Currency Demonetisation and Future course of Indian Economy

[prahaar]

Akhileshji (an Australia educated buddhijivi person no less) commented: leave alone persons Modi sarkar did not even prepare the ATM machines to handle new notes in advance (so that the information leaks out to all). Furthermore, his demand for letting him know how much cash (new notes) are dispatched to which branch. Even my apolitical wife turned Durga Vahini was .

[manjgu]

vikasraina..asking for ID card while depositing so that no one else deposits money in ur a/c and screws u.

[Gus]

Tuned into RS TV several times only to see multiple adjournment after ruckus.

[Neela]

Someone asked a while back .. What bout the money is the Swiss Banks?

This is just one such agreement. Expect more such arrangements in the future and no Dubai too will not be safe after a while. Modi did not go to Dubai just to pinprick Bakis. Every foreign touchdown has been with a definite purpose as the latest news demonstrates.

This.
Modi's furreign visits.

And this.
All those furreign countries didnt even so much as squeak when we pummelled the Pakis on the border.

Some went one step further.

Germany backs India's strikes, says 'every state has the right to defend its territory from global terrorism

[prahaar]

For those critics who think BM measure of demonetization is half-hearted, please take a closer look at the number of countries joining the information exchange agreement in 2017 (you guessed it right, India is one of them) and 2018 Switzerland follows.

http://www.oecd.org/tax/automatic-exchange/

https://en.wikipedia.org/wiki/Common_Reporting_Standard (for easier overview)

Very soon kala paisa bahar nahi chhup payega. I believe, BM cash component might have increased, since the AEOI agreement was already announced by earlier by FM (personally I thought it was just some fluff did not believe it would fructify so soon).

[kvraghav]

^^
America is not a signatory? its not in the list.

[geeth]

Its funny how people are saying how hard it is to run a business, pay salaries and be profitable but in the same breath argue they should be allow to keep black money. Isn't this an oxymoron? If it was so hard to a make a profit, then there is no scope for black money. If you are generating black money itself means you are generating income above the taxable limits. And the more black money you have indicates how well you are doing.

Not necessarily. The black money hoarded may not be enough to pay all the taxes. Now, you dont have the option to pay part of the taxes as you wish and omit the rest. You will be caught. For eg., you decide to pay all the sales/service taxes..then you have to show all the income and pay the income tax as well.

[shiv]

I watched the RS debate only for a few minutes while waiting in queue to pee at doctors rest room. Derek O'Brien after appealing for old Rs 500 notes to be kept alive then came up with a valid point that probably served as a party confession as well.

There is a proposal that the center should fund elections. OBrien pointed out that 80% of all election funding comes from unknown sources and that if this was curbed then the center should bear the cost. This is an interesting proposal and I don't know much about it

[srin]

^^
America is not a signatory? its not in the list.

They have FATCA and have information sharing agreements with every major country. So we will get info from them and also need to provide them info. (And US is also quite strange - it requires tax filing based on citizenship and not on tax residency - so they have a very wide net).

PS: I hate the FATCA for as being the most unsovereign thing that anyone has imposed on us - I, an Indian citizen and resident, had to do KYC for mutual funds to declare I'm not a US "tax person". We (and the rest of the world) caved in without a whimper.

[Karthik S]

I watched the RS debate only for a few minutes while waiting in queue to pee at doctors rest room. Derek O'Brien after appealing for old Rs 500 notes to be kept alive then came up with a valid point that probably served as a party confession as well.

There is a proposal that the center should fund elections. OBrien pointed out that 80% of all election funding comes from unknown sources and that if this was curbed then the center should bear the cost. This is an interesting proposal and I don't know much about it

IIRC, NM did propose that elections should also be state funded.

[Karthik S]

They may use this ploy to offset their NPA losses (without obviously appearing to do so) and boost their bottom lines at the cost of their customers.

They are already doing it by not passing on the interest rate reduction from RBI. By March 2017, all NPAs will be off the books and they will probably pass on the interest rates.
Right now the banks have a surfeit of deposits but no idea about how long they will stay with them, if they can lend it to others or if they will find any borrowers even. The deposits did not grow organically but came in a deluge. Until a steady state is established between deposits and borrowers, the banks are left with a lot of capital for which they are liable to pay interest without being able to lend out that money. Depending on the demand for capital and the deposits that are sticky, the lending rates and deposit rates will eventually converge after some time.

The best way to lend would to the government itself for any infrastructure projects. Also, only such project will require massive amount of money in one go. Recently heard about 35,000KM of new highways for freight movement, this project could be a start to borrow loans from banks.

[arshyam]

Jaggi's take on the 2000 rupee note, pretty much the same thing we have been discussing here:

The Real Logic Of The ‘Useless’ Rs 2,000 Note: It’s A Stopgap Currency, Born To Die - R Jagannathan, Swarajya

This is what will happen to the Rs 2,000 note. Once it has served its medium term purpose, which is to infuse the economy with legitimate cash quickly, it will probably be withdrawn in stages.
<snip>
However, the underlying logic of printing the Rs 2,000 note as a prelude to demonetisation is sound. It is a limited purpose note that is not meant to be in circulation forever.

The first purpose of the Rs 2,000 note is to quickly fill the void created by demonetisation. A Rs 2,000 note replaces four Rs 500 notes and two Rs 1,000 notes. The printing order for 3.5 billion pieces of Rs 2,000 notes (probably already completed or near completion) is meant to replace half the currency demonetised (Rs 14 lakh crore) in one shot. If money is the lifeblood of commerce, it is meant to replace the blood lost quickly. It is not meant to be hugely transacted on a daily basis.
<snip>

Read the full article at the site.

[yensoy]

There is a proposal that the center should fund elections. OBrien pointed out that 80% of all election funding comes from unknown sources and that if this was curbed then the center should bear the cost. This is an interesting proposal and I don't know much about it

Please see Shri S Gurumurthy's DD interview on youtube https://www.youtube.com/watch?v=0eaCr21PB6I which has been referenced multiple times on this thread Despite reams of column being written by various self-styled experts in the past couple of weeks, this interview is still the gold standard of thought. State funding of elections covered at the end of the interview, around 32:30 mark.

[arshyam]

Per Jaggi's numbers, 2000 rupee notes will amount to 3.5B*2000 = 7B*2000 = ₹7,00,000,00,00,000 = ₹7 lakh crore. It sounds too high, given that 500 notes are also coming out.

[sanjayc]

Deposited my final stash of Cash in the bank today. Not sure why they want a copy of my PAN Card when I am depositing the cash in my own account which is KYC Compliant.

That is to ensure that, if the income tax guys come visiting, you don't claim later that you never deposited this stash of cash, and someone else did to get you into trouble

[Karthik S]

Ministry of Finance ‏@FinMinIndia
Foreign citizens will be permitted to exchange foreign currency upto Rs.5,000 per week.Entry to this effect will be made in their passports.

[jamwal]

Some clever people bought up tickets worth lakhs i ASI managed monuments like Taj. Most of those have been declared invalid though.

[yensoy]

Ministry of Finance ‏@FinMinIndia
Foreign citizens will be permitted to exchange foreign currency upto Rs.5,000 per week.Entry to this effect will be made in their passports.

I hope that means converting INR back to foreign currency. Someone with better English skills should have written that tweet.
Limiting someone to converting USD to INR to no more than Rs 5000/week is totally asinine - that's like $80/week. Yes there are tourists who live on that kind of money, but we don't want those kinds of tourists

[Vikas]

Almost puked when I saw his holiness shri manmohan singh speaking in parliament and shedding tears for poor and weaker sections of the society unless by that he meant SG and her clan.
Is there nothing that would shame this Man ?

[Sachin]

Okay. So no more "currency exchange" scheme through banks. Till Dec 15 the old Rs.500 & Rs.1000 can be used at the other government establishments listed earlier (like Govt. hospital, Govt. managed fuel pumps etc.).

