Currency Demonetisation and Future course of Indian Economy

pankajs · Post by **pankajs** » 28 Nov 2016 16:37

1. The windfall gain might prove tempting again sometime in the future.
2. The article in my prior post speaks of stoking inflation. This IMHO is wrong. The demonetization is deflationary (Lost BM money is equivalent to currency withdrawal by RBI) so adding back an equivalent/lesser quantity (via partial or full windfall gains transfer) will only counteract the deflation to the extent the windfall gain is used. Depending on how much is transferred and how much is pumped back via infra/other project and in what manner (One go or staggered) the impact will remain neutral to net deflationary.

Yagnasri · Post by **Yagnasri** » 28 Nov 2016 17:14

Just got some info - NCP got all its cash converted through Co-operative bank network it controls.

Nitesh · Post by **Nitesh** » 28 Nov 2016 17:19

But isn't cooperative banks have to show the KYC complied status and then only will get new currency/deposit to sponsor banks? I think this was the reason for the pawarful sahab to show the support, but this leak seems to have been plgged

vijayk · Post by **vijayk** » 28 Nov 2016 17:25

No bank in Hyderabad/Secunderabad have any cash.

durairaaj · Post by **durairaaj** » 28 Nov 2016 17:47

Somehow the government has screwed up.
Out of 12lakh crore only 6+ got accounted so far. Assuming,all of the rest of the money is potentially black we can claim that our cash to GDP ratio is pretty similar to other developing countries.
Already around 1.5 lakh crore is injected already through new 2000 rs and 500 rs and previously existing lower denomination is in action. If we assume both are in play and black money has not come out yet, there would not have been a cash crunch. But, it is not.
It looks like Part of this currency shortage is due to black hoarders sucked up the smaller denominations. Unless they bring in more 100s, it is not going to change.
They should have pushed digital economy in a massive scale before demonetizing. But hindsight is 20/20.

habal · Post by **habal** » 28 Nov 2016 17:48

RBI plan of drip feeding of cash into system has gone for a toss, because it didn't predict hoarding of small notes would take place.

basic problem here was bankers were far removed from the popular prevailing sentiment of insecurity which has always plagued the masses, and which forced them to hoard transact & hoard 500s in the first place. The RBI calculated for the greed quotient exhibited by management quotas, bribes, hoarders, traders etc but not this behaviour by mango public. They (RBI) thought that that as soon as notes were introduced, people would use them (100s) to transact in the market and people would hoard the higher denomination 2000 notes.

But infact opposite has happened.

last week no significant tranche of cash from RBI was released to any bank AFAIK.

habal · Post by **habal** » 28 Nov 2016 17:54

Yagnasri wrote:Just got some info - NCP got all its cash converted through Co-operative bank network it controls.

only sugarcane cooperatives and milk cooperatives will get new notes by RBI to pay the farmers, dairy farmers. So NCP claiming that all its cash got converted is a stretch because only other cooperatives that got new currency notes were district cooperatives, & urban cooperatives which already function as per RBI KYC norms and finacle CBS.

which means any entry and withdrawal of cash is logged in database.

Paul · Post by **Paul** » 28 Nov 2016 18:04

Yagnasri wrote:Just got some info - NCP got all its cash converted through Co-operative bank network it controls.

Please provide more details.

If RBI is not releasing new money to co op banks in Kerala, how come MH co op banks managed to
get new money.

The restriction is on all co op banks in the country AFAIK.

habal · Post by **habal** » 28 Nov 2016 18:16

RBI is releasing funds to coop banks in Gujarat through some special notification for payment of dairy farmers.

similar concessions can be made for sugarcane cooperatives also I suppose, so as to not impact procurement during season.

rajeshkathiriya · Post by **rajeshkathiriya** » 28 Nov 2016 18:21

In surat city I know one co-op bank issuing new notes
Their performance are far better than others, other bank branch take 200 people, while this bank issue token to 1000 people
This bank is already digitized

pankajs · Post by **pankajs** » 28 Nov 2016 18:26

After giving a fright to all BM Cash hoarders, GOI has launched a new scheme for undisclosed income

http://www.thehindubusinessline.com/eco ... 394332.ece

However, they would have to fork out a tax of 30 per cent and penalty of 10 per cent. A surcharge in the form of cess of 33 per cent will have to be paid on the tax. [30+10 = 40 x 1.33 = 53.2 i.e Left after tax/penalty/cess (100-53.2) = 46.8]

In addition to tax, surcharge and penalty, the declarant will have to deposit 25 per cent of undisclosed income in a deposit scheme to be notified by the Centre in consultation with the RBI. [Lockin for 25% of undisclosed income i.e Left with the hoarder after deposit= 21.8% of the declared income. That 25% will return to them after lockin expires. Rough calculation from someone who is not a expert in this area]

This amount is proposed to be utilised for programmes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood etc, so that there is justice and equality.

A 75 per cent tax and 10 per cent penalty in case Income Tax authorities detect undisclosed wealth deposited post demonetisation.

The current provisions of penalty on under-reporting of income at 50 per cent of the tax, and misreporting (200 per cent of tax) will remain and no changes are being made to them.

Manish_Sharma · Post by **Manish_Sharma** » 28 Nov 2016 18:30

Paging Chetak jee,

Any update on your previous post where the figure stood on November 18th :
Deposits : 5 lakh crore +
Withdrawls : 1,01 lakh crore +
Changed : 50,000 crore +

Would be great if you can provide an update upto today.

Manish_Sharma · Post by **Manish_Sharma** » 28 Nov 2016 19:19

Some channels are reporting that now a new declaration policy is being brought that if a person declares an amount then 50% will be penalty, and 25% they'll get back immediately and rest of 25% will be given back after 4 years without any interest.

Why give another chance? Now anyway BM hoarders are trapped and they'll be forced to burn or dump there money.

Sachin · Post by **Sachin** » 28 Nov 2016 19:30

vijayk wrote:No bank in Hyderabad/Secunderabad have any cash.

durairaaj wrote:It looks like Part of this currency shortage is due to black hoarders sucked up the smaller denominations. Unless they bring in more 100s, it is not going to change.

habal wrote:RBI plan of drip feeding of cash into system has gone for a toss, because it didn't predict hoarding of small notes would take place.

So is this becoming a A Bridge Too Far moment for Modi & Co??

There was also another report which mentioned about each state to form a committee to help addressing the demonitisation issues. So looks like GoI is now reaching to the states to help them out. And I don't know how much of a help can come from KL & WB etc. And December 1st (salary time..) is fast approaching. That would be the time when most of the folks would pull out some good amount of cash.

SHQ was mentioning that in her bank, they are have now set an "unofficial limit" that withdrawal (even through cheques) can only be for Rs.10,000. They got around 5lakh from the chest today, 2 lakhs were in 500s while the rest were in 2000s.

srin · Post by **srin** » 28 Nov 2016 19:34

Fly in the ointment is the judiciary, saar. They may declare the demonetisation illegal, give a stay and whatnot. So, better if some of the individuals declare it themselves and make the effort easier.

yensoy · Post by **yensoy** » 28 Nov 2016 19:47

The biggest headwind facing demonetization
- is not black money holders, politicians, corrupt officers
- is not FICN (fake money)
- is not the monkeying around with tax laws
- is not the threat of a court-ordered reversal
- is not the opposition
- is not the RBI/GoI's presses
- is not the distribution channels for new notes
- is not the physical limits of banks and ATMs
- is not the limited reach of e-payments

It is the seizing of the system due to people sitting tight on their money. That will be a disaster which could kill all gains that have been made in the past few years. It's not just the "black" portion of the money which will stop circulating, it's also the white portion.

There is a popular and unfounded myth that Modi wants austerity. Austerity is the worst thing that can happen to us today.

habal · Post by **habal** » 28 Nov 2016 19:56

only way to release all this cash is to cut income tax to zero and announce tax holiday for 2-3 months. This may again stimulate consumption.

durairaaj · Post by **durairaaj** » 28 Nov 2016 19:57

^Thats why I keep telling the interest rate on existing loans and new loans has to be reduced, But the RBI is not forcing it, so far. Perhaps they need these extra income to pay for the unused principal that is now saddled on to the Bank's books.
The banks can't even increase the loan disbursement, because there is no currency to give out.
We are in a bind. Unless we get huge amount of lower denomination in 10s , 20s and 100s, we can't force the public to part away its currency store. If we keep giving out only 500s it will only leak to black hoarders.10s and 20s will severely disturb anyone willing to exchange for older notes.

yensoy · Post by **yensoy** » 28 Nov 2016 20:06

habal wrote:only way to release all this cash is to cut income tax to zero and announce tax holiday for 2-3 months. This may again stimulate consumption.

Among 2.86% of the Indian population, yes. The problem is way deeper than that.

Cutting indirect taxes - central excise especially - for a 3 month window will work wonders because that will affect a lot of spending.

habal · Post by **habal** » 28 Nov 2016 20:12

tax holiday se mera matlab tha, all central taxes moratorium for 2 months.

Marten · Post by **Marten** » 28 Nov 2016 20:26

The solution to the logjam is to increase supply of lower denomination notes. How can anything else help? This number has not increased since the last eight years?

Bart S · Post by **Bart S** » 28 Nov 2016 20:27

Sachin wrote:
vijayk wrote:No bank in Hyderabad/Secunderabad have any cash.

durairaaj wrote:It looks like Part of this currency shortage is due to black hoarders sucked up the smaller denominations. Unless they bring in more 100s, it is not going to change.

habal wrote:RBI plan of drip feeding of cash into system has gone for a toss, because it didn't predict hoarding of small notes would take place.
So is this becoming a A Bridge Too Far moment for Modi & Co??

There was also another report which mentioned about each state to form a committee to help addressing the demonitisation issues. So looks like GoI is now reaching to the states to help them out. And I don't know how much of a help can come from KL & WB etc. And December 1st (salary time..) is fast approaching. That would be the time when most of the folks would pull out some good amount of cash.

SHQ was mentioning that in her bank, they are have now set an "unofficial limit" that withdrawal (even through cheques) can only be for Rs.10,000. They got around 5lakh from the chest today, 2 lakhs were in 500s while the rest were in 2000s.

No need to panic. There is also a lot of rumor mongering going on from people who were hoping that the demonetization fails. Once the Rs 500 notes hit the system in quantities (should be within the next 2 weeks) the cash problems will be eased significantly. The problem at the moment is that its hard to 'break' a 2000, and that problem doesn't exist once new 500s are in circulation.

UlanBatori · Post by **UlanBatori** » 28 Nov 2016 20:28

Sachin wrote:
vijayk wrote:No bank in Hyderabad/Secunderabad have any cash.

durairaaj wrote:It looks like Part of this currency shortage is due to black hoarders sucked up the smaller denominations. Unless they bring in more 100s, it is not going to change.

habal wrote:RBI plan of drip feeding of cash into system has gone for a toss, because it didn't predict hoarding of small notes would take place.
So is this becoming a A Bridge Too Far moment for Modi & Co??

Wonder why Modi does not go for the Ultimate Innovative Solution and hire Pakistan's Mint to crank out the 100-rupee notes in a hurry.

Bart S · Post by **Bart S** » 28 Nov 2016 20:32

habal wrote:tax holiday se mera matlab tha, all central taxes moratorium for 2 months.

This only works if the benefits are passed on to the consumers. Significant portion of white goods, and even FMCG items would have been manufactured and distributed in the last 6 months or so and already taxed. So it's effect would perhaps be limited. Even if the government gives a retrospective rebate, the shops are only going to go by the printed MRP in most cases.

shiv · Post by **shiv** » 28 Nov 2016 20:36

In the last 20 days since demonetization I have managed to exchange 3 x Rs 2000 notes (Rs 6000) for purchases - getting Rs 4200 in change as Rs 100 and 50 notes.

I don't find UPI/PayTM very useful yet. All my utility bills and a lot of other stuff was already e payments. My need for small notes is bus, auto, lady who irons clothes, street vegetable vendor

Someone has linked a great article/video above of how a mobile with SMS facility onlee (not a smartphone) can be used to send/receive payments - starting by dialling *99# Try it..

There are still people moving around with old notes hoping to pass them off - I am guessing many of these people will queue up in Banks soon to deposit

Suraj · Post by **Suraj** » 28 Nov 2016 20:44

vijayk wrote:No bank in Hyderabad/Secunderabad have any cash.

durairaaj wrote:It looks like Part of this currency shortage is due to black hoarders sucked up the smaller denominations. Unless they bring in more 100s, it is not going to change.

habal wrote:RBI plan of drip feeding of cash into system has gone for a toss, because it didn't predict hoarding of small notes would take place.

It's not the black marketers along hoarding small cash. It's the regular people themselves. Even habal himself stated he intend to save his 100s because the market is short of them. 'Saving cash' is the strangest thing one can do in these circumstances! You're talking about cash liquidity. That's not something government controls - YOU control it by spending cash. It's the people themselves who are control M0 velocity. Every person who refuses to spend cash makes it harder for another person to obtain cash. Conversely, despite human nature suggesting 'save it, don't spend it' when cash seems to be short, the best way to ensure access to cash is to spend it.

It's meaningless to demand that the government produce even more cash and basically negate demonetization as an act, because people won't overcome their default human nature, even when they're made aware that their actions harm the economy. People can go vote against the government for a cash liquidity problem if they want, but it should be remembered that they are at fault for it too when they save up cash.

There's hardly been any statement by anyone that amounts to entirely coming clean on black money. People self servingly argue 'can government afford the chaos ?' (read 'my BM is at risk. Maybe GoI will back down if people threaten chaos'). Others spend effort thinking of creative jugaad ways to convert, the general mindset being to glorify any number of small scale hacks that work around the demonetization exercise. And when it comes to cash, even when explained clearly how cash liquidity lies entirely in the consumers own hands, people simply say 'oh that's human nature. why doesn't GoI print more money ??' . Or 'this is all fine, but why doesn't GoI fix corruption, cashless economy etc' ? Why does no one say 'I used to transact in BM, but I'm going to use this moment to entirely clean up my business' ?

GoI cannot fix human nature for you. It hasn't been possible anywhere else either. The Japanese have been stuck in this sort of deflationary trap for decades. In such a spiral, people save because of a) perceived uncertainity and b) prices falling. So whatever new money government prints, people hoard that too. You can't make this work without the public at large making it work. GoI can do nothing - they'll just restore previous conditions by printing and printing more. People will just vote this government out and then 10 years later vote in some other guy to 'fix the new BM problem that was not fixed last time by that Modi guy'. Hah.

shyamal · Post by **shyamal** » 28 Nov 2016 20:47

I tried withdrawing cash on Friday. Cash got over before I reached the counter.
I tried again today but unfortunately there was no supply of cash to bank today.
I really hope I can get it tomorrow. I plan to queue at 9 am.
I mainly need the cash for salary to my domestic staff and driver on 1st.
Does anyone know when cash supply hits the banks? do they come before the bank working hours start?

KJo · Post by **KJo** » 28 Nov 2016 20:56

I talked to my dad, he advises against converting money for other people. Some friends asked me if I could take their 500s and 1000s to India and convert and bring back. K&N wanted me to take their stash (Rs 14k) and give to someone in India, so that should be okay.

manjgu · Post by **manjgu** » 28 Nov 2016 21:00

some traders were accepting old 500 and 1000 at intl trade fair in delhi..

manjgu · Post by **manjgu** » 28 Nov 2016 21:03

one thing i have not understood..people are saying BM is not kept as cash but as gold, property. But say i have BM and buy gold , the recepient of cash still has cash..same with property..i pay say 40L as BM for a property..the seller still keeps the 40L as cash? what am i missing here..?

Uttam · Post by **Uttam** » 28 Nov 2016 21:05

I have read each and every post on this thread. I have also talked many many people in India from 8 different states and from different economic class. And I am still not able to gauge how this demonetization is being received by majority of Indians. I think I have finally found a data point that may point towards its success.

BJP leads in Maharashtra municipal polls, setback for Congress, NCP

As per the trends available till late afternoon, BJP is ahead with its candidates winning 455 seats, its ally Shiv Sena with 187, NCP 231 and Congress 333.

In the last elections, BJP tally was 298, Sena 264, Congress 771 and NCP 916

Do you guys agree with this being a reliable metric? I know it is difficult to disassociate yourself from the events and provide opinion. But please to do that.

Thanks,
Uttam

manjgu · Post by **manjgu** » 28 Nov 2016 21:11

there is sufficient anecdotal evidence to suggest widespread support for the move. if the govt can improve on ATM's and on 31st Dec, they can show good results say 3L or 4L crore BM...it will be well taken. though elections do finally reflect public mood om demonitisation but that is more accurately judged by Lok Sabha elections rather the State elections IMHO.

Uttam · Post by **Uttam** » 28 Nov 2016 21:14

manjgu wrote:there is sufficient anecdotal evidence to suggest widespread support for the move. if the govt can improve on ATM's and on 31st Dec, they can show good results say 3L or 4L crore BM...it will be well taken. though elections do finally reflect public mood om demonitisation but that is more accurately judged by Lok Sabha elections rather the State elections IMHO.

Thanks. That makes a lot of sense. However, if the things were that bad, even the state and local election should have shown some effect. Here, BJP seems doing quiet well.

manjgu · Post by **manjgu** » 28 Nov 2016 21:22

a) even on tv channels which are usually hostile to BJP..their fishing expeditions for disgruntled citizens didnt net a good catch..people generally have welcomed the move..majority see it as a attack on rich people which satisfies them more than the inconvenience. b) on the implementation aspect..i would like to know what has been implemented properly in this counrty in 70 years of congress rule !! congress talking bad policy, bad implementation is like a whore talking about virginity

arvin · Post by **arvin** » 28 Nov 2016 21:26

Did my share of maintaining liquidity in market by spending 2 mangalyaan in commercial street this weekend.

Wallet kind of looked empty after that with few 10s and a loner 100 and few change and debit card.
Was relieved on disposing 2K off. I am sure people will think 2000 times before hoarding this one.
Ride back home paid thru ola money.

My spending pattern for the week is:
Rs 10 : Newspaper on weekends.
Rs 50 : Street food like momos, pani puri etc.
Rs 100 : Laundry or small purchase of vegetables in which I get rs10-20 back as change.

For everything else digital money/sodexo is used. Nandini milk is thru coupons.
In the last 20 days, I never felt any inconveinence and I feel this would be the norm going forward.

habal · Post by **habal** » 28 Nov 2016 21:28

Right now I have [100X100], [100x50] & [100x10] gaddi of notes each. I am not doing anything drastic to spend it. just normal stuff.

Usually order once-a-week McChicken clone combo box from a grill nearby but that costs me 450-500. I used to never think twice about it, but now I hesitate to give out 5x100.

Day before yesterday I got 2 kgs of sea fish for 600 [no reduction in rates there] and 2 kgs of sardine fish [for my cats and for myself] for 80/kg. But none of these were fresh. It was adultrated with some kind of preservative that is commonly used to prevent visible signs of fish getting stale. Now this was probably because no fresh fish is coming in the market. The folks who go out to sea haven't been able to sell their produce and thus have stopped going it seems.

as I was saying, this ban on 500 hurts the non-veggies more than it hurts the veggies. Because for anything non-veg (raw or prepared/fish or meat) you need to be prepared to spend atleast 350-500 each time you go out to buy it.

500 is available, but in very short supply. I haven't got hold of new 500 notes yet.

uddu · Post by **uddu** » 28 Nov 2016 21:32

According to the latest tally obtained by Firstpost correspondent, BJP has managed to maintain its lead by bagging 851 seats, while Shiv Sena won 514 seats. Congress has won 643 seats, while NCP secured 638 seats. MNS has logged victory at 16 seats and CPM has won 12 seats. BSP has claimed 9 seats, Others have won on 708 seats.

Result on 3510 seats have been declared so far.

http://www.firstpost.com/politics/mahar ... 28352.html

ShauryaT · Post by **ShauryaT** » 28 Nov 2016 21:34

Nitesh wrote:But isn't cooperative banks have to show the KYC complied status and then only will get new currency/deposit to sponsor banks? I think this was the reason for the pawarful sahab to show the support, but this leak seems to have been plgged

Most co-op banks are in rural areas, clientele are dominantly agricultural. The income for them is tax free. A "farmer" deposits Rs. 10 lacs, says never trusted banks earlier but here is my accumulated farm income. What is IT officer going to do? Squat.

ShauryaT · Post by **ShauryaT** » 28 Nov 2016 21:38

habal wrote:only way to release all this cash is to cut income tax to zero and announce tax holiday for 2-3 months. This may again stimulate consumption.

Better yet, announce that any BM "invested" to create employment will attract no/minimun tax/penalty and more important NO harassment. Win-Win for Modi and his support base and more importantly for India.

arvin · Post by **arvin** » 28 Nov 2016 21:40

^^^We order fish online and it didnt have any problem anytime since last 3 weeks.