Currency Demonetisation and Future course of Indian Economy

[NRao]

viewtopic.php?f=2&t=7280&start=3600#p2082951

Must watch

Very, very true. Must watch.

Thanks

[Deans]

1. Far too much money has already some back. As posted earlier, an estimate for 3.79 lac crore in BM was a credible estimate and it was believed most of it would not come back. Now it appears almost all of it would. If the amount not coming back is anything under 100,000 cr. either BM holders have defeated the system, or the amount of BM held in cash has been hopelessly overestimated. The conventional means of laundering that we have discussed here (which my banker / economist friends agree) like using dormant JDY accounts. salary advances/ loans etc would not account for more than 50,000 cr (net, after people get their cut). Of course, increased deposits mean increased ability to tax unreported income, but given GOI's flip flops I am becoming sceptical of that too. Some of the proposals to tax may not withstand legal challenges.

What is the basis of this theory? Only about 33,000 crores was exchanged over the counter and Jan Dhan accounts saw an influx of ~60,000 Crores. Both these amounts are within reason.

We will find the truth soon enough, but I think majority of white money has already made its way back to the deposits/exchanges and we will see that a large amount be 'extinguished'. We will find out in a few months.

Sudeep Ji, I think we make the same points. I'm saying a max of 50,000 cr (about 15% of the estimated BM held in cash) would have been laundered
by the various means the media have been highlighting. I've posted earlier that JDY misuse will account for a max of 5000 cr. Assuming a third of the
notes exchanged were by `mules' for BM holders, that's another 13,000 cr (the total exchanged was about 40,000 cr).
Advance salaries in cash would be about 5000 cr. Conversion into gold and forex (at a 30% premium) would be max 15,000 cr.
Hence the point in my earlier post was that the remaining 350,000 crore odd hoard of BM should either not come back, or be caught and taxed once deposited which was probably GOI's assumption too.

[Deans]

1. Far too much money has already some back. As posted earlier, an estimate for 3.79 lac crore in BM was a credible estimate and it was believed most of it would not come back. Now it appears almost all of it would. If the amount not coming back is anything under 100,000 cr. either BM holders have defeated the system, or the amount of BM held in cash has been hopelessly overestimated.

The people are primarily the reason for this. Have you seen this thread and especially the politics threads ? People are hoarding cash *and* demanding that GoI print more cash. They're making the classic mistake of feeding a liquidity crunch with actions that worsen it. And the 'fix' ? Force GoI to print more, a lot of which gets also hoarded or goes right back into black economy.

Beyond a point this is irredeemable madness of crowds behavior. Of course they will self righteously blame the government and ask them to 'do something'. But the situation is primarily created by hoarding. Enabling the existing cash base to circulate better would address problems, but peoples' response to a cash crunch is to hoard the cash instead. There are some notable folks who are doing their bit to do the right thing, but it seems most don't/won't.

Suraj, I agree that people are, by and large, hoarding notes. However, my point is that not enough notes have been issued in the first place. If there is no `stock', there can't be a flow.
An additional point about the Rs 2000 note is that if it were not printed there would be no way to replenish the money stock in 50 days. The Rs 1000 note was introduced in 2001 and even with 4.5% p.a inflation , that is worth Rs 2000 today (or $ 30, which is not a very high amount for the critics to get worked up about).

[chetak]

The people are primarily the reason for this. Have you seen this thread and especially the politics threads ? People are hoarding cash *and* demanding that GoI print more cash. They're making the classic mistake of feeding a liquidity crunch with actions that worsen it. And the 'fix' ? Force GoI to print more, a lot of which gets also hoarded or goes right back into black economy.

Beyond a point this is irredeemable madness of crowds behavior. Of course they will self righteously blame the government and ask them to 'do something'. But the situation is primarily created by hoarding. Enabling the existing cash base to circulate better would address problems, but peoples' response to a cash crunch is to hoard the cash instead. There are some notable folks who are doing their bit to do the right thing, but it seems most don't/won't.

Suraj, I agree that people are, by and large, hoarding notes. However, my point is that not enough notes have been issued in the first place. If there is no `stock', there can't be a flow.
An additional point about the Rs 2000 note is that if it were not printed there would be no way to replenish the money stock in 50 days. The Rs 1000 note was introduced in 2001 and even with 4.5% p.a inflation , that is worth Rs 2000 today (or $ 30, which is not a very high amount for the critics to get worked up about).

that's Rs 2000 in PPP terms.

It's a considerable amount in India.

[shiv]

Rhetorical question:

Which of the following two models represents the total volume of "black" (undeclared cash) currency hoarded by people


Model 1:

• Total amount of black money = Rs 10,000
  Total population of India - 100 people
  
  95 people hold Rs 2 each - total Rs 190 undeclared
  5 people (biggies) hold the remaining Rs 9,810

Biggies hold 98% Small hoarders (you and me) 2%

OR

Model 2

• Total amount of black money = Rs 10,000
  Total population of India - 100 people
  
  75 people hold Rs 20 each = Rs 1500
  20 people hold 200 each = Rs 4000
  5 people (biggies) hold the remaining 4500

Biggies hold only 45%. Small and medium held 55%

[vina]

The public IT raids in BLR, which uncovered a hoard of approx 5cr in new notes was a message that was being sent to "you know who" ..Its on the lines of "Magane, ushaar" .. These are proxies of very powerful political interests.

[Deans]

Shiv, My guess would be that BM in India is a variant of your model 1.
The top 1% of Indians own about 58% of wealth - excluding BM.

75% hold no BM. ( those whose total earnings in any form are below the taxable minimum).
20% hold Rs 2 each.
4% have Rs 100 each.
1% have the remaining 1560.

[Philip]

People hoarding cash? No way! There's scarcely enough cash to go round.People are desperate for cash for day-to-day expenses,hospital emergencies,etc. A personal example. I had a family member admitted in an emergency who had to be hospitalised .Fortunately we could pay by card,but many other families one could see in the pay Qs, were struggling to find reserves from the conversations with their family members.
The so-called "hoarding" is actually a curb on usual monthly shopping that could include clothes and small luxuries. Now,its purchasing the bare neccessities as no one is sure of the future,there being so much confusion with the govt. issuing different diktats almost every day.People do not know how much money they'll be allowed to withdraw in the future and are keeping their cash allowances for any emergency.With the govt. changing the rules so frequently,it clearly shows that there was no great planning for this momentous exercise which has led to chaos on a grand scale.

The worst hit are individuals with their own self-employed businesses,who rely upon a daily turnover to survive.Salaried ones get their payments by cq.,but then they need to have cards for payments and need cash for smaller transactions.My ancient family dhobi who serves our neighbourhood,doesn't have a PAN card,Aadhar no,. cards of any description and relies upon his daily earnings going from house to house. There are millions like him.

This reduction in purchasing by every household is also having a dramatic effect on the Indian economy which is in a tailspin.E have the news today that after 137 yrs. Bombay Dyeing,a household name for quality,is finally closing down in Bombay.

[hanumadu]

The livemint article on JDY is interesting. Not more than 1 million accounts are likely to be misused (as proxies for BM holders) assuming that the
trend for the first 15 days continues at a decreasing rate. At a max Rs 50,000 / account, that only 5000 cr laundered - that too at a high risk.
Even that makes the unlikely assumption that the actual account holder will have nothing to deposit. My concern however is why over 50 million
accounts continue to have 0 balance - that needs to be audited by each branch.

At the same time, only 2 million new accounts will be opened (less than a 1% increase in total accounts), which indicates to me that almost every household who needs an account has one. All the media talk of X % of Indians being un-banked misses the point that every Indian does not need an account. There are approx 800 million adult Indians of which 25% live in absolute poverty (unlikely to need high value notes).
There are 300+ million bank accounts for these 600 million (or 1 per household of 2 adults). There are also 700 million debit cards and excluding
multiple cards held by individuals like you and I, the number of Indians with a debit card is around 650 million.

It need not be only new accounts that can be used for laundering. The total deposits in JD accounts increased by 30k crores. Any amount up to that could be BM.

[disha]

This reduction in purchasing by every household is also having a dramatic effect on the Indian economy which is in a tailspin.E have the news today that after 137 yrs. Bombay Dyeing,a household name for quality,is finally closing down in Bombay.

Now the mills Bombay Dyeing closing down is also blamed on DeMonetization. Lovely! Nusli wadia and his sons must be spending more time uncovering the models on gladrags instead of covering them!!

30 years back., the reputation of Bombay Dyeing mills was "Bombay Mills Dying". It was not if but when., good tidings that it is closing down.

[Prasad]

Shivji
It isn't just power and water bills. Even property taxes are paid online. I remember my dad doing the halfday long visit to pay these things at local corporation office. Now he sits at home and does it on his ipad. Quicker,less stress for all.

[chetak]

This reduction in purchasing by every household is also having a dramatic effect on the Indian economy which is in a tailspin.E have the news today that after 137 yrs. Bombay Dyeing,a household name for quality,is finally closing down in Bombay.

Now the mills Bombay Dyeing closing down is also blamed on DeMonetization. Lovely! Nusli wadia and his sons must be spending more time uncovering the models on gladrags instead of covering them!!

30 years back., the reputation of Bombay Dyeing mills was "Bombay Mills Dying". It was not if but when., good tidings that it is closing down.

Bombay dyeing closing down is not about Demonetization, but about re Monetization.

[Sachin]

What is your confidence level that IT officers will not be corrupt. Percentage of officers or cases that they go after and do not settle for corruption money?

I don't expect all of them to be 100% clean. But that also does not mean 100% of them are corrupt, and due to which every single black money hoarder out there would just pay some bribe and get away with their money. Secondly, I feel GoI of today has now got a much more higher responsibility to ensure that this demonitisation drive succeeds. Or else their H&D is at stake. So there would also be much more higher scrutiny on the conduct of the IT officers. Alarm bells would start ringing when every big deposit out there is getting passed by IT officers stating that these are all legally acquired money. Again, I also don't assume that every single paisa of unaccounted money out there would get cleaned up by this drive. Their would be gaps, and there would be spillages. But it is better than doing nothing, IMHO.

However, my point is that not enough notes have been issued in the first place. If there is no `stock', there can't be a flow.

Would that be again part of a deliberate strategy? Say if 86% of the cash was of Rs.500 & Rs.1000 notes, and if GoI just prints the same percentage of new Rs.500 & Rs.2000 notes, the smart alecs would be just able to exchange the new ones with the old ones even without visiting a bank. The BM hoarders would just exchange the demonetisted notes to the poor 'mules' and get the new notes. The 'mules' may have to face the music, when IT folks ask them how they got so much of demonitised currency with them. So I feel a kind of cash crunch (of the new notes) is deliberately induced, so that people will have to put their money into the banks (so that they don't lose the money worth of Rs.500 & Rs.1000), and can only make small withdrawals.

[Suraj]

What were all the previous attacks on the Indian currency ?

Nothing much just about 86% denotified

An attack on a currency is an act that reduces its value. It directly leads to that currency buying less of what it could buy before the attack.

Demonetization does NOT reduce value. You get exactly like for like face value on your currency. Not just that, the money you have now buy you more vegetables, more food, more real estate.

[Deans]

The livemint article on JDY is interesting. Not more than 1 million accounts are likely to be misused (as proxies for BM holders) assuming that the
trend for the first 15 days continues at a decreasing rate. At a max Rs 50,000 / account, that only 5000 cr laundered - that too at a high risk.
Even that makes the unlikely assumption that the actual account holder will have nothing to deposit. My concern however is why over 50 million
accounts continue to have 0 balance - that needs to be audited by each branch.

At the same time, only 2 million new accounts will be opened (less than a 1% increase in total accounts), which indicates to me that almost every household who needs an account has one. All the media talk of X % of Indians being un-banked misses the point that every Indian does not need an account. There are approx 800 million adult Indians of which 25% live in absolute poverty (unlikely to need high value notes).
There are 300+ million bank accounts for these 600 million (or 1 per household of 2 adults). There are also 700 million debit cards and excluding
multiple cards held by individuals like you and I, the number of Indians with a debit card is around 650 million.

It need not be only new accounts that can be used for laundering. The total deposits in JD accounts increased by 30k crores. Any amount up to that could be BM.

There are a total of approx. 220 million JDY accounts. Excluding the 55 million which still have a 0 balance, it means 165 million accounts have
seen an addition of 30,000 crore or less than Rs 2000 per account holder, which is quite natural as whatever old notes these accont holders had, would have to be deposited. . Its more likely that the million or so dormant accounts would be used for money laundering ( so far, 6 lac, zero balance accounts have seen deposits made in the 2 weeks after demonetisation).

[ragupta]

People hoarding cash? No way! There's scarcely enough cash to go round.People are desperate for cash for day-to-day expenses,hospital emergencies,etc.

New notes worth Rs 4.7 crore seized in I-T raids in Bengaluru

http://timesofindia.indiatimes.com/city ... 728247.cms

[ragupta]

I would be happy to get the 80% system cleaned. I am hopeful the rate at which things are going 90% will be cleaned.

Whomever I have met, the bankers/cashiers are happy to work more hours and happy they are helping the system clean up.
Barber is accepting paytm, and has asked for credit card machine.
Photo shop accepted - credit card.
Shop owner - is happy that he has to deal with credit more now.

Food vendor, accepts paytm - shows board for accepting credit card, but International Visa/Mastercard did not work, not sure the company he is dealing with it is blocking or some other problem.

Strange, pre paid taxi at international airport not accepting credit payment.
ICICI bank ATM was out of cash.

Known business friends using employees to get cash from different banks on same day and different days.

[ragupta]

Many friends and family very happy, saying we were suffering for 70 years, standing in line, enduring hardship all this years, This move is good and we will endure it. Most people are behind this.

yes there are some friends with business, RE and political activity, not that happy, for the inconvenience of 1 Cr max now, rest 124 Cr who were suffering for all these years are ready to face the challenges and happy.

[Manish_Sharma]

[Nitesh]

Why cant gov make notification for ALL cards (debit/credit) to not use surcharge in petrol pumps, and reduce merchant charges across the board. Should not be more then 1%. I know for petrol pumps, government has directed before, but it seems it was not done till now.

[ragupta]

Why cant gov make notification for ALL cards (debit/credit) to not use surcharge in petrol pumps, and reduce merchant charges across the board. Should not be more then 1%. I know for petrol pumps, government has directed before, but it seems it was not done till now.

How will the cost be recovered. People have employment here, 1-2 percent for transaction fee to vendor is better than 50% money to corrupt contracts.

[ragupta]

I like Gurudwara activity of seva bhau, I think temple and religious money must be used for such service, food, medicine and shelter. Beggers should be reduced, why should they beg if the food is served by the temple.

[Marten]

Both ATMs in our society ran out of cash at 10am. Line qas about 20 people strong since 6.30am. Folks avoid the bank branches but stand in ATM lines each day. Wonder why.

[Gus]

Sachin - you are right that crunch is deliberate.

At this point , the BM outside is the ones that cannot go into bank.

From a control pov, It makes no sense to have lots of new notes out , that a secondary exchange is set up outside of banks. I know this 30℅ fee for exchange is there but I believe it is limited in scope and not for scale.

The govt is going to have bare minimum new cash outside ..just enough to prevent riots. Until Dec 31. After that they may increase supply

[Karan M]

I was anyways mostly cashless. Swiping my cc everywhere. Only worry was fraud. Now with a pocket card, that issue will also be addressed. Cash, was mostly used for autos, chai shops, snacks etc. Now over time, even those will stop using cash or reduce usage. I don't think i am that different from average desi person in that they prefer convenience of 1-2 cards over carrying loads of tens, hundreds, five hundreds. this apart, housing rates will be moderate, BM hoarder power will reduce, and if NaMo follows through on other stuff, BM Generation methods will also reduce.

[Nitesh]

How will the cost be recovered. People have employment here, 1-2 percent for transaction fee to vendor is better than 50% money to corrupt contracts.

I am asking about the surcharge which bank charges, not trying to get rid of merchant fees, with the number of transactions going upward using PoS/online, banks/card companies keep low fees and make up the number by volumes. This will encourage more people to use cards

[hanumadu]

Sachin - you are right that crunch is deliberate.

At this point , the BM outside is the ones that cannot go into bank.

From a control pov, It makes no sense to have lots of new notes out , that a secondary exchange is set up outside of banks. I know this 30℅ fee for exchange is there but I believe it is limited in scope and not for scale.

The govt is going to have bare minimum new cash outside ..just enough to prevent riots. Until Dec 31. After that they may increase supply

This is what I have been saying. Modi asked for 50 days and he will make full use of those 50 days to push India towards a digital economy. Its been 23 days and if printing was done with full earnest, it should have enough to replace all the previous bills. But cash is being squeezed more and more. This month, the banks disbursed only 5k for my dad though they are not complaining. Last month after DeMo it was 10k.

[Yagnasri]

I got 20k three days from PSU bank. Official limit is 24k per week. Hence, I was allowed. Bankers are managing and cash logistics is the problem almost everywhere.

[James]

Sachin - you are right that crunch is deliberate.

At this point , the BM outside is the ones that cannot go into bank.

From a control pov, It makes no sense to have lots of new notes out , that a secondary exchange is set up outside of banks. I know this 30℅ fee for exchange is there but I believe it is limited in scope and not for scale.

The govt is going to have bare minimum new cash outside ..just enough to prevent riots. Until Dec 31. After that they may increase supply

This is what I have been saying. Modi asked for 50 days and he will make full use of those 50 days to push India towards a digital economy. Its been 23 days and if printing was done with full earnest, it should have enough to replace all the previous bills. But cash is being squeezed more and more. This month, the banks disbursed only 5k for my dad though they are not complaining. Last month after DeMo it was 10k.

I wonder who takes these decisions at a micro level, in terms of how much new notes to be printed and released. PMO or RBI?

Also from a legal perspective, if some a/c holder wants to withdraw cash from his own a/c, for how long can the bank refuse to allow it? What will happen if the a/c holder sues the bank and / or RBI?
Also, for how long are the restrictions for withdrawal from one's own a/c legally tenable? After all, how can one reasonably put a long time / amt. restriction on withdrawing one's own money? I wonder what the outcome would be, if some a/c holder were to approach the courts for relief?
Not trying to stir sh!t here, but can any learned gurus enlighten on this?

[jamwal]

I finally had some time to deposit some 1000 rupees notes in the bank. Went to closest HDFC branch at 11:30. They had closed the main gate and a guard was controlling entrance from smaller side gate. First had to get a token in which they checked my PAN card number and account. Booking counter person checked deposit slip, asked to sign a small slip with account number which was attached with bundles and verified my PAN card. Was in and out of bank in 20 minutes. No cash in bank or ATM though. Probably that's why lines were not long. There were a few people who were depositing 11-20 lakh. Rest had much smaller amounts.

People are patient but it will not last long. Some were joking black money hoarders are like big pots of milk, take a longer time for them to boil unlike mango people. New currency notes are urgently required.

[TKiran]

--deleted, apologies for trolling--

[hanumadu]

This is what I have been saying. Modi asked for 50 days and he will make full use of those 50 days to push India towards a digital economy. Its been 23 days and if printing was done with full earnest, it should have enough to replace all the previous bills. But cash is being squeezed more and more. This month, the banks disbursed only 5k for my dad though they are not complaining. Last month after DeMo it was 10k.

I wonder who takes these decisions at a micro level, in terms of how much new notes to be printed and released. PMO or RBI?

Also from a legal perspective, if some a/c holder wants to withdraw cash from his own a/c, for how long can the bank refuse to allow it? What will happen if the a/c holder sues the bank and / or RBI?
Also, for how long are the restrictions for withdrawal from one's own a/c legally tenable? After all, how can one reasonably put a long time / amt. restriction on withdrawing one's own money? I wonder what the outcome would be, if some a/c holder were to approach the courts for relief?
Not trying to stir sh!t here, but can any learned gurus enlighten on this?

We will know in a few days.

[shiv]

Shivji
It isn't just power and water bills. Even property taxes are paid online. I remember my dad doing the halfday long visit to pay these things at local corporation office. Now he sits at home and does it on his ipad. Quicker,less stress for all.

I pay my property tax online too - but that is only 1(or 2) times a year. Water+ Electricity= 24 bills a year

[Bart S]

This reduction in purchasing by every household is also having a dramatic effect on the Indian economy which is in a tailspin.E have the news today that after 137 yrs. Bombay Dyeing,a household name for quality,is finally closing down in Bombay.

Now the mills Bombay Dyeing closing down is also blamed on DeMonetization. Lovely! Nusli wadia and his sons must be spending more time uncovering the models on gladrags instead of covering them!!

30 years back., the reputation of Bombay Dyeing mills was "Bombay Mills Dying". It was not if but when., good tidings that it is closing down.

The news that Bombay Dyeing is closing is bullshit. What they are doing is getting out of the mills business, and probably selling their factory (which BTW isn't even in Bombay but in Ranjangaon) to some smaller hungrier company who can compete in that low-margin business.

They are basically retaining their brand, and the textile business and simply becoming a retailer, with plans to triple their retail volumes. From purely business terms, its a great decision. There are two main reasons for it:
-Their mill lands in Bombay are worth more than the entire business
-Their brand is worth more than the factory

And the idea that after running for 137 years, 22 days of demonetization is what shut them down is downright ridiculous.

[Shaktimaan]

Not to mention that Bombay Dyeing is one of the smaller companies of the Wadia Group, which is doing just fine with their stalwart brands like Britannia, GoAir, etc. The idea that demonetisation had anything to do with this move is not accurate at all.

[Yagnasri]

Kiran sir. As you know, the fight between tax and spend hawks and job creation small government proponents is quite old. In India my personal view is job creation is far more important that tax collection. Low tax rates particularly low direct tax rates with good collection base is not being done by any GOI. Jetlee is also proving to be PC 2.0 only.

The major problem is not the taxes but the attitude of not willing to pay any tax even if it is 1%. Unless this is changed nothing will change in tax front.

[pankajs]

The Bank branch nearest my home (Same bank but not my base branch) had no cash @ 3:30 pm. Found a SBI associate bank ATM while returning that had cash but the limit was Rs 2,500 only. I don't needs cash for now and this cash is to payback someone back for exactly that amount. Still have around Rs 2000 in small notes at home.

I have been paying utilities online for more than a year now. My corner store, bigger than usual corner stores, always had the option for card payment and I have Reliance fresh for my veggie needs within about half a kilometer.

[Sachin]

Now I would be really free to do business and concentrate on providing more value added Products or Services, my aim is still PROFIT (Not Tax). The environment for the Businesses is brutal to say the least. you have to line up all the Ducks, then only you can make any profits.

So what you are essentially saying is that by starting an enterprise (for Profit), you are helping the government by giving employment to people and those people would pay the taxes instead. You promise to pay them high salaries (which may also eat into your profits), which makes them pay more taxes to the government . And for the services you provide to the government you should be allowed to retain the entire profit you make, and nobody should question you on those profits. Is my understanding correct?

My understanding is that the taxes which we pay (in various forms) are also used by the government (how ever good or bad it may be), are used to provide lots of facilities which every common citizen can enjoy. That includes maintaining defense forces & police force etc. And these folks also have to pay taxes on their income, even when their jobs also have risks associated with it. And these benefits are also enjoyed by the small business community as well. So are'nt these small business establishment owners consuming some benefits, without paying for it?

And think about another scenario. Yes, the government believes in the action plan of small business owners. That they would give more employment to people (who would pay Income tax), and the government waives off their profits from any taxes. Now the small business owners pay their employees such a low salary that these people fall below the income tax bracket. They would have no pangs to do this, as their motive is profit. Worse, they also start using modern machinery etc. which requires even lesser manual intervention; which also increases the profit. Govt. gets a double whammy on the spot; the so called promise that employees would pay the tax does not materialize. The profits earned by small time businessmen increase, but they cannot be taxed any ways. Yet the government has to run all the basic stuff (power, security & also keep the citizens happy to an extent).

[TKiran]

--deleted, apologize for trolling--

[Thakur_B]

End of my paradigm:

Here's my paradigm. Pay your bloody taxes. If you can't manage to stay in black after paying taxes, unlike the rest of us, then find a line of work where you will.