[chetak]

There is a proposal that the center should fund elections. OBrien pointed out that 80% of all election funding comes from unknown sources and that if this was curbed then the center should bear the cost. This is an interesting proposal and I don't know much about it

Please see Shri S Gurumurthy's DD interview on youtube https://www.youtube.com/watch?v=0eaCr21PB6I which has been referenced multiple times on this thread Despite reams of column being written by various self-styled experts in the past couple of weeks, this interview is still the gold standard of thought. State funding of elections covered at the end of the interview, around 32:30 mark.

This means that all political parties will also come under the RTI, something which no politician wants.

[jamwal]

I hope that means converting INR back to foreign currency. Someone with better English skills should have written that tweet.
Limiting someone to converting USD to INR to no more than Rs 5000/week is totally asinine - that's like $80/week. Yes there are tourists who live on that kind of money, but we don't want those kinds of tourists

Some monuments have special counters where tourists can exchange 500 , 1000 notes, but limit is only 2000 for one and they need to fill up form and provide passport copy.

Tourism sector has taken a hit. Most monuments don't even have card machines. They were accepting all notes till 24th, but I don't know how clueless foreigners will manage now specially when they are expected to pay 500 for each entry.

[Marten]

Okay. So no more "currency exchange" scheme through banks. Till Dec 15 the old Rs.500 & Rs.1000 can be used at the other government establishments listed earlier (like Govt. hospital, Govt. managed fuel pumps etc.).

Can I not deposit the amounts in my bank account? If the regular queues have reduced, why does the exchange option have to go away? It would signal another plan on the offing.

[yensoy]

^^^^^^^^
It is pure idiocy to deny foreigners the facility to convert medium-large amounts of Forex to INR. What are we trying to accomplish here? Force them to use Hawala? Rs5000 doesn't buy much, and many foreigners are reluctant to use cards, justifiably so.

[shiv]

It is very likely that black money hoarders have already bought foreign exchange from tourists at attractive rates like Rs 75-100 to the US dollar and paid them from Nov 8th onwards in Rs 500 and Rs 1000 notes telling then that they can still be used in so many places. A tourist on a budget would be happy to do a deal like that rather than get the regular rate from the usual suspects

[shiv]

Okay. So no more "currency exchange" scheme through banks. Till Dec 15 the old Rs.500 & Rs.1000 can be used at the other government establishments listed earlier (like Govt. hospital, Govt. managed fuel pumps etc.).

Can I not deposit the amounts in my bank account? If the regular queues have reduced, why does the exchange option have to go away? It would signal another plan on the offing.

The logic is apparently that the poor are now done with exchanging their notes and only the hoarders are left. The time to rein them is is approaching. People can still deposit into accounts

[Karthik S]

^^^^^^^^
It is pure idiocy to deny foreigners the facility to convert medium-large amounts of Forex to INR. What are we trying to accomplish here? Force them to use Hawala? Rs5000 doesn't buy much, and many foreigners are reluctant to use cards, justifiably so.

The fact that this rule has been brought about after 2 weeks post demonetization means there will be a reason and necessity. Let's wait and watch how long this rule is implemented.

[yensoy]

It is very likely that black money hoarders have already bought foreign exchange from tourists at attractive rates like Rs 75-100 to the US dollar and paid them from Nov 8th onwards in Rs 500 and Rs 1000 notes telling then that they can still be used in so many places. A tourist on a budget would be happy to do a deal like that rather than get the regular rate from the usual suspects

Which is why I am perplexed by the wording... the limitation seems to be in conversion of Forex -> INR and not the other way around (agree with you that INR->Forex should be capped).

[shiv]

It is very likely that black money hoarders have already bought foreign exchange from tourists at attractive rates like Rs 75-100 to the US dollar and paid them from Nov 8th onwards in Rs 500 and Rs 1000 notes telling then that they can still be used in so many places. A tourist on a budget would be happy to do a deal like that rather than get the regular rate from the usual suspects

Which is why I am perplexed by the wording... the limitation seems to be in conversion of Forex -> INR and not the other way around (agree with you that INR->Forex should be capped).

Most probably because tourists are being given forex by hoarders to exchange at an attractive rate. We have enough crooks as tourists.

[yensoy]

^^^^^^^ doesn't add up. If they have Forex what's the hurry in exchanging it? (falling rupee makes it even less meaningful)
As I said earlier, I think it is babu English for "can convert only up to Rs 5000 into Forex".

[shiv]

^^^^^^^ doesn't add up. If they have Forex what's the hurry in exchanging it? (falling rupee makes it even less meaningful)
As I said earlier, I think it is babu English for "can convert only up to Rs 5000 into Forex".

The hurry is if they are crooks and are being offered a premium rate for it. The number of tourists who come for cheap ganja and sun is large. The 5000 limit makes it unattractive now

[yensoy]

The hurry is if they are crooks and are being offered a premium rate for it. The number of tourists who come for cheap ganja and sun is large. The 5000 limit makes it unattractive now

Sir you are not getting what I am trying to say. If there is some local black marketeer who is holding Forex, why would they care to use a gora mule to exchange to INR? They can do it thru hawala themselves, maybe even score a better rate. There is always a demand for Forex in India. Unless they have some other liquidity issue, they can wait till the counterparty is flush with (ill-gotten) INR cash. Let's wait for the clarification tomorrow

[Suraj]

IMHO, the Rs 2000 note is a short term monkey trap . Any fool who STILL thinks they can go back to the old and hoard undeclared wealth in cash will sit worrying for the day when GoI says 'chal beta, these notes are invalid going forward . You can deposit them only, until xyz date'. No exchange because everyone's supposed to have gone white by then...

[SRoy]

Focussing on "Future Course of Indian Economy" part (as title of this thread) ...

Yesterday evening, I strolled inside a mall as I was hungry. I was out for evening walk and mall is 10 minutes of walking distance from home.

Tried a couple of kiosks of reputed lines of savouries and pastries. Neither had a swipe machine. Didn't want to buy in cash. So, found another shop outside the mall that had swipe machine and brought my stuff there.

As a business that sees footfall from well heeled section of the population (it's big mall inside one of the upscale localities) cannot be bothered to have cashless transaction facility?

I think well off people like us are to blame for good amount of white money getting sucked into parallel economy.

GoI need to make it mandatory for businesses to install PoS / swipe machines.

Atleast BRFites can make a beginning. For well established merchant outlets refuse to buy stuff unless they accept electronic payments. Spread the word. I already started to do so.

[ShauryaT]

IMHO, the Rs 2000 note is a short term monkey trap . Any fool who STILL thinks they can go back to the old and hoard undeclared wealth in cash will sit worrying for the day when GoI says 'chal beta, these notes are invalid going forward . You can deposit them only, until xyz date'. No exchange because everyone's supposed to have gone white by then...

We shall see Suraj. In about 6 months things will be clear on where it is going - on the ground. Does the black economy continues or has taken a deep enough hit.

[hanumadu]

I watched the RS debate only for a few minutes while waiting in queue to pee at doctors rest room. Derek O'Brien after appealing for old Rs 500 notes to be kept alive then came up with a valid point that probably served as a party confession as well.

There is a proposal that the center should fund elections. OBrien pointed out that 80% of all election funding comes from unknown sources and that if this was curbed then the center should bear the cost. This is an interesting proposal and I don't know much about it

IIRC, NM did propose that elections should also be state funded.

NDA1 mooted the idea too. In many ways, NDA2 is a continuation of NDA1.

[Marten]

The hurry is if they are crooks and are being offered a premium rate for it. The number of tourists who come for cheap ganja and sun is large. The 5000 limit makes it unattractive now

Sir you are not getting what I am trying to say. If there is some local black marketeer who is holding Forex, why would they care to use a gora mule to exchange to INR? They can do it thru hawala themselves, maybe even score a better rate. There is always a demand for Forex in India. Unless they have some other liquidity issue, they can wait till the counterparty is flush with (ill-gotten) INR cash. Let's wait for the clarification tomorrow

Absolutely! I was asked by a colleague here if I had any $s to be exchanged (in BLR) and that the cash would be made available in BLR. Asked if I would carry some back if I didn't want to exchange what I have on hand. Have half a mind to report the bugger to HR. But it was an informal offer so it is just a family deal thing in my opinion.

[sudeepj]

I watched the RS debate only for a few minutes while waiting in queue to pee at doctors rest room. Derek O'Brien after appealing for old Rs 500 notes to be kept alive then came up with a valid point that probably served as a party confession as well.

There is a proposal that the center should fund elections. OBrien pointed out that 80% of all election funding comes from unknown sources and that if this was curbed then the center should bear the cost. This is an interesting proposal and I don't know much about it

Modi talked about this recently at the time of demonetization.. This should happen relatively soon if a big party such as Didi Congress supports it.

[Bart S]

Modi talked about this recently at the time of demonetization.. This should happen relatively soon if a big party such as Didi Congress supports it.

They aren't really supporting it. They just brought it up as a threat to try and roll back demonetization.

[Suraj]

A lot of businessmen here argue that 'demonetization is not enough. Govt should handle corruption'. I spent some time thinking about this.

Rewinding back to first principles, there was first no corruption or black money. Then an under the table transaction occured between two people. Now both people were compelled to maintain the facade so they don't have to make the transaction official. But they cannot keep that money idle - it's worth Rs.0 . They have to transact it and each new person becomes in on the new parallel economic relationship. Each successive person has the same new motive now.

What happens when a businessman receives money from a salaried person for goods or services and keeps that cash undeclared ? It does not end with the person. He/she sets off a chain reaction where he needs more and more people to transact in black money. Say you make a widget. You sell them and don't declare the cash. You tell your suppliers 'lets deal in cash, for a small discount. Saves us some headaches'. This gets propagated down the chain. You also have to deal with government agencies. You may need a permit, or any other thing. You can't offer a cheque.

What's more, you're not merely transacting in money. You are transacting in a power dynamic. You're setting up a relationship with people who can use the fact that you dealt with them under the table, to control you. The government officer whom you cajole to give you a permit for cash, he can threaten to report you. The guy at the border post who lets your goods through for a payment so as to avoid the octroi ? Same thing.

It is disingenuous to view black money as something you are forced to transact in, to save trouble of interacting with corrupt government, when the same money feeds that corruption. There are externalities to your action that add costs even as you try to circumvent them. It all started with something small here and there, that grew and grew into its present form. It's become so complex that fixing it though excision is impossible. How do you fix corruption by cops using cops you're not sure are corrupt or not ? There are an impossible number of circular relationships of the kind. It cannot be fixed because almost every attempt to do so will dissolve into something akin to a dog chasing its own tail.

The most effective action in this case, is to invalidate the entire value of the black economy. Make it come clean in order to retain part or whole of its value, but as white economic activity. That's what demonetization did. Legitimize it or lose it. Sure there will be leaks, but anyone who tried to save his cash by using such an approach deserves every bit of corruption he faces . But fundamentally, demonetization hits a reset button. All that accumulated cash ? Worth Rs.0 now. All that leverage built on corruption ? Worth zero now. Fundamentally, the situation is back to 'first principles'. To create or restore corruption, you actually have to renew the same relationship.

What happens now ? You want to fix corruption ? Simply refuse the demand for cash. What's the guy going to do ? Threaten to report you ? Your money has been made white. His money, probably not. The power dynamic has changed overnight. Do all the businessmen not recognize it ? YOU hold the cards in the corruption equation now. Not them. You can refuse to transact. It can cause some temporary pain. But the other person has no power over you. He's sitting on toilet paper himself. He can't finger you anymore.

A lot of corruption can be addressed simply by brazenly stating you'll not pay the hafta, go ahead and report me . What are they going to do about it ? Nothing. Once you declare, you're in the clear. You have power over those whom you had to pay a bribe to, that they cannot overcome. Considering it is open season on reporting black money, all you have to do is threaten to report THEM. Will all corruption go away ? No. But the corruption you face directly, you now have the explicit power to take on and remove. Is that not something you'd want to do ?

By refusing to renew prior relationships except in white money, you're hollowing out the power dynamic that drove the corruption. If you even consider renewing the relationship, you are being stupid. Why on earth would you do that ? You just declared your wealth, paid a penalty and can continue to do business. That person has no control over you. You hand him a new bribe ? That's like writing 'KICK ME' on a cardboard and handing it to them saying 'please paste on my back and then follow instructions'.