Currency Demonetisation and Future course of Indian Economy

[Suraj]