Currency Demonetisation and Future course of Indian Economy

[Supratik]

I have in general found small corruption to be less in south India than in the north.

[Sachin]

In bengaluru, even lot of chai vendors give proper receipt but lot of good small restaurant won't . Thing is if one set of people can do it why not others.

This could also be a reason that very many shops did not accept Rs.500/-. Because they don't want to start giving bills and recording these transactions (which they will have to show in case some one questions them based on the money deposited). I feel it is quite known that any from a stationary shop owner does fudge his sales records.

[kvjayan]

Saw an announcement in front of a typical enterprising 'Nadar' vessel merchant's shop in south Chennai: "Rs. 500 and Rs. 1,000 currency notes accepted for purchases". In banks, depositing old currency into own account and withdrawing 'new' cash (within the limits) using 'self' cheque seems to be smooth going.

[Akshay Kapoor]

Part of the problem with his employees are that they have average education and lower middle class quite a gullible category. The guy is well connected and very deeply influential.

Report him to PMO annonymously. If you cannot give me his name and I will and I will ensure that your name never comes. High time we do our Karma as well. My email is [email protected].

Bhavani, this goes for you too. Give me the name and I will report it anonymously. No one will connect it to you. Soldiers honour.

Let's help Modi please. We cannot expect him to keep batting for us and not do our bit.

[yensoy]

Taxes wise, boss I file income taxes in 3 large countries and let me assure you that Indian tax rates are the lowest. If you are complaining about Indian IT rates, you have no idea about the world (and please don't compare with islands of prosperity like Dubai or Singapore).

I think the level of corruption in state and local level is much higher than at the central level. But this discussion is not about corruption; that will need other means to fix and from the past actions I believe Modi very much has that as a target.

Saar, please.. I too file taxes in 2 large countries. In the 'other' country, when i visit a restaurant I don't pay nearly 20% in taxes, after i have paid 30% income tax. I dont pay nearly 40% in taxes when I fuel my car. When I buy a car, I dont pay road tax, VAT, tax on tax. I dont need to subsidize someone else through tax because that guy belongs to particular caste/tribe. When I cross inter-state borders with goods, I dont worry about Octroi, Excise (note: use tax is different, it is same as sales tax).
So hope you can see why India is one of the highly taxed countries, also with one of the poorest tax base. Successive govt have done piss-poor to expand it.

Sorry I don't agree with all your points.

1. 30% income tax for a high earning bracket is low. In addition in many countries you have something like social security which is yet another few percent, then state income taxes - in effect you are looking at closer to 40% marginal rate.
2. 20% in "sales" taxes is high? Maybe not. Sales tax in parts of US is close to 10%. Then there is this thing called a "tip" which is basically 15-20% - you can say it's not a tax but well it amounts to the same. If you look at VAT in Europe you will love your 20% tax.
3. Fuel policies vary with country. At around 1$/litre, petrol in India is somewhere in the middle of the range. You have Venezuela, Iran and other oil fiefdoms on one side, then you have Norway types on the other. But a large part of the world pays around what we do. Just because it can be pumped for cheap from the ground doesn't mean fuel should be nearly free.
4. Now you are bringing an entirely different dimension (reservations) into your argument. Let's stay on point and not conflate discussions.
5. I hope GST will fix inter-state commerce; local taxes and jurisdictions are a nightmare - that part I agree.

Having said all that, I think the following 2 points must be made:
1. I agree that some of us are picking up the tab for a large section of the population which doesn't pay due taxes. That has to change and the tax net has to be widened (for income taxes). If this is achieved, lower rates are in order.
2. Conversion of tax into government services & facilities is abysmal. I will pay my due but I want better roads, a usable footpath, clean surroundings, no mosquitoes, no pollution, better security etc.

[kvraghav]

Ok, answer me this rhetorical question.

Will share part of your honest profits, post taxes with an ugly jackass from the IT dept & sales tax dept as bribes ?

humor me.

Sir, our family is into municipal construction tenders and you cannot even imagine the percentage we pay but the idea of this and any other business is simple, the profit that we make includes our profit plus commission. Every body does the same since every body have to pay them. Our margins are 50% since we know 30% goes as commission. Everybody quotes with same margins keeping the 30% common.

[Supratik]

You have to see the aggregate taxes in some European countries. Fuel is heavily taxed (US is not the barometer). They need it to pay for the various social security schemes they have. In India we expect low taxes and freebees. No one knows who is going to pay for it. The socialist parties think money is baap-ka-mal and will fall from heaven. Services and utilities and infrastucture are abysmal. There is little money and whatever is there is being looted by a section. This stranglehold needed to be broken.

[yensoy]

I have in general found small corruption to be less in south India than in the north.

In most societies perceived as "clean", corruption is distilled to a select part of life while the rest is kept clean. In Japan, surprise of surprises, the sectors are construction and pachinko (pinball/gambling) - these are the nest of vipers. The rest of Japan public life is spotlessly clean. Thailand has its seamy side, mafias and slave labour gangs harvesting shellfish - the rest of life is rendered clean by the Army to make it a tourist heaven.

South India has some sectors which are incredibly corrupt like auto rickshaws/pubic transport, in fact anything related to transport; water tanker business, and a whole host of others. On the other hand, many aspects of life are relatively clean and an aam aadmi may not get shaken down too often.

[Karthik S]

Subramanian Swamy ‏@Swamy39
From what is happening in small towns and rural areas. it seems that MoF made no contingency plan for denomination for the last 2 1/2 years

Didn't the printing of Rs 100 notes start 6 months before. Looks like it wasn't sufficient to cover the demand.

[Vadivel]

A deal was to be made last week, it got pushed to this week.

Bank loan against land depends on the valuation by a valuer and capacity to repay. Its hard to raise enough of cash for my medium term plans, but enough for short term, but asset valuations are going to be iffy from now, and banks are going to be 'more' stricter on land backed loans.

I am just trying to understand how the Government intends to handle some negative's created by this event which is largely very positive

MohsKav, BRF is a Namo-fanboyism-india-super powa-white-collar-IT-upper-management user base. Its not very entrepreneur friendly who face challenges day in and day out because the system sucks. Know your audience before you whine.

[Supratik]

We had discussed this in BR during the last NDA govt. There needs to be an all-India business directory database and all transactions including taxes should come online for transperancy. Many of the problems will go away if this happens. Modi should take this up under digital India. Now you can link it to Adhaar.

@rytha

We are first for India before anything. So stop baiting.

[yensoy]

Folks, it takes balls to demonetize, and it takes balls to be an entrepreneur. When I wanted to buy a flat about 10 years ago, I was asked for black money (not much in those days) to which I said "where can I (working abroad) get black money from"? I think the entrepreneurs here are also in the situation where they have to perforce convert their good, hard earned and fully taxed "white" money into a bribe. Demonetization is not going to fix corruption overnight, so while I urge them to please be patient and persevere for honesty, I request the rest of us here to sympathize with their plight.

I can't even get a driving license without paying someone off - I had to go through a "driving school" for this privilege at my mature age with several decades of driving under my belt. The owner of the driving school chatted a bit during the wait at the RTO. On the positive side, RTO ensured that everyone took the test. On the negative side, as per the owner, RTO had a clear list of who had paid and who had not; those who had not paid would be called out of line and failed.

And there is a reason why this won't go away so soon, it's because RTO has given a fat wad of cash to the minister in charge to get that job. It's not a "let me make some more money" greed issue now; it's a "sauda" or business decision for which investment has already been made.

[Supratik]

You need to break the cycle of taking and giving black money at some point. Otherwise it is just going to go on and on.

[Gus]

Hopefully , Just the jolt of this should keep corruption down for a while. Definitely the restricted cash flow should help

[Sicanta]

I managed to use axis atm which was opened up at 10 pm after the armored vehicle bought in new cash. Guard told me it was worth 1.5 lakh and will last for 2 hrs max since everyone was using 2 cards. The only complain by most of the people was lack of 100 rs notes. 2000 rs notes are not useful for conducting daily purchase and sales.

[Marten]

And how precisely does one break this cash economy? Short of banning cash transactions for values UNDER say Rs 1000, how does one impose the wallet payments system? We are highly vulnerable to intrusion from the Russians, Chinese, US, not to mention Pakis, Indonesians and several other disgruntled groups other than our own. Imagine a situation where the balances/life savings of millions are wiped off by one intrusion into a wallet system. I'm told by an insider not only is it possible, it is happening without being reported. They are apparently covering the losses. Multiply this with millions of instances and we will be bleeding from all corners of the country. Already we have shown our first loyalty is to cash and not to country!

There has to be a modicum of honesty in each individual where they place service to the nation above all else. Unfortunately, we are in Kaliyuga and must live by the code that exists now. Basically building layer after layer of security to protect our digital assets and firewall the country from folks who can then simply generate e-currency because guess what is easier than actually having to print currency!

We need a better strategy and more long term plans. These ad hoc measures will not sustain themselves over a few years. Eventually we will find the sane tax avoidance. Disincentivize that and things will change for the better. Until that happens, this middle class salaried class that pays most of the tax revenues will continue being burdened.

[Suraj]

The same people will then crib on other threads about India not being able to compete with China in manufacturing. While all they can do here is mock and celebrate the bankruptcy of thousands of businesses in India that are run by common people.

And you have absolutely no clue about what THEY put THEIR people through. They did this black money drive in the early 2000s. And before that they retrenched between 3-8 lakh SOE (state owned enterprise, their term for PSU) employees. No 'voluntary retirement package', no union bargaining. You're told one day that the company is shut and you have no job, here's some money, bye bye. And we are not even getting to all the millions whose property was dispossessed because, after all there are no land rights and PRC govt owns everything.

Our economy is living with a corrosive influence in the form of black money. Just because all those small businesses are used to living within it, doesn't mean it's worth keeping that way. As has been argued, many of them avoid paying tax, simply because black money and corruption has made it impossible for them to pay their fair tax, and any attempt to do so means they pay a ridiculously higher hafta instead, and therefore they float under the radar. Those problems can't be fixed without essentially invalidating all that black money out there and forcing the ones who hold it to come forward with it, as this does. And no, just because a few anecdotal stories of people getting away with it are quoted, does not mean they are. There's too much black money out there, and way too little time to swap it out undetected, and there's not enough cash being printed to replace even 1% of the black money float.

It's a valid argument to state that more needs to be done besides demonetization. It's also valid that more HAS already been done besides demonetization - GoI did several steps to set the groundwork for this. Everyone appreciates that the sudden move hurts people. But please, don't let your emotions get in the way of appreciating what's been done and the way it's done without notice, is in every decent person's best long term interest, and don't try to discredit it.

[Sicanta]

But the situation is much worse in rural areas according to people. Cash delivery vehicles are not making enough rounds their apparently with public waiting in lines for hours and hours.

[Suraj]

And how precisely does one break this cash economy?

GoI has no plans to replace all the existing invalid legal tender out there with legal tender. That's been made clear from the start. They permit unlimited deposits but very contrained amounts for withdrawal or exchange. There literally won't be enough paper float backing a paper economy. They're respond to every statement of constrained liquidity by forcing a move to cashless payments. They're not taking away money (other than tax or penalty) , but they are demonetizing by essentially removing most of the high value currency paper from economic activity using this action.

With all due respect, this move is not ad hoc. It's essentially the most extraordinary hammer to the problem GoI could swing. There are political costs to them in the form of disruption to many honest folk. But they chose between gradual incremental improvement that's barely perceptible, and a sudden rip-the-bandaid-off-without-notice, and decided the latter is something they can ride out. They're doing their best. Our choice is to either a) support them and accept that while unpleasant, it's needed or b) actively complain and attempt to obstruct and muddy the waters with disagreements that divide people.

People who are complaining and are told we empathize with them, simply ignore that and keep yelling. So what's the point of empathizing ? You have entrepreneural folks instead mocking the salaried class here despite us simply telling them this is a necessary short term action. People are just angry, and simply taking it out on others. Beyond a point it doesn't help to engage the anger with logic.

[Rishi Verma]

Here comes crackdown on gold hawala across 25 cities!

Stir-fried Goldfish

[LokeshC]

Not a businessman and don't have much invested in india, (in black) so I am not going to act sanctimonious, but let me say this:

The system is addicted to BM and now behaving like an otherwise healthy addict coming out of addiction.

Signs of withdrawal symptoms every where. Even my relatives who are still huge namo fans are getting cranky

[Marten]

And how precisely does one break this cash economy?

GoI has no plans to replace all the existing invalid legal tender out there with legal tender. That's been made clear from the start. They permit unlimited deposits but very contrained amounts for withdrawal or exchange. There literally won't be enough paper float backing a paper economy. They're respond to every statement of constrained liquidity by forcing a move to cashless payments.

Suraj, I understand the tools they have on hand, but how do they ensure safety of the funds across new layers of tech. I do not know the intricacies of how payment wallets are different from web apps offered by banks (basically the web layer of their online banking). I mean, do they envision debit cards fulfilling the function (using RuPay and UPI) or do they think Payment banks are already safe enough? (I know there are gaping holes because we work very closely with one aspiring co and are hardly convinced even though they have some very smart chaps working on this).

[Sicanta]

Not a businessman and don't have much invested in india, (in black) so I am not going to act sanctimonious, but let me say this:

The system is addicted to BM and now behaving like an otherwise healthy addict coming out of addiction.

Signs of withdrawal symptoms every where. Even my relatives who are still huge namo fans are getting cranky

Cranky about what in particular? Having to visit banks, atm's and temporary lack of liquidity or something much more?

[LokeshC]

About last minute deals gone wrong and also the fear of dealing with more bureaucracy which is super compromised because its still running in colonizer mode.

This move does impacts daily cash flow of mid level trader folks. It's not an easy transition for them

[madhu]

Just had a chat with a scheduled bank manager in Mapusa.

He said in 2 days they have received 2.5 cr deposits when on an average day they receive a few lakhs

Same out in mysore ... a small branch .. best thing is they have introduced special addon for this ... now casher has to enter dinomination ID proof number for cash exchange. Beauty is all banks are linked... u cannot use same ID to exchange in a day even if u go to different banks... but loop hole is.....(sorry, u can guess )

One more is all the mony is going to SB account only. System is not allowing to deposit it in any loan account.

Good job in short time I think.

[Vadivel]

"Government servant" is a strange word for people working in government department, a better word is "government businessman" it makes more sense. Because the word "government servant" falsely gives your empowerment over the other party that you are establishing the right Accorded to you. But then in realty when you do any real transaction you are frustrated that you are not dealing with "government servant" but a "government businessman", services are not free, even if your right, and there is a faster, easier not to miss the much safer way to finish of work by dealing with a "government businessman". You either deal with "government servant" (rare but still few left) losing lot of time, money and administrative maintenance or deal with "government businessman" who gives door service. Which will you prefer?

[Prem]

http://economictimes.indiatimes.com/new ... n=ETTWMain

Govt's demonetisation move fit for country's security, development: HC

MADURAI: Holding that the move to demonetise Rs 500 and Rs 1,000 notes is fit for the country's security and development, the Madras High Court today dismissed a PIL seeking scrapping of the government notification on the ground it cannot interfere in policies related to monetary system.
Dismissing the PIL, challenging the central government's notification, the bench here observed that big currency notes were used to fund terror activities and that black money was harming the econom .. t

[kvraghav]

"Government servant" is a strange word for people working in government department, a better word is "government businessman" it makes more sense. Because the word "government servant" falsely gives your empowerment over the other party that you are establishing the right Accorded to you. But then in realty when you do any real transaction you are frustrated that you are not dealing with "government servant" but a "government businessman", services are not free, even if your right, and there is a faster, easier not to miss the much safer way to finish of work by dealing with a "government businessman". You either deal with "government servant" (rare but still few left) losing lot of time, money and administrative maintenance or deal with "government businessman" who gives door service. Which will you prefer?

How is this related to demonitising?

[Suraj]

Suraj, I understand the tools they have on hand, but how do they ensure safety of the funds across new layers of tech. I do not know the intricacies of how payment wallets are different from web apps offered by banks (basically the web layer of their online banking). I mean, do they envision debit cards fulfilling the function (using RuPay and UPI) or do they think Payment banks are already safe enough? (I know there are gaping holes because we work very closely with one aspiring co and are hardly convinced even though they have some very smart chaps working on this).

These are very valid questions . I don't know enough to answer authoritatively though . In fact it's something you could dig into and post about . A lot of us could do something here. For example there are posters talking 'I know someone doing XYZ to launder cash'. The logical question is - why isn't this information being sent to authorities ? Even tweeting PMO or similar channels is fine .

[JayS]

@habal,

I will ask the same question again. If I can buy a cell phone with a receipt why can't I buy mithai with a receipt.

In Bengaluru there are hundreds of mithai shops that sell with receipts. Normal practice. of course street vendors don't do that

Shiv the penetration of card payment, receipts etc is far greater than any other city in India. Not even Mumbai could match it. Even buying flats in BLR with 100% white money is not a big deal while in other places at the very least 5-10% are demanded in BM. This is because of IT crowd in BLR I suppose.

[sohamn]

Look guys
I see so many people cribbing with statements like
"While I don't have blackmoney I have to stand in queue" and
"I don't have black money but I can't sell land for 3 months" and
"I have done nothing illegal but I can't pay someone for few weeks" etc

PLEASE THINK - its our opportunity to do service to our nation. Our nation called us and we should answer. Our solders - when they fight across the border don't think for a moment that I don't want to make sacrifice for the nation and many do the ultimate sacrifice by giving up their life.

And WE "the most selfish types " always crib how corrupt our country is, and when a chance comes to serve and make a tiny sacrifice - we capitulate.

WE "the most selfish types " should be ashamed of ourselves.

[saip]

Have the gold prices doubled now? My sil said they are asking 50k for 10gms. The present price of gold is down by 10% to $1230 here.

[Suraj]

In the short term all markets are irrational .

[saip]

My SiL is coming here next week and wanted to buy a gift for my wife. She had a shock of her life when jeweller quoted 50k for 10g. I told her not to bother. This is crazy when they have to pay in white money and the intl prices have actually plummeted after Trump.

[shyamal]

In Bengaluru there are hundreds of mithai shops that sell with receipts. Normal practice. of course street vendors don't do that

Shiv the penetration of card payment, receipts etc is far greater than any other city in India. Not even Mumbai could match it. Even buying flats in BLR with 100% white money is not a big deal while in other places at the very least 5-10% are demanded in BM. This is because of IT crowd in BLR I suppose.

I have purchased apartments in Hyderabad and Kolkata - all in 100% white. No BM was asked or even hinted.

[srinebula]

I saw on TV Hyderabad water board claiming they have received Rs. 40 cr payments today in old 500/1000 notes.
I am wondering if Babus are somehow channeling BM through utilities payments route. I can't figure this out; This money will have to go into the board's bank accounts; so, probably there is no easy way for them to take it back. Is it possible they are just dumping their BM into the utility instead of burning it. By enriching the utility with their BM, they my have a better chance later to take a cut into it.

I think many of the state Govt.s might try to exploit these loopholes and get some of their BM converted. Let's say CM level they decide to pump lot of BM into utilities through utility payment route. Since these utilities are fully under state Govt. control, they may easily siphon off this money.
Just some thoughts.

[Sicanta]

There are plenty of rumors going around in North and Central states about salt shortage. Apparently it is being sold for 200-300 per kg pack. Maybe the hoarders want to profit from temporary shortage in liquidity and create panic to make it a vicious circle. Or maybe they just dont want to see public supporting BM moves by govn.

Paswan has had to make a statement assuring that there is no salt shortage.

[jamwal]

Look guys
I see so many people cribbing with statements like
"While I don't have blackmoney I have to stand in queue" and
"I don't have black money but I can't sell land for 3 months" and
"I have done nothing illegal but I can't pay someone for few weeks" etc

PLEASE THINK - its our opportunity to do service to our nation. Our nation called us and we should answer. Our solders - when they fight across the border don't think for a moment that I don't want to make sacrifice for the nation and many do the ultimate sacrifice by giving up their life.

And WE "the most selfish types " always crib how corrupt our country is, and when a chance comes to serve and make a tiny sacrifice - we capitulate.

WE "the most selfish types " should be ashamed of ourselves.

Most of such people are one step lower than the famous armchair riding keyboard warriors. These folks are a bunch of hypocrite loudmouth uncles who will lecture everyone about hygiene while spitting tobacco everywhere.

I am running a business since last 4 years. Its not an easy job or even convenient doing everything according to law, keep everything in white. There are many businesses where it is even more difficult. Govt policies over the years have not been very helpful . But now we have a chance for change but these hypocrites will keep on whining and blaming everyone apart from themselves for any kind of trouble they are in.
If you sold some property for black money and kept the cash at home, then it is your problem.

If you took cash for all your business deals and never declared the income, then it is your problem.

Did we hear you complain while you were enjoying fruits of your illegal dealings for decades ?
If you don't like the fact that the money you kept hidden in your house is now worthless after years of mooching of honest taxpayers, then you can get a visa and go elsewhere till Modi is in power.

To the loser who called posters here Namo fanboys, if caring for overall wellbeing of country makes one a fanboy, then so be it. atleast most of such fanboys are not pathetic, bitter, hypocritical, cynical ******** who preach something but then squeal like a halaled pig when caught stealing

[RohitAM]

I honestly think that while a lot of us think that the moves being made by the government through the disclosure scheme and then this, are targeting the external black money and counterfeit currency users (salaried class, businessmen, politicos etc), I rather think that the next step in this entire sequence of cleaning up the economy would be the systematic targeting of the babudom. It wouldn't surprise me to suddenly see a ton of bureaucrats running for cover as an entire plethora of IT raids rains down on them - that will ensure the second cleanup of the system: first, remove the black money, and second, eliminate those in the government who cause empowerment of the black money. In a year or so, all the complaints that we have read here about having difficulties in business ventures due to the bureaucracy, might just reduce enough to be one-off cases here and there.

Finally, the government will turn to the final internal black-money enablers, especially at the individual level. In a year's time, the Income Tax and Enforcement Directorate guys will be feeling empowered and immune due to the way they would've worked with the government to raid multiple black money hoarders and users, and they just might not see the final blow of the hammer as it lands on their heads. The government, I'm quite sure, is already looking to create a nationwide list of IT officials who are completely clean and would be more than happy to weed out the malicious individuals within the IT and ED departments. This final clean-up will be the step taken by the government to provide reassurance to the common public that they can file their taxes in peace, without facing undue harassment from the taxman. This last move will help the government realize tax gains from individuals and companies through complete financial disclosures - will they cover 100% of the market?? Of course not. But moving from 5% income disclosures with hidden parts, moving to even 20-30% of full disclosure gives the government enough of a revenue stream to both drastically reduce the fiscal deficit as well as invest heavily in infrastructure, healthcare etc., even if the government decides to reduce the tax rates for the common man in the long term.

Modi has publicly said in Japan that he wishes to make India the world's "most open" economy, a far cry from the protectionist license-raj crap we were subjected to under the Congress rule in the 60's and 70's. He cannot do that unless he makes the bureaucracy transparent, and so I feel that the babudom will be lined up for the hammer blow next. The final step of the economy being "fully open" would be citizens not being fearful of the taxman, and that'll be the final step in curing the country of many of its ills.

[nachiket]

I haven't really understood this phenomenon of gold prices shooting up and people converting their BM to gold. Good for them if they do that. But what will the jewellery shops do? Aren't they left holding the bag (literally) of worthless notes? Depositing that money in the bank is a huge risk. But they have to, otherwise they would have given away their gold for free. What exactly is their gameplan?