Currency Demonetisation and Future course of Indian Economy

shyamal · Post by **shyamal** » 19 Nov 2016 00:10

Father went to bank today to deposit old notes and withdraw money. It is Axis bank in a Kolkata suburb.
Long line of exchange folks. A small line of account holders.
He managed to get his work done in 30 mins.
No ATMs are working yet.

From what I see on my way to work - lines have decreased in all the banks. I do not really see any anxiety around because most people expect things to be better in another week.
The patience of people really surprises me.
Things seem more or less normal.
There is no shortage of anything yet. All shops are open.

shyamal · Post by **shyamal** » 19 Nov 2016 00:13

I am happy that govt has prevented exchange tomorrow.
they can do something like this -
Monday, Wednesday and Friday - deposit, withdrawal and exchange allowed.
Tuesday, Thursday and Saturday - only deposit and withdrawal allowed.

The ATM situation needs fixing very very soon. Its 10 days now.

Rahul M · Post by **Rahul M** » 19 Nov 2016 00:14

shourie discussion continued at viewtopic.php?p=2076926#p2076926

same experience here shyamal da. I believe the ATM's are secondary priority till they are ready to do reconfiguration.

One thing they could do is ensure at least one ATM (of whichever bank) is up and running in every locality.

shyamal · Post by **shyamal** » 19 Nov 2016 00:24

I agree. No need to make all ATMs work.
Just pick up 10 % ATMs. Let the public know which they are - a cardboard notice on the door will also do.
Get them refilled 3 times a day.

Public is crazily picking up cash from ATMs because of the uncertainty. Not because of any shortage. Once they know that even if cash gets over now another van will come after 5 hrs without fail they will not be so hung up on withdrawing whatever they can. This certainty is very very vital. Without this reassurance this "panic" will not stop.

Suraj · Post by **Suraj** » 19 Nov 2016 00:27

panduranghari wrote:
Suraj wrote: So, the fastest way to fix the liquidity crunch is to withdraw a little, more frequently, and spend it all . Rinse, repeat. It's literally this activity that restores cash liquidity - people have to transact the smaller notes frequently and not hold it any longer than they have to. That is what restores liquidity. Every well meaning person withdrawing Rs.2000 and using debit cards, in fact becomes a counterproductive force against improving liquidity rapidly. Liquidity is created by transactional activity, not by safe holding of cash, and not by government diktat.
Exactly. DDM is complaining that this is a solvency issue for banks. Its a liquidity issue. Is the government also increasing the number of 100, 50, 20 and 10 rupee notes?

Not as far as I know. And my argument in the earlier post was that this wasn't in the governments hands to fix. The facts are that none of the smaller denominations were required to be deposited. So they still exist as liquidity out there. Government can disburse them , and from what I've read, cash machines ARE disbursing 100s. In fact the reason why I suggested more frequently withdrawing less amounts is to compel the ATM to give you small notes.

I'm simply addressing the human nature aspect of the situation where 'defensive' actions serve to weaken the effort to improve liquidity, often without the person even realizing it. Shades of Smoot-Hawley Act worsening the Great Depression... It's a really simple idea, that if sufficient numbers of people are told and share around, can quickly fix the liquidity issue, by restoring the daily cash liquidity. Keep your debit/credit cards in your wallet and spend that cash!

nachiket · Post by **nachiket** » 19 Nov 2016 00:47

Suraj wrote:
I'm simply addressing the human nature aspect of the situation where 'defensive' actions serve to weaken the effort to improve liquidity, often without the person even realizing it. Shades of Smoot-Hawley Act worsening the Great Depression... It's a really simple idea, that if sufficient numbers of people are told and share around, can quickly fix the liquidity issue, by restoring the daily cash liquidity. Keep your debit/credit cards in your wallet and spend that cash!

This is absolutely true, but the problem is that it goes against everyone's natural instinct and that makes it harder to convince them. They see long lines and think I should get the most cash I can in one time and hoard it, so it will last a long time and I don't have to waste my time in a line again.

I just hope at the end of this the govt. doesn't end up printing a lot more of the new notes than they planned to (just to keep the anger down), thus defeating the purpose of the whole exercise.

RajeshG · Post by **RajeshG** » 19 Nov 2016 00:49

Suraj, its a noble goal but not practical. when you have a common pool of resources, its bound to get abused eventually. insurance, govt, heck even your society's water tank - try telling society members to use water judiciously.

SRoy · Post by **SRoy** » 19 Nov 2016 00:53

Cash exchange may be stopped altogether.
Deeds told in whispers since last week and seen by us in serpentine queue have reached the Finance Ministry.
If that happens, good riddance.

Primus · Post by **Primus** » 19 Nov 2016 00:59

RajeshG wrote:
Primus wrote: There are NO shades of gray in corruption or black money. You can't pardon a thief who breaks into your house and simply steals 100Rs as opposed to the one who steals your wife's jewelry.
Primusji, thats the disconnect i was mentioning. I dont think a lot of people are thinking in this manner. For eg in the US I have friends who own businesses as well. When we go out to have dinner etc and they pay using their business card they show that as a "business expense". You think they are morally wrong ? none of us think so. but i can see that a lot of people on this thread would take probably consider that as "black" money. thats what i mean by a disconnect. we hold different moral compasses.

