a policy that tries to tackle corruption.

64 pankaj das November 16, 2016 at 3:18 pm

Most of the world black money is in Europe out of which certain part is invested in the real estate of Dubai..so you white people do not brag about yourself ..second thing imperialism in a wrong way started from Europe..this was the reason your soil gave birth the people like Hitler, Mussolini etc brexit is the example which proves u r divided not united..As per Indian records or world history During Mohanjodaro and Harrappa time all of Europe was a group of carvan they did not have proper houses…whichever religion or path u follow shown by India and Asia so stop giving lectures to others ..we r multilingual which proves we are smarter than anyone..

65 Rishab Kumar Jain November 17, 2016 at 12:19 pm

Although it is a good move,but implementation on ground has left many persons in problem.Moreover if the government is serious in getting the hard earned money parked in banks it should ensure that the NPA’s of the banks are controlled and defaulters of the banks are brought to book.Secondly in order to contain the corruption the government need to remove protection available to government employees/officers in the shape of prior sanction for prosecution.The discretionary powers available to the officers be curtailed as these are the breading ground of corruption.The biggest source of corruption today is government machinery itself.

66 samrat November 17, 2016 at 3:31 pm

Hello Mr.Modi ,Bravo you desire a pat on your back. Very well done.History will remember you.
Pls. see that your effort does not end up India’s first war for Independence in 1857.
You can also start scheme like rewarding informer with 5% black money collection from money hoarder along with collective reward to security and IT personnel.
Full debit/credit card or cheque payment for gold, silver, Diamond, precious stone sale and purchase
changing format for registration of sale/purchase of real estate property and no cash purchase .
Arrest people ,raid and search people having multiple PAN ,UDHAAR number and voter card like Sumatra Devi,Sumatra Yadav,Sumatra sinha ,Sumatra sinha yadav etc in Hindus,Muslims and others .
Mr.Modi you can also impose total ban on involvement of any political party in education institutions in India. Many parties many oppose stating Mahatma Gandhi’s call to youth for national movement but things have changed in 70 years.

67 samrat November 17, 2016 at 4:16 pm

Mr.Modi like you and other well wisher for India the time has come for India for 2 party in India. Our constitution must be amended for such a move so as to save precious money by floating new party, hoarding black money, Covert MP/MLA purchase etc, sending illegitimate money during election, stopping caste based politics, stopping religion based politics etc. Election Commission should be given full autonomy to watch the funding process of political parties.

68 samrat November 17, 2016 at 5:03 pm

Mr.Modi Please declare TMC a corrupt party and dissolve West Bengal assembly to save Bengal at the earliest. Ms.Banerjee is an absolute Idiot dreaming to becoming PM of India. She has a group of highly corrupt,cheats, thugs & Touters party men,IAS,IPS WBCS. Please declare president rule in west Bengal for10 years with a state of emergency. You may think that how are they back in power? The answer is simple she is banking on the old tactics of CPIM of Cadre raaj and paying stipend from hawala account from monthly basis. Who ever has control over this antisocial, criminal, corrupt people, west Bengal’s political power belongs to them. Almost in every household somebody is unemployed and this is how they take benefit out of it. This unemployed illiterate or semiliterate youth has no source of income are having expensive bike and associated with sinister income sources,enjoying all privileges of BPL card and are millionaires, eating away the privileges of Middle class. Take the example of Shovan chatterjee,mayor of Kolkata ,a petty leader during congress party hardly had a car is having over two dozen vehicle parked in front of his house mostly Mercedes, BMW,Toyota, Mitsubishi etc. where does the money come from? He makes frequent foreign trip to London,Germany,Singapore,Italy at Government expenses and fools so-called (wise) Bengales. Real estate business is booming along with black money and hawala transaction in parnashree and other parts of Kolkata. Mamta has cleverly set aside cases of Sarada,Narada,TET etc and pointing fingers at others. It was actually a black day for Bengal when Mamta Banerjee shamelessly protested on top of JP Narayan’s ambassador car and our then congress leadership in West Bengal discovered firebrand leadership in her. She and her TMC are looting Bengal.
Please Save Bengal ; Dissolve West Bengal Assembly and declare emergency in Bengal please

69 Ha November 18, 2016 at 6:14 am

Even I am unable to collect cash from ATM I don’t know how many days should I have to suffer from scarcity of money in the ATM .

70 J.S.Dugal November 19, 2016 at 12:20 am

An unwise unplanned movement by an irresponsible government.

71 chandu November 19, 2016 at 9:31 am

hai friends… finally what would be the next step after demonetisation?

72 chandu November 19, 2016 at 9:34 am

after good move by modiji, the next move should be excellent

73 Yashaaggarwal November 19, 2016 at 2:05 pm

In my view….as per the economyear crUxbridge..demonetization is a hollow move as over a passage of time counterfeit money again come in circulation as of now you can say it been curbed …but exactly not as with the increase in liquidity with bank interest rate ll come down but there ll be dearth of buyer as so many sectors are there where cash transaction is inevitable like real estate import ,export ,higher education ,state funded election so it ll go on that also…but with these sectors other interconnected sector also be affected…and above all black money always are benami and stashed outside india. So again with this move tax collection from unorganised sector ll improve….but not again upto that percent but still….it will.second thing is black money is part of corruption so as taxpayers you control to extent but not to the core so damage by this move outstrips it’s benefits….So the cost benefits analysis should be done before implementation otherwise many developed civilised country could have done it earlier.

74 Amit November 23, 2016 at 12:43 pm

Next UP! Cashless INDIA, Banks will have all the power if India goes cashless. This is whats been on the horizon for a while now. The plan for a negative interest rate economy coupled with the excuses of combating tax cheats and other criminal activity with all of it being a cashless economy.

Modi was basically telling you why this is good for you while regurgitating the statist mantra, “If you don’t have anything to hide then this shouldn’t bother you”.

Get ready for the mark of the beast where they can monitor your every move and turn off your chip at will. This is basically US politics being played in India.

In order to implement N.I.R.P. (Negative Interest Rate Policy) in India. we will have to go to a totally cashless economy. You cannot have negative interest rates on depositors in banks without a run on the banks to withdraw the cash. People are simply not going to stand for paying a bank to hold their money. So to prevent this the central planners have to eliminate physical cash. This way you have no choice but to keep your money, (which now only consist of ones and zeros stored on a computer server) in a mandatory clearing house, i.e. a bank.

Also comes with this is forced bail-ins, whereas to stave off the collapse of your bank they will use your deposit/money to prevent it’s collapse. The rules state that it does not have to give you cash back on the banks losses, it only has to give you bank stocks in lieu of your cash, which at that point the banks stocks will be worthless as the institution has failed.

So what this means is that you will not only not get any interest from the banks but instead you will also have to pay the bank in order to keep your money safe with the bank.

75 CUSTOMER CARE November 26, 2016 at 2:31 am

Did you want to change your old money to new money urgently,
contact the customer care now for urgent help before the dead
line. on via email; bankcommissionservices.www@gmail.com

76 Seema Sapra @SeemaSapraLaw December 2, 2016 at 11:02 pm

Why Narendra Modi’s Demonetization measure violates the RBI Act and creates financial anarchy http://seemasapra.blogspot.in/2016/11/why-narendra-modis-demonetization-law.html

Comments on this entry are closed.

Previous post:

Next post: