Currency Demonetisation and Future course of Indian Economy

[RajD]

Sabotage games on.
Saw this news item late afternoon on a Marathi news channel.
They showed a demonstration by a person of how colour was coming off a supposedly new 2000rs. note when it came into contact even with plain water.
The person who reported it to the channel purportedly experienced this when he saw blotches of colour on his shirt pocket when his new note came into contact with sweat.
The channel buggers were advising people to go back to the bank to get the notes checked and replaced instead of taking that note to a police station and register an FIR themselves.

[shiv]

Modi himself has stated that people who made money for 70 years will be out to eliminate him. May he be protected and safe.

[TKiran]

Yesterday my acquaintances went to Chutney's in Hyderabad, they had only old notes, bill came to Rs800 or so. The waiter said, no need to pay with old notes, just write down your name and cell no. And amount, you can pay later, when you have got the new notes, well that was a very good service.

I empathize with some of the posters who have been trying to make a point that a lot of the small businesses which run on cash would fail if they don't generate cash flow for prolonged period of 1-2 months. I agree with them. Most of the small businesses operate with fixed expenses, but their revenues fluctuate, during the initial period of time, say for the first 2 years or so. Some of them are run with just enough to make the ends meet. Those are the businesses which are bound to fail even without any of the current situation (currency demonetization). As you know, 90% of the businesses fail. Current situation only accelerates such failures. Many have a solid explanation now that currency is demonetization has taken place. So of the unsound businesses would be wound up more easily.

What has been a strategically unsound business would get wound up, by tactical situation right now.

A business will only be successful, when cash flow into the business happens from multiple sources.

For example, when I started my business, I had a partner who is from the business background, and he was totally depended on me for business operations, he was able to put in a lot of money for 4 years just to keep the business floating, it was all unsecured loans ( in other words BM).

We had a lot of fights but I was naieve. Finally he brought in another guy who was good at marketing, in fact he was too good a guy. I was still running the whole business, but I didn't step into the marketing. There was sudden demand boost and it took another 2 years to repay all the unsecured loans along with the interest. I got very little for 6 years even though we were 50-50 partners, finally we parted ways, but with good relationship. It took more than a year to wind up our business.

During the course of this journey, I have seen that almost all businesses are run by people with basic business skills inherited from the previous generation. It takes generations to be successful in business. Then for example, my partner started gold business, 2-wheeler dealership, 4 wheeler spare parts shop. Now the business is roaring, and he gave me partnership in each of his subsequent businesses, when ever there was requirement for my skills, just because of our initial experience. I am happy with what I have, as I could understand that I have a lot of limitations as a business man. Still I do business lucky me.

In the case of the restaurant, many of you may jump on me, saying that the owner of the restaurant may convert his black money by showing that I paid cash. Well, a business which does not have black money would be very difficult to run. Small percentage of the revenues would eventually turn black, that would ease the business men to have some time for small luxuries and paying for example the capitation fee for good schools for your children and buy some luxurious car, etc, which are now a days even affordable by the working class. There were times when I could not even afford new clothes for my family during Dipavali festival, where as all my employees could afford that.

I am sure NM's aim is not to cripple the small businesses, but it is inevitable consequence when you do this. The lucky people who crossed the bridge would survive, but many would perish, though it's just an excuse, but because of the inherently flawed business model, but very good excuse indeed. Anybody wants to exploit the situation.... There are many for political reasons.... Otherwise it's a sound decision

[Primus]

This move is pretty draconian(hate to agree with Mamata didi on this) , affecting 80% of the cash transactions in villages and b-towns, as one poster mildly put "you are collateral damage" to just normal honest people who live out side the banking channels.

Oh wait for the more bad news from villages and other towns be reported once the shit hit the fans.

One correction. Affecting transactions until 30th Dec. Not forever. But going forward even village economy should be careful. Cash transactions cannot go on forever. Government is gradually stepping up to provide necessary infrastructure for financial inclusion. Many NGOs, banks, tech start ups are working in that directions.

Tax is exempted for farmers. More reasons to bring them in cashless economy rapidly. But I do agree that it is the whole ecosystem that should undergo the change. We must move away from the status quo.

One of the most jaw-dropping experiences for me when I went to the UK for the first time in the early 80s was finding car dealerships like Mercedes and BMW, heck, even Rolls Royce in our local 'village'. The said village was as prosperous looking as anything in suburbia, with well paved roads, typical English thatched cottages, pubs, well tended gardens etc - stuff you see on Midsomer Murders show.

It is entirely possible that as the economy prospers and so does every village in India, that they too will come into the fold and be able to have the kind of homes, schools, roads and everything else that they can only dream of at present. There is tremendous potential to realize that dream and all that is needed is for everyone to pull together for a common cause. There is gold in them thar hills, just needs to be recognized and utilized properly.

[Primus]

Well worth revisiting.

[shiv]

Monetary starvation in these villages?
http://indiatoday.intoday.in/story/demo ... 09461.html

West Bengal: Crores deposited in banks in remote villages in 24 hours
Niti Rani Mondal (35) cannot write a word in any language but is carrying One lakh rupees in cash to the State Bank of India (SBI). A resident of Ganganarayanpur village in Malda district of West Bengal, Niti travelled with the wad of notes to SBI in Majumpur Branch under Kaliachak Police Station, perhaps one of her first travel alone out of her village.

Niti Rani is a bidi worker and earns Rs. 100 per day by tying bidi at home. Her village shares international border with Bangladesh. This is interestingly her first visit to bank since her account was opened around three years ago.

"I have come to the bank for the first time. My husband has given me Rs one lakh and I have come to deposit it. I don't know where the money has come from. I myself have never seen so much cash in my life," Niti Rani told India Today.

MANY FIRST-TIME VISITORS

Interestingly, Niti Rani is not the only one to make her first trip to bank after demonetisation. Nasima Bibi, a housewife from Qasim Nagar area, too brought Rs 1.20 lakh cash.

"My husband has asked me to deposit the money in my account so I have come here. I am standing in the queue for several hours. I have never come to bank before this," said Nasima.

Interestingly, Majumpur branch of SBI has around 12,000 account holders mostly bidi workers or small savings accounts.

"We get an average deposit of Rs eight lakh deposit a day that too from certain account holders. Rest are not very active but we have accepted deposits of more than One crore rupees in just 24 hours and we are still counting," explained branch manager Uday Narayan Roy.

There are many who cannot even write their name so the bank is struggling to assist them with the handful staff in the Branch. The Shujapur SBI branch of Malda has broken all its records.

ALL TIME HIGHEST DEPOSITS

"The highest ever deposit in this branch was Rs.50 lakh but now we have surpassed the 3.5 crore rupees mark," said branch manager Ashutosh Kumar Jha.

What makes these deposits crucial is that almost all account holders turning up are women, many of them housewives but have come with wads of notes.

Majumpur is known for being the centre of fake note supply chain operation. ts proximity to the India - Bangladesh Border makes it a strategic location for such activities.

The bank is not regretting the extra hours and efforts they are putting in, however, the flow of cash from the unlikeliest corners is surprising.

[abhischekcc]

M_Joshi,

Thank you for your sane post.

[RajD]

Self deleted.

[RajD]

http://www.loksatta.com/mumbai-news/fak ... e-1338375/
Huge cache of 2000rs. Notes found in chikmangluru. Police lodge complaint.
Is it true?

[vijayk]

Dormant congress workers and supporters are going overdrive spreadING fake stories, lies and rumours

[nandakumar]

When the Govt declares that a denomination of currency is no longer legal tender the implication is that a creditor can justifiably refuse to accept it as satisfaction of his claims. Indeed if I recall from my student days, I think it is a crime to refuse to accept legal tender in satisfaction of debts. But otherwise there is no bar on a person accepting a currency note that is declared as no longer legal tender in satisfaction of debt (the word debt here is a technical term to denote an obligation for purchase of goods or service) as long as the person is confident that he can tender it within the grace period. Somehow, bonafide business people with income within taxable limits or have income above the tax limit but are paying taxes don't seem to recognise this. A pity, really. They are letting go of an opportunity to drum up some extra business.

[RajD]

Sirji that news item was shown again a few minutes back on Marathi zee news. And the complaint seems to be genuine. It was made by one retired qc officer Mr. Adke who was with Nashik press. He demonstrated it again. The colour definitely came off with what he said was water in the bowl. At least it seemed non reactive to his skin and that cloth. When he swiped the note with that cloth colour definitely came off. The colours on the note became decisively faint as compared to a control one. I've taken screen pics with mobile. Pls tell me how to post them in line.
Regards.

[shiv]

https://twitter.com/salonishuklaET/stat ... 5810790401

SBI: Received deposits of Rs 75945 crore from 165.78 lacs transactions till date (up to 5pm today)

[Supratik]

It means about 3 to 3.5 lakh crores have returned. Still a long way to go.

[abhischekcc]

Any first hand accounts on how ultra peaceful Malda district is holding up in all this? Bong news outlets obviously only showing Kolkata middle class logistics. Malda is center of counterfeiting and cocaine trade.

Malda is the center of BD invasion of India, so by definition a center of counterfeiting also. Not sure about cocaine though, because drug trade is more over Indo-Pak border. Siliguri district is another crime hotspot - it is unique in India because it shares international border with 3 countries and also because it is the chicken neck through which all trade to NE India passes. Huge smuggling district.

[nirav]

I just received an email from change.org

Says, demonetisation, speaks briefly about the 500/1000 notes being declared illegal tender.

Then goes on to say, start a petition if you have 'concerns' or 'opportunities' about this move.

I immediately started a petition to - shut down change.org where I mentioned that this is mischief and an attempt to inflame passions of the public..

I'm unable to go through with it as I forgot password

[Supratik]

Malda is also center of smuggling.

[saip]

the only business i know of where only cash works is prostitution... cant think of another one.

The Supari business too is all cash. And the friendly terrorist business too is all cash.

[nirav]

https://www.change.org/p/government-of- ... change-org

Ha, it allowed me to do it. Bliss to sign jernails.

[shiv]

Sirji that news item was shown again a few minutes back on Marathi zee news. And the complaint seems to be genuine. It was made by one retired qc officer Mr. Adke who was with Nashik press. He demonstrated it again. The colour definitely came off with what he said was water in the bowl. At least it seemed non reactive to his skin and that cloth. When he swiped the note with that cloth colour definitely came off. The colours on the note became decisively faint as compared to a control one. I've taken screen pics with mobile. Pls tell me how to post them in line.
Regards.

https://twitter.com/bennedose/status/797817925994356736
Corner of note wetted and rubbed by me. See water droplets glistening - added after rubbing. No smudging

[Karthik S]

We know that banks received deposits worth $30B. Any idea on the amount of money discarded ? That will be the amount by which RBI's liability goes down.

[IndraD]

Interesting to note that no Eu country or US has ever undertaken this step , may be they never had to deal with kala dhan. One of profound effect we will see is onion and vegetable prices going down as hoarders stored money to deal with this business.

[cdbatra]

@abcc

Imagine a drug addict. He cannot pass anyday without the drug. His body and mind cannot function if he doesn't get that sniff or injection. If you don't stop he is going to have an ugly death eventually. Rehab is extremely painful but if you don't do it he is going to die anyway. Some will not make it. Similarly some people used to doing things the old way will disappear. Those who adapt will survive. If you know the theory of evolution you will understand that is how nature functions.

Very good analogy..we are all drug addicts right now.. and rehab is long due..
But at end of it we will be clean..well mostly..

[bharotshontan]

I personally have no issues if only BJP got to convert its own BM into white and all others will cry. This is a last shot anyway at these antics, so even if one chor "gets away", the others are trapped in their tracks. Didi and her Jamat boyfriends are crying hoarse as all their Sarada Narada etc are down to nil. Plus I don't believe BJP got to convert all of its own BM into white either as that in itself would have been a huge operation to accomplish without other parties and hawala/ISI getting wind of something major in the offing. Shiv Sena is crying also it seems. Common man seems happy from what I'm interacting with.

BTW about Malda, sorry I think I had cocaine and opium mixed up, not a big expert on the various mind-altering drugs :p
http://www.firstpost.com/india/inside-m ... 97526.html

I have no insight into Malda but I hope center is alert on communal situation there to prevent Kaliachak repeat now after this surgical strike.

[IndraD]

Swaraj mag
http://swarajyamag.com/economy/demoneti ... h-too-much
Let it be stated upfront: big moves like demonetisation cannot work if they must be planned to the last detail. If so much planning goes into it, too many people would have known about it in advance and there is little doubt that the news would have leaked and the anti-black money measure would have failed.

So the critics of government, from politicians to media persons, are wrong to presume that there would have been no chaos at bank counters or that ATMs would not run dry in the days immediately following the announcement. The reason for the chaos is the obvious shortage of printed cash, and the lack of infrastructure to replenish ATMs every few hours. The system is not designed to replenish every ATM twice a day.

The critics are wrong to criticise the government for causing inconvenience to the public. Their argument runs thus: if you want to target black money holders, why penalise ordinary people by making them stand in queues for hours?

The point is simple: no macroeconomic move can target only one class of people. If you subsidise some things, even crooks will benefit. If you raise interest rates, it is not only crony capitalists who will be hit. Your home loans will be impacted too. If there is a requirement that all bank accounts need KYC, more poor people will be impacted even though it is the mafia or benami agents who are the targets of this law. A few terrorists may use smartphones for their nefarious purposes, but millions owning a mobile phone are forced to comply with stringent verification rules.

Surgical strikes targeting only a few are simply not possible in such situations.

There are lessons to be learnt. Though it is unlikely that demonetisation can ever become a frequent activity – it would disrupt the economy too often to be useful – when such top-down moves are planned in any sphere (Jan Dhan, Aadhaar, etc), contingency plans for collateral damage must be in place. They cannot be an after-thought, as is the case now, when the deadline for cash exchange has been extended by three days, among other things.

However, the lessons are not only for governments, but also for ‘we, the people’. Despite a quarter century of reforms since 1991, we have not gotten out of our “shortage mentality”. We tend to hoard and buy things that we think are going to be short. A rumour about a water cut makes us fill 20 buckets – only to throw it away when the rumour turns out to be false. If dal prices rise, we buy five kilos instead of the usual two, instead of making a small short-term shift in eating habits in case we run out of it. By hoarding more than we need, we make the problems worse for the poor.

This time it is cash that we think is in short supply – which is true. But even people who don’t need cash immediately are queuing up to convert their Rs 500 and Rs 1,000 notes when there is another seven weeks to go for it. Petrol bunks were chock-a-block on 9 November in Bengaluru when it was announced that they would accept the old notes. Even people who normally used cards for payments used cash.

The truth is we tend to use too much cash in our daily transactions even when there is no need to. Given the technologies now available to so many middle class people – which means around 300 million people at various levels of income - we still use too much cash. Speaking from personal experience, I know I can almost do without any cash; the bulk of my usage relates to payments to hired help and vendors – from maids to drivers to newspaper-wallahs to milk delivery boys. And small-time purchases in kirana shops, not to speak of payment of bus fares and autorickshaws. My personal resolve after this demonetisation epiphany is to encourage everyone I am in contact with to open bank accounts or operate the ones that lie dormant in their names.

If I were to name the specific failures of the NDA government, I would put two on top of the list:

One, having opened 250 million Jan Dhan accounts, it failed miserably – and has not even attempted – to educate people to use them through financial education and creating the conditions for regular usage of ATMs or RuPay cards. This is unforgivable.

Two, it is unlikely that demonetisation was something the Modi government thought up on the morning of 8 November. Modi did not wake up thinking this is a good day for the speech. He would have been thinking about it months in advance. While the specifics of the actual dates and plans would have been decided closer to D-Day, what stopped the government from promoting e-wallets and mobile money, the infrastructure for which was ready six months ago? Why does it require only commercial operators like PayTM or private banks to entice people into digital money? If millions of Africans can use mobile phones for their daily transactions, it beggars the imagination that we are so slow to push the idea.

India’s problem is cash – too much of it is being used both at the top and bottom ends of the pyramid. The top end uses it for storing ill-gotten wealth (though real estate and gold are more important here), and at the bottom end, the use of coins and low-value notes is costing the country big. It costs Re 1 to print a Rs 10 note. What a waste! Bus fares, train tickets, kirana stores are autorickshaws are simply soaking up too much low-denomination cash – this is the main reason why so many people have to queue up to exchange their old notes – when mobile money is so easy to adopt.

The call to action is simple: the NDA government must use the current cash chaos to start a six-month campaign to shift small payments to the phone. The enticement could include exemption from the levy of any fees on such transactions for a year.

Freebies are anathema. But if there is one freebie one can suggest that would save the government more money than it loses, it is the gifting of a free smartphone to every household. At an average cost of Rs 3,000, the cost of giving one smartphone to every Jan Dhan account holder would be around Rs 75,000 crore. The savings in the cost of printing notes and coins can more than justify this freebie. The direct cost of printing notes every year is more than Rs 3,500 crore, and there are more costs in handling the issue of new notes and their destruction. A side-benefit, if the condition for receiving this free smartphone is the use of these accounts at least twice in the last few months, you may also be able to push financial literacy to a wider population.

Another thought: if demonetisation ends up swelling the coffers of Arun Jaitley’s finance ministry, it would make sense to put some of this money in Jan Dhan accounts – as part of Modi’s promise to return some of the ill-gotten cash hoards back to the people.

Top-down schemes need more monitoring and more push and awareness to succeed. This is where the Modi government has been found wanting. There have been too many top-down schemes and too little follow-up action.

Time to rectify this before demonetisation ends up as a public relations disaster.

[SaraLax]

Interesting to note that no Eu country or US has ever undertaken this step , may be they never had to deal with kala dhan. One of profound effect we will see is onion and vegetable prices going down as hoarders stored money to deal with this business.

Sir - The EU is currently winding up its 500 Euro$ Notes because it has become easy for groups indulging in drugs, criminal offences, smuggling and human trafficking to easily transfer huge money in cash forms and preventing themselves from being electronically monitored. I posted a NYTimes link to its article that describes this problem.

Would I be right - if i were to say that the US govt's policy of doing the below listed (in Nixon era of 1971) - were in a way similar to what the current NDA govt has done in its demonetization drive ? ... i.e basically render a temporary shock to the economy, get rid of BM as much as possible (in our case) and bring economy back into operation with a new set of currency notes ?
- US stopping the convertibility of gold into US $s (and thus depriving foreign countries from converting the US$'s they had into gold)
- impose surchage of 10% on any imports into the US
- A 3 month freeze on wages and prices to control inflation (in 1971)

[bharotshontan]

Would like to ask a question at logistical level. Say local goon lines up 50 villagers to deposit 1lakh into their JDY accounts each and promises them 10-20% commission. What is preventing the villagers from depositing the money and then just keeping it? Is it muscle power of the goons?

[RajD]

Sirji that news item was shown again a few minutes back on Marathi zee news. And the complaint seems to be genuine. It was made by one retired qc officer Mr. Adke who was with Nashik press. He demonstrated it again. The colour definitely came off with what he said was water in the bowl. At least it seemed non reactive to his skin and that cloth. When he swiped the note with that cloth colour definitely came off. The colours on the note became decisively faint as compared to a control one. I've taken screen pics with mobile. Pls tell me how to post them in line.
Regards.

I can fully understand sir. I still can't believe myself that such thing would happen.
I've a few screen grabs of that clip. Please tell me how can I post them in line just like you did with yours.
So that you all can analyse what was happening.

https://twitter.com/bennedose/status/797817925994356736
Corner of note wetted and rubbed by me. See water droplets glistening - added after rubbing. No smudging

[habal]

From tomorrow ATM's can dispense 2500 and you can withdraw as much as you want from bank counter, no restrictions.

[Supratik]

Don't worry. Only a few knew. Even majority of cabinet did not know. I am looking for report if Amit Shah knew. Hope BJP takes the lead in coming clean on election and party financing.

One other target should be doctors, lawyers, etc. Everytime we pay them in cash we are basically generating BM.

[shiv]

Would like to ask a question at logistical level. Say local goon lines up 50 villagers to deposit 1lakh into their JDY accounts each and promises them 10-20% commission. What is preventing the villagers from depositing the money and then just keeping it? Is it muscle power of the goons?

Yes.

[hanumadu]

https://twitter.com/salonishuklaET/stat ... 5810790401

SBI: Received deposits of Rs 75945 crore from 165.78 lacs transactions till date (up to 5pm today)

Assuming 3 cr transactions for all banks, approx 30000 cr replacement currency including 100 bills must be in circulation.

[csubash]

shiv,

"The amount by which it is LESS should indicate the total value of the black economy. Is this correct?"

Not quite. The amount of currency float and size of economy are not the same. In other words, you don't need Rs.1000 circulating for a GDP of Rs.1000 . Economic activity occurs when money changes hands. You don't need as much currency, just the frequency of changing hands (velocity of money) will do. You need as much cash as the GDP if only one transaction totaling the value of cash occurs in a year... Of course, it's true that some of the black money lies idle, but most of it is frequently deployed into all manner of things, ranging from political electioneering, diverting wholesale commodities by hoarders seeking to leech out more white money into black (e.g. the extra you paid for dal/onion because of their hoarding is your white money turning black).

Can I copy this & post it to my friends group? This is as best as you can in articulating the benefits of demonitisation

[Rishi Verma]

Bjp MP from Mumbai says he will "expose" how shiv Sena, BSP, sp were money laundering. SS pockets about 50% of Bombay municipal Corp budget of about 120 CR per year while the megapolis is rusting, rotting, crumbling.

[hanumadu]

We know that banks received deposits worth $30B. Any idea on the amount of money discarded ? That will be the amount by which RBI's liability goes down.

Wont really know until December 30th.

[Rishi Verma]

Would like to ask a question at logistical level. Say local goon lines up 50 villagers to deposit 1lakh into their JDY accounts each and promises them 10-20% commission. What is preventing the villagers from depositing the money and then just keeping it? Is it muscle power of the goons?

Yes.

Gov has already flagged JDY going up by 49k or more since demonit as targets for investigation

[Atmavik]

https://www.change.org/p/government-of- ... change-org

Ha, it allowed me to do it. Bliss to sign jernails.

Done from the Land of Zeeeee.

[IndraD]

Jaggi has written on Swaraj Mag
Before undertaking this
what stopped the government from promoting e-wallets and mobile money, the infrastructure for which was ready six months ago? Why does it require only commercial operators like PayTM or private banks to entice people into digital money? If millions of Africans can use mobile phones for their daily transactions, it beggars the imagination that we are so slow to push the idea#
any expert comment?

[morem]

https://www.change.org/p/government-of- ... change-org

Ha, it allowed me to do it. Bliss to sign jernails:

Done and posted on facebook

[vera_k]

Interesting to note that no Eu country or US has ever undertaken this step , may be they never had to deal with kala dhan. One of profound effect we will see is onion and vegetable prices going down as hoarders stored money to deal with this business.

Not cash, but US confiscated gold due to similar reasons. Gold might have to be looked at next in India as well.

Executive order 6102

Executive Order 6102 is a United States presidential executive order signed on April 5, 1933, by President Franklin D. Roosevelt "forbidding the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States". The effect of the order, in conjunction with the statute under which it was issued, was to criminalize the possession of monetary gold by any individual, partnership, association or corporation.