Rajesh Ji, I understand what you are saying, nobody in this world is truly a saint in every way. Nobody really wants the government to take their money either. However, you play by the rules. If the rules state you disclose your income from all sources, you are supposed to do so. If the rules state you can take people out to dinner as a 'promotion' of your business, you do so, although if these people are not potential clients/referral sources/customers then it does fall under the category of 'dubious' expenses and you are then subject to scrutiny.

A case in point is car expenses for business. The tax code in the US for automobile expense deduction in taxes runs to several pages. Intuition would tell you what is allowed and what isn't, but you really need an accountant to figure it out.

In any case, the scenario of taking your friends to dinner and deducting it does not really fall under the category of 'moral turpitude' whereas the regular, daily evasion of duties and taxes by the business-man and the subsequent corruption of bribing the taxman to get away with it surely does.

But I do see the point you are making.

Rishi Verma · Post by **Rishi Verma** » 19 Nov 2016 01:13

Cross posting:

Negative reporters on demotenization getting chased away by crowd chanting Modi Modi

Crowd Chases away RunDiTV

Crowd Chases away Gan*deep Turdesai

shynee · Post by **shynee** » 19 Nov 2016 01:26

Demonetisation: Myopic Opposition walks straight into trap laid by PM Narendra Modi

There is a reason why Narendra Modi fashioned his ludicrously risky demonetisation program as a moral fight against corruption. By turning a purely economic exercise into some sort of a political movement, he was hedging against popular backlash. Also, while exhorting citizens to join him in the "war against black money", he was setting subtle moral traps for his detractors. And most of his rivals walked straight into it.

despite these hardships, bone-crunching inconveniences whose effect may stretch well beyond 50 days, Modi may emerge as an even stronger leader and put more distance between him and the chasing pack.

If the poor as well as the salaried now stand solidly behind Modi, it is because they realise that the prime minister was batting for them, waging an audacious war against this decadal social injustice. Modi knew the power of that appeal.
His myopic rivals did not.
In their overwhelming focus on the immediate, most opposition parties have failed to understand the long game. Inconveniences that seem insurmountable now will slowly ease over time. Small business enterprises that have come to a screeching halt will eventually move again. ATMs will have their queues shortened and banks will, at some point in near future, see lesser footfalls. But in their haste to attack the Prime Minister and cash in on the finite discontent, his political rivals have willingly boxed themselves into the wrong side of a 'good vs evil' binary.
A time will come when the disorder will dissipate, but the opposition will find that in the "war against corruption", they tried to create hurdles in Modi's path. That would make for a gripping political narrative.

Normalcy is still some distance away and the lines are not shortening anytime soon but even at the height of discontent when cash was short and tempers were high, people never wavered from backing the drive. They were hit on the chin and bleeding but they wiped the blood and carried on, imposing full faith in the Prime Minister.

Polls conducted among 10,000 citizens from across 200 citizens of India since the demonitisation reveal public support for the Prime Minister's drive remains high.
Strange as it may seem to many, a report by news agency ANI finds that support for the government's demonetisation program has increased during the last week. According to the report, a portion of the citizens who were unsure and the ones who did not support the note ban are now coming out in support. The survey by LocalCircles found that in the week after Modi's announcement, 78 per cent citizens backed the demonetisation.
That was upwardly revised to 79 per cent in a follow-up poll after a week on 15 November, indicating that even as hardships increased, more and more people kept backing the PM.
A report in Business Standard mentions that the survey was also done separately online in 13 states. More than 80 percent citizens in states like Uttar Pradesh, Rajasthan, Maharashtra, West Bengal, Tamil Nadu and Telangana offered unconditional support whereas over 25 per cent citizens in states like Uttarakhand, Goa and Odisha said that that they are supportive of the program despite pain and inconvenience.

Modi didn’t get to choose his opponents. If he is already winning the political battle despite messy handling of a brilliant idea, he should send Rahul Gandhi, Arvind Kejriwal and Mamata Banerjee a hand-written 'thank you' note each.

shyamal · Post by **shyamal** » 19 Nov 2016 01:33

I was just going to post the above article

Suraj · Post by **Suraj** » 19 Nov 2016 01:37

RajeshG wrote:Suraj, its a noble goal but not practical. when you have a common pool of resources, its bound to get abused eventually. insurance, govt, heck even your society's water tank - try telling society members to use water judiciously.

My question is, are you going to do it, and are you going to explain it to people and tell them all to do it ? That's what matters to me - not philosophical agreement on human nature .

It just needs enough people to put money back into circulation. We have seen how people are understanding of the situation. It's not a stretch to feel a subset of them will do this . That's all that's needed . Some people will be willful, but the rest once familiar with this will do their bit .

Every little kirana owner understands the utility of cash liquidity. It's fine if people don't want to go to bank daily . Get the max out . Use cash only as far as you can . Once liquidity is restored you can use your DC/CC .

Suraj · Post by **Suraj** » 19 Nov 2016 01:54

nachiket: yes I know it goes against basic human nature; that was my original assertion. However it's also true that the vast majority of people simply haven't realized that their reactive response causes harm. It's not idiocy, willful maliciousness or anything . It's just that default human nature is not something we are wont to think through . We just need enough reasonable people to go 'oh! I didn't think about it that way . I will use cash for the next 2 weeks' to fix it .

This is not for government to fix . We don't live in USSR . This is a market economy . The market creates the liquidity . And you and I are the market . Govt never asked for the small notes back . There was enough of them before and there are enough of them now . They just need to change hands more often .

One would think - GoI should print more notes . It's not that simple . Past history shows that this sort of deflationary spiral causes prices to fall and businesses to fail . Guess what people do ? They sock away EVEN MORE cash for 'safety' . This is not theoretical talk . It's what you see in Japan and during the Great Depression . So, the fix for low liquidity is literally in people's pockets...

disha · Post by **disha** » 19 Nov 2016 03:10

People's habits are difficult to change. Just as Shiv saar pointed out., for the vast middle class - they need to spend to survive. The doodhwallah will come calling at the month end and start demanding Rs. 2000 for the milk., which will go into fodder and other bills. One still has to buy vegetables and groceries. One still has to pay their electricity bills or pay the rickshawallahs or the driver. Even now one does not go with a stash of 10000 Rs in their pocket (in 1000 Rs bundle) to go and buy sabzi.

All the txns including and upto 100 will start flowing. People will go to theaters, will go in autos and busses and start using small change. By putting restrictions on exchange already the lines have vanished. People will return to the new normal seeing smaller lines. Some will also change their behavior like accepting cheques and card or mobile payments.

#Mediapimps will still continue whining about "liquidity"., problem is they do not ask the question if several lakh crores of 1000s and 500s were locked away., where was the "liquidity" crises?

With such a massive inflow of money., the banks are already cutting down the interest rates and that is going to add to the 'liquidity'. It has been speculated by eCONomic times that some '3 lakh crores' of money will never be exchanged for new notes! Which will be in effect a one-time dividend boost of 3 lakh crore to the GOI.

I think it will be around 5 lakh crore rupees. The total outstanding was 14 lakh crore and if 1/3rd was sock'ed away as black - that is 4-5 lakh crore rupees. Note that the fiscal deficit of India is 5.32 lakh crore. So in essence this move may just wipe out the entire fiscal deficit for 2016!

This will allow GOI/RBI to lower interest rates., I am assuming that a 6-7% retail interest rate regime will be in offing., just a little ahead of the 5% retail inflation rate. With the economy set for 8-10% growth. That is your student loans will be not 12% or the home loans will be not 10%., but rather 10% and 8% respectively.

A mid-level IT-VITY couple with 24 lakh p.a total income can afford a 1 Cr. flat in Bengaluru!

vinod · Post by **vinod** » 19 Nov 2016 03:53

The prices are falling... can any of gurus guess how much of this exercise will end up causing a dreadful deflation and businesses to start failing?

Already workers are being sent to withdraw money rather than work. The RE guys may just stop construction and start firing workers enmasse. Other sectors, I can't see getting affected. But assuming many businesses would have hired thinking they can use the black to offset some expenses may fire the excess capacity. Where will these people go?

I'm assuming Modi will have to come up with major pumping into economy soon. Pretty sure it will happen in Jan, can it wait until that?

disha · Post by **disha** » 19 Nov 2016 04:04

Which businesses you think will start failing?

Are you saying that a RE deflation will cause deflation in India?

vnms · Post by **vnms** » 19 Nov 2016 05:16

It's simple. Really.

Avoid tax. But tax evasion is a crime.

Declare all income and claim as many deductions as legally possible. There are enough loop holes in the law to reduce the taxable amount. If you can take your friends out for dinner and claim business expense, so be it. Unfortunately, people do not want to pay even that. That is the issue most of us have.

It is binary. Either you are declaring all income or you are not. One is right, the other isn't

DavidD · Post by **DavidD** » 19 Nov 2016 05:26

vinod wrote:The prices are falling... can any of gurus guess how much of this exercise will end up causing a dreadful deflation and businesses to start failing?

Already workers are being sent to withdraw money rather than work. The RE guys may just stop construction and start firing workers enmasse. Other sectors, I can't see getting affected. But assuming many businesses would have hired thinking they can use the black to offset some expenses may fire the excess capacity. Where will these people go?

I'm assuming Modi will have to come up with major pumping into economy soon. Pretty sure it will happen in Jan, can it wait until that?

Depends on who you ask. This particular article suggests close to zero growth this quarter, recovering to 5.8% next fiscal year.

http://www.livemint.com/Politics/ixWKGG ... bit-C.html

Ambit Capital also says that there is a distinct possibility of GDP growth contracting in the third quarter of this fiscal due to demonetisation

New Delhi: The cash crunch arising out of demonetisation is expected to paralyse economic activity in the short-term, and the 2017-18 gross domestic product (GDP) growth is likely to be 5.8%, says a report.

According to Ambit Capital, the GDP growth is likely to decelerate from 6.4% in the first half of this fiscal to 0.5% in the second half with a distinct possibility of GDP growth contracting in the third quarter of this fiscal.

From October-December 2016 until October-December 2019, Ambit Capital expects a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40% share in GDP) become unviable and cede market share to their organized sector counterparts. “We expect this dynamic to crimp GDP growth in India in FY18 as well and hence we cut our FY18 GDP growth estimate to 5.8% (from 7.3%),” the report said.

The demonetization for Rs 500 and Rs1000 notes is expected to disrupt economic activity in the short term, especially those segments where cash-based transactions are the norm like real estate, unsecured lending, real estate construction services and building materials. “Whilst in the near-term, we expect these businesses to suffer, over the next couple of years the strongest players in these sectors will gain market share as competition from unscrupulous/unorganized players reduces,” the report added.

The report said that in the light of negative effects of the recent steps taken by the NDA government and with just four months to go before this fiscal year comes to a close, Ambit Capital scraped its current March 2017 Sensex target of 29,500 and has set a March 2018 Sensex target of 29,000. “We also scrap our March 2017 Sensex target of 29,500 and unveil our March 2018 Sensex target of 29,000,” it added.

Regarding the Reserve Bank of India’s (RBI) monetary policy stance, the report said that the dampening of economic activity is likely to lead to an accomodative policy stance. “As a response to the slowing GDP growth, we expect the RBI to consider rate cuts of 25-50 bps over 2HFY17 itself,” the report said.

The monetary policy committee (MPC) headed by RBI governor Urjit Patel last month cut benchmark interest rates by 0.25% to 6.25%. The next RBI policy review is on 7 December.

Rishirishi · Post by **Rishirishi** » 19 Nov 2016 06:09

This must be one of the greatest political masterstrokes of the history. Modi killed black economy, made people suffer and not only got away with it, but is about to become a cult figure. People seem to take pride in the fact that they have to stand in the line. Bank emplyoees are working 13 to 14 hours every day, non stop with pride.

And Modi is in no mood to stop. Now he will go after the benami properties and finally he will turn towards oversease wealth.

And I do not think it Modi will stop with that. This is only the first step. He has made it clear and knows all to well, that it will all be in vain, unless we india goes truly cashless. Personally I think India should only have RS 50 as the largest denomination. That will make cash so cumbersome that all will shift over to cashless.

shiv · Post by **shiv** » 19 Nov 2016 06:28

I am also of the opinion that black money comes in one shade, jet black. There are no "shades". That said there is a general "belief" that one's own transgressions are a lesser crime than that of the local blackmarketwallah or corporator.

SHQ has a reliable and good friend who suddenly confesses to possessing a horde of cash of unstated amount and is suddenly looking to dispose it off - even asking SHQ to help. I was unimpressed by SHQs status of being underinformed about how far this scheme can go - which is not very far given that one waits in a queue to get a max of Rs 2000. Of course SHQ consulted me about this and I told her in no uncertain terms that there is one dead simple choice. Simply deposit the whole amount in the bank. The banks will allow deposits of ANY value into one's own account. You can deposit 6000 crores in cash if you want. This latter fact seems to have escaped a lot of people. Somehow there appear to be people who imagine that "They will be caught".

Well yes, they will be declaring money and this is where the "less black" and "more black" picture is applicable. If you deposit cash and can show it to have been earned and accounted for as income over the years you don't have to pay any tax. Or else you have to pay tax - and some penalties. The latter means that the size of your stash becomes smaller when you declare it because of tax and penalties. Avoiding that is a crime and the philosophical argument that taxes are unjust is a load of crock. All laws can be discarded as unjust and I can fill BRF with arguments to support that contention. A crime is a crime is a crime. One cannot wear a lesser crime as a badge of rank over someone who has committed a bigger crime.

The fact that we all commit minor tax transgressions is not an excuse for increasing their size and frequency. All tax systems allow for some leakage. I go for a picnic with a group and we have a game of housie/tombola and I win Rs 1000. I am not going to declare this as income. I think the taxman cannot do much about minor leakages up to 10% but would like to see 90% compliance. I don't know if statistics exist about this.

Suraj · Post by **Suraj** » 19 Nov 2016 06:34

GDP growth data is a total wild card, and a single quarter figure tells very little. It should be remembered that none of this black economy was ever officially reported before . Approx $75 billion in cash has been deposited .

That doesn't mean the value of unreported economic output was just $75B . It smich more . 75B was just the people who had cash in their hands depositing it. Economic output is far greater . Over the past year upto Nov 8, let's say A deposited Rs.1000 . He got it in a transaction with B, who in turn got it from C and so on . Therefore cumulative output far exceeds the final depositors' tally .

However there will be a reporting lag as all this activity is recognized as white for the first time; there will be inorganic growth data in the GDP numbers for the next several quarters as this economic activity is added .

Karthik S · Post by **Karthik S** » 19 Nov 2016 07:01

As economists like S Gurumurthy suggested, all this money will triple or quadruple in few years, adding to the GDP. Therefore, just using this money, we can overtake UK and France in terms of nominal GDP in next few years.

chanakyaa · Post by **chanakyaa** » 19 Nov 2016 07:27

..Approx $75 billion in cash has been deposited...

If you add banking leverage on top, the money available to be lent is much higher. Should be good, assuming loans are not made to Mallyas of the world..

Nitesh · Post by **Nitesh** » 19 Nov 2016 07:38

I think in 1 week time, currency exchange should stop. They should come up with plan to open jan dhan account counter, and ask people to open up an account and get money deposited, and one POS to swap that card and take the hard cash back. So the crap about what happens to those who don't have bank accounts gets taken care off. Those who say dont have aadhar, should be helped with it

g.sarkar · Post by **g.sarkar** » 19 Nov 2016 08:04

http://www.firstpost.com/business/econo ... 12254.html
Demonetisation: What's with the fuss, let the Modi govt crackdown on black money
Accept it. We are a nation of intolerance. We are a country that not only treasures thousand year old mythology, but want everything to happen at the wink of an eye, probably using mythological powers — abracadabra, isn't it? No sooner than on 8 November, when Prime Minister Narendra Modi announced the abolition of Rs 500 and Rs 1,000 denomination currency notes as legal tenders in a flash to rein in the menace called black money, the cynics caught unaware worked overtime to decry the step.
And look who is in the lead? Congress, Trinamool Congress, Aam Aadmi Party, and even Shiv Sena. Aren't these the same parties that were, until the announcement, adopted antics and vocabulary ranging from weird to the trivial to mock PM Modi's 'inaction' against black money? What did they expect the government to do? Inform one and all, give all hoarders, including political ones enough time so that they can stash their dirty cash away and then announce the ban? And what of this shedding of crocodile tears on the streets for the common man? Instead of attacking the government by masquerading their skills in tomfoolery, these political entertainers should have backed the Centre for its bold step and suggested ways to mitigate the obvious crisis fast.
Even the government is not denying that the general population is facing hardships. PM Modi did express his apology seeking cooperation from the citizens in the country's great war against black money. Critics who jump in to say a sorry doesn't make the wrong, right. But what is wrong here? It is a collective decision of a government that was voted to power by the people of this great nation who want something decisive and positive to happen. If the lull of 2004-14 wasn't helping, what's the harm in going for a big bang?
"Economists say the move will be beneficial in the long-run as it is targeted at weeding out tax evasion and corruption. Unaccounted money makes up nearly a fourth of the economy. In the short-term though, the biggest crackdown on money laundering in India's history is having some unusual side-effects," said a piece in The Economic Times.
There are logistical problems that have come up during the implementation of this massive financial transformation, but isn't the government working on a war footing to get everything back to normal? People in the government are humans, give them a break. Does the house that hosts a wedding turn normal overnight? Think, think.
Yes, there are still serpentine queues outside ATMs, maddening crowd at bank branches and some lives that have been unfortunately lost.
The Reserve Bank of India in one its directives said that "it has been decided that banks shall waive levy of ATM charges for all transactions (inclusive of both financial and non-financial transactions) by savings bank customers done at their own banks’ ATMs as well as at other banks’ ATMs, irrespective of the number of transactions during the month" until 30 December 2016. Isn't this helpful?
On 17 November, the central bank reiterated that there is sufficient cash in the country.
"The Reserve Bank of India has once again clarified today that there is sufficient supply of notes consequent upon increased production which started nearly two months ago. Members of public are requested not to panic or hoard currency notes," a RBI statement said.
......

Gautam

Manish_Sharma · Post by **Manish_Sharma** » 19 Nov 2016 08:05

Modi : Please give me 50 days

BM holders : Please just give us 7 days

g.sarkar · Post by **g.sarkar** » 19 Nov 2016 08:17

http://www.firstpost.com/politics/demon ... 11644.html
Demonetisation: Why Chandrababu Naidu is the only non-BJP CM to hail move
Andhra Pradesh chief minister and Telugu Desam Party (TDP) supremo Chandrababu Naidu, an important ally for the BJP in the south, is known for his penchant to look for ways to maximise his political clout.
Following Prime Minister Narendra Modi’s announcement of demonetisation of Rs 500 and Rs 1,000 notes from 8 November, Naidu has been on a gloat mission — he had written to Modi barely a week earlier demanding a ban on these denominations in an effort to curb black money.
As the Opposition gears up for a strident battle over the issue, Naidu too is gearing up — not to fight, but to defend the idea. Naidu has geared his administration to face the challenge posed by the cash crunch, particularly in Andhra, a state that serves as a junction to three states with the Bay of Bengal on one side.
A helping hand
As is done during times of natural calamities, the AP government set up a help desk at Vijayawada to help citizens sort out difficulties in exchanging demonetised notes at banks and post offices. A call centre and a toll free number (1800-599-1111) too was made available for information. A notification issued by Chief Secretary SP Tucker also put the state government administration on standby, cancelling all leave for cadres of essential services including the police and treasury departments, in anticipation of enormous confusion and rumour-mongering. “We put a five-member team on a 24/7 basis to answer calls and also guide callers to the nearest banks and ATMs, and also advised them to be prepared for a long wait,” said a spokesperson in the chief secretary’s office. Besides organising IT-based feedback services from all 10 districts, Naidu also held teleconferences with district collectors on a daily basis to address the crisis. The public relations attempt worked well. Although Telugu news channels beamed the travails of the common man waiting at banks and ATMs through the day, they also telecast Naidu’s video conferences showcasing him as a “working chief minister”. A past master in crowd management, Naidu directed officials to provide shelter, drinking water and also butter milk for the milling crowds at banks and post offices. His office also issued advisories on setting up counters for women, the elderly and handicapped to banks.
“In fact, Naidu’s office knew about the arrival of truckloads of new currencies ahead of us,” said a banker after the CMO advised them on where to send the fresh currency in view of the huge crowds and need for marketing agricultural produce.
Officials were also directed to source small change – Rs 50 and Rs 100 notes — from wherever possible, including hundis at places of worships and also toll gates, milk vendors etc to meet the shortfall of smaller denomination notes until the RBI delivered the new notes.
Naidu also wrote to the Ministry of Finance to focus on the ways and means to address the problems faced by people in the wake of demonetisation, particularly the hardest-hit communities of street vendors, transporters and petty traders.
Guidelines for the Centre
Naidu set the ball rolling for the Union government and Ministry of Finance by issuing guidelines and advisories to state administration and bankers within the state on what to do and how to tide over the crisis. All late payments for power, water, property taxes, excise, toll gates, school fees etc were deferred and advisories issued to provide non-stop services in spite of non-payments as per schedule. “It appeared as if Naidu was in charge rather than the bankers and the RBI at least in Andhra Pradesh,” said a senior official at the stock market at Visakhapatnam.
The Chief Minister's Office issued press releases daily on what he wanted banks and the RBI to do, without bothering with whether he had the authority to advise or direct them. The CMO and the chief minister often advised banks to introduce multi-purpose counters instead of separate counters for withdrawals and deposits. He also wrote to the RBI to send more currency to Visakhapatnam, Tirupati and also Vijayawada in view of the ongoing infrastructure projects and taking into account the significance of the sea port of Visakhapatnam and religious tourism in Tirupati. “We don’t need Rs 2,000 notes, but only Rs 100 notes,” he said, in a request to RBI. The AP government also threatened traders with the PD Act (Preventive Detention Act) if they resorted to hoarding or denial of essential commodities.
.......

Gautam

g.sarkar · Post by **g.sarkar** » 19 Nov 2016 08:36

http://www.forbes.com/sites/timworstall ... 9411592edf
India's Rs 500 And 1,000 Demonetization Is Lowering Interest Rates And Also Inflation
An interesting side effect here of India’s demonetization plan. As we know, the Rs 500 and Rs 1,000 notes have been cancelled as legal tender, to be replaced by other notes and designs. There are limits on how much cash can be changed for cash (Rs 4,000, soon to fall to 2,000) but no limits upon what can be deposited in bank accounts. Of course, large deposits are going to be subject to tax scrutiny, rather the point of the exercise in fact. But what is interesting is that the flood of cash being deposited is such that it’s actually bringing interest rates down. This is an interesting and welcome macroeconomic effect:
State Bank of India (SBI) reduced rates on deposits from one year to 455 days to 6.90%, down 15 basis points, while keeping the 7% rate for deposits between 211 days to one year unchanged. That may not be great news for those putting their money in banks but lending rates are likely to follow suit in a few weeks, possibly giving sluggish credit expansion a much-needed boost and shoring up growth. A basis point is 0.01
percentage point.
“All rates will fall,” said SBI Chairman Arundhati Bhattacharya. “The bank has seen huge inflow of deposits but demand for credit has slowed down. Therefore, lending rates too will fall but after a gap.”
Agreed, that’s not a large drop but it all helps. Lower interest rates should, all else being equal, produce a stimulus to the economy.
There’s also another interesting effect here, the money supply will be smaller as well. That of course is contractionary, just as that interest rate change is expansionary. But India does have inflation and as Milton Friedman told us, inflation is always and everywhere a monetary phenomenon:
Of the Rs 14 lakh crore worth of Rs 500 and Rs 1,000 notes that have been scrapped, roughly Rs 3 lakh crore are not likely to be exchanged for new notes ever. This entire extinguished or disappeared black money will be profit to the RBI, and will be transferred to the central government as dividend. That does of course depend upon that estimation being correct. One lakh crore is, to those of us using the western notation system, one trillion, thus the current estimation is that 3 trillion rupees will be withdrawn from circulation. The total cash in circulation in the Indian economy is some 18 trillion Rs, meaning that the demonetization will reduce that money supply, the base money supply, by 16 or 17 % or so. Dependent upon that estimate being correct of course.
We don’t have a big enough evidence base–not enough places have done this often enough–for us to know how much this will reduce inflation by but we are sure of the sign of this action itself. Reducing the base money supply will lower inflation. Of course, it’s possible that the shock to the economy will lead to a reduction in production and the total effect will depend upon the interaction. If the destabilization reduces production by more than that fall in the money supply then we’ll have more, not less, inflation. But it would be extraordinary to believe that production is going to fall that much.
.........

Gautam

Pratyush · Post by **Pratyush** » 19 Nov 2016 09:55

On the basis of deposits people of started receiving Income Tax notices which to me re-presents a net benefit of the scheme.

achoudhury · Post by **achoudhury** » 19 Nov 2016 10:02

Has there been ever such a logistical exercise taken in human history as India's Demonetisation. This will be stuff of legends 20 years down the line and mother of a case study for logistics and political economy

darshan · Post by **darshan** » 19 Nov 2016 10:02

Yep, few classmates working in IT had been hinting about their press working over time. However, they also played it as tracing the money and collecting intelligence on it as being the primary objective than to harass anyone. The idea seems to be about gov't wanting to know as much of the system as possible. The final objectives could range from terrorism to next step of catching big fish to go after other forms of BM whether be overseas, RE, etc. All that starts with having some leverage that can be used to put up further pressure.

vijayk · Post by **vijayk** » 19 Nov 2016 10:04

When are they releasing 500?

I hope they ease this problem of 500s and ability to reach all over India even in rural areas

Sachin · Post by **Sachin** » 19 Nov 2016 10:05

When the media is going the usual way of only highlighting the pit falls in the "demonitisation" drive, looks like the results are slowly coming out. Perhaps social media now needs to be used to spread the message.
Fake note kingpin held
The arrest of FICN kingpin Tahir Sheikh has led them to believe that fake notes with crores in street value have already been destroyed in Bangladesh by FICN dealers.
Currency scammers face muted I-T raids
The officials are being extra cautious, though. The raids began a couple of days after the government scrapped Rs 500 and Rs 1,000 notes, and a full week on, they aren’t disclosing names. On Friday, an operation in Yelahanka yielded Rs 16 crore in unaccounted cash. The income tax department seized cash, gold and incriminating documents from a financier, an official said.

Paul · Post by **Paul** » 19 Nov 2016 10:09

Interview on radio from Mysore printing press: their focus is on lower denomination notes first, then bring 500 rupee notes into market.

Rahul M · Post by **Rahul M** » 19 Nov 2016 10:19

Paul wrote:Interview on radio from Mysore printing press: their focus is on lower denomination notes first, then bring 500 rupee notes into market.

unless it is for a technical reason that's a patently stupid move.

vina · Post by **vina** » 19 Nov 2016 10:36

nandakumar wrote: Regarding workers being paid by cheque or through electronic transfer by small and medium enterprises the problem is this. Most of them have not registered their workers for PF or ESI. Now, if they start making bank payments the PF and ESI inspectors would be after them. They can't say all these workers were recruited only last month. Now failure to make PF contributions is not a compoundable offence. Imprisonment is the fallout.

EXACTLY . There are abuses and more abuses built into the parallel cash system . There is a very good article in today's Hindu on the Tiruppur hosiery belt , a part of which is "parallel" via the cash system . The turnover is a whopping Rs 22,000 crores. ALL in cash. The workers there dont contribute to ESI (they dont want to, they want the cash, but want free health care from the govt all the same) and the owners dont pay ESI benefits and increase their margin.

Also, in the plantation sector, the wages are paid in CASH. Arun Jaitley said yesterday that there is NO reason why those workers shouldnt have bank accounts and that this kind of step is transformative. To help out the sector , what the Assam and Bengal govts have done is that they have now stepped up to take the wage cash in bulk from the central govt and are going to use the magistrates and govt machinery to distribute the cash to the workers. I think Kerala govts and TN govts and KA govts should also do the same if the plantation sector (all of them have large plantation sectors) in those states too pay in cash . As a follow up, there should be a massive drive within after Dec to open bank accounts for the plantation sector and huge clusters like Tiruppur and others in North (Jalandhar/Delhi NCR /Bhiwandi/Mumbai/ Pune etc) where wages are paid in cash and ram through a law saying that ALL wages must be paid electronically only directly to the accounts. The construction and restaurant sectors must also be included in this.

Also, for most cash oriented businesses , it must be enforced that except for the bare minimum for sundry accounts (like say Rs 1000 or so for a restaurant), all cash must be deposited into a bank . Do this after the UP elections if need be to make it more politically palatable / less controversial. Once you take cash out of the system like that, things will automatically go electronic .

This way, one can police and make sure that ESI and other benefits are paid, the minimum wage laws are enforced strictly, black money cut down and tax collection increases, along with the GST coming into force.

States innovate to stave off labor unrest

Bengal, Assam tell authorities to ensure timely payment despite demonetisation and currency shortage.
With the demonetisation shock severely affecting disbursal of salary to low-wage workers as they are paid mostly in cash, States such as West Bengal and Assam have evolved a novel plan aimed at preventing any major labour unrest.
Noting that the norms following demonetisation have not capped the amount that government agencies can withdraw from a bank, these States have asked employers in labour-intensive sectors such as tea plantations to deposit workers’ wages in a designated account, sources in the Union Government told The Hindu.
Timely payments
As per the strategy, district collectors/district magistrates, who have been asked to implement the new exercise, will ensure timely payments to the workers, they added. The plantation industry is among the most labour-intensive sectors in the country as it employs about 33 lakh workers.
The Centre now wants other States to come out with similar proactive and innovative methods to ensure that the demonetisation policy goes ahead without much strife.

Warp and Woof of demonitisation

Tiruppur’s layered system

The garment industry in Tiruppur is made of three types of units: exporters, merchant exporters who receive subcontract work from exporters, and domestic suppliers.

Exports — a Rs.22,000-crore turnover business — are primarily cashless. ...........

It’s domestic suppliers who are facing the demonetisation heat the most. They include micro units and sections that are partly, largely or fully run on cash.

On the other hand, the unorganised units solely run on cash are estimated to have a turnover of Rs.15,000 crore.

For the exporters, this is a ‘parallel economy’ with a cumulative Rs.22,000-crore turnover. “This supply chain runs on cash, weeding out taxes. If this economy is integrated, then there will be a level playing field for all,” says Vijaya Kumar.
............................
The garment industry has a high labour demand. Attrition rate is 50 per cent, and the average labour shortage is 35 per cent. There is a general resistance both among labourers and domestic units to crediting wages through banks. Wage account entails Employees’ State Insurance and Provident Fund contribution from both ends. Labourers, with marginal wages, are not enthused at the prospect of deduction, and employers are equally unwilling to contribute.

Demonetisation has struck at the heart of this cash mode of payment of wages. Hence, ever since demonetisation, a primarily contractual workforce is migrating from smaller domestic units to export units, which credit salary through wage accounts.

Sachin · Post by **Sachin** » 19 Nov 2016 10:40

The CPI leader from Kerala Binoy Vishwam has filed an appeal in Supreme Court asking to invalidate the new currency notes. His brief is based on Article 343 of the Indian Constitution. His opinion is that the use of Devanagari script in the notes violates the existing laws. And because of that he wants the new notes to be pulled back. Does any one which laws actually govern the currency printing and languages seen on the currency notes?

Schmidt · Post by **Schmidt** » 19 Nov 2016 10:42

RajeshG wrote:
Primus wrote: There are NO shades of gray in corruption or black money. You can't pardon a thief who breaks into your house and simply steals 100Rs as opposed to the one who steals your wife's jewelry.
Primusji, thats the disconnect i was mentioning. I dont think a lot of people are thinking in this manner. For eg in the US I have friends who own businesses as well. When we go out to have dinner etc and they pay using their business card they show that as a "business expense". You think they are morally wrong ? none of us think so. but i can see that a lot of people on this thread would take probably consider that as "black" money. thats what i mean by a disconnect. we hold different moral compasses.

-------------------------------------------------------------
^^^^^^^
This depends on each country's tax codes

For eg in Singapore you need to clearly mention whom you have taken out for lunch/dinner etc , in order to account as a business expense

Also bringing in morality in every instance is a moot point

What is relevant is if it is legal or not

Every business person will and should use legitimate tax planning tools to minimize tax burden , in fact you can argue that not doing so goes against fiduciary their duty towards their shareholders and investors

Bart S · Post by **Bart S** » 19 Nov 2016 10:55

X-Posting since it is relevant here:

For the first time in India, the rich beg the poor to help them

Amrit Dhillon
Published: November 18, 2016 - 2:07PM

Delhi: Driver Rahul Sharma, 25, remembers the exact day when his employer turned from a wolf into a lamb. It was November 9 when his employer called him beta - Hindi for "dear" - for the first time. The maid was asked to give him a cup of tea, for the first time.

"I was shocked at his sudden niceness. It went on for two days," said Sharma. For the past three years, his New Delhi-based employer has been abusive, bad-tempered, and imperious, often demanding that he turn up for work at 6am after finishing work at midnight.

"He didn't even bother to remember my name. When he wanted to summon me, he'd call out 'driver!'," Sharma said.

"On the third day, the penny dropped. He asked me to deposit 250,000 rupees ($4900) in my bank account on his behalf so that he could get rid of his black money."

Maids, drivers, nannies, and cooks in India are experiencing unusual politeness from their employers. Beyond the work they do every day, they suddenly have another use – to launder the undeclared cash which the rich have been hoarding in steel wardrobes, under the mattress and in under-bed storage.

This sudden outbreak of niceness is the outcome of India's current crackdown on "black money" - income in the form of cash that has not been declared to the tax authorities. On November 8, the day before Sharma's employer became a lamb, Indian Prime Minister Narendra Modi scrapped 500 and 1000-rupee notes to root out corruption and force more Indians into the tax net.

In one fell swoop, the tens of millions of rupees that the rich kept at home in these denominations became worthless. If they deposit the money in the bank tax officials will pounce, imposing staggering penalties and taxes.

However until December 30, each Indian is allowed to deposit a smallish sum of 250,000 rupees in such defunct notes in their bank accounts without questions being asked. That is why the rich need the service of the poor.

Sharma and others like him have been implored by suddenly humble employers to deposit the amount in their accounts by the deadline - to be returned to their employers later.

"I refused him. I don't want to get into trouble later if someone asks me how I got this money when I'm only a driver," Sharma said.

Domestic staff and factory employees are going around with big grins, delighting in the panic and anxiety etched on the faces of the fat cats who never showed them any consideration, not to mention the delicious irony of being beseeched by their now squirming masters.

Modi's message in a recent speech - "see how I make the powerful suffer with you" - has resonated powerfully. "For once the rich are as troubled as we poor Indians are every day," said Akash Atwal, a driver with a New Delhi car rental firm.

In return for depositing the scrapped notes, domestic staff and others are being offered 10 to 25 per cent as commission. Some have accepted, happy to pocket an unexpected windfall; others, fearing trouble, have refused; and others have refused out of the principle that, if some big fish have been caught, leave them wriggling at the end of the line.

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"I'm an ordinary man and I'm suffering hardship too. I was in a long queue on Saturday. But it's worth it. The rich need to be punished for being greedy. I am savouring the moment," said a smiling Mohan Kishore, who sells fresh coconut water on a South Delhi street.

This story was found at: http://www.smh.com.au/world/for-the-fir ... srcuo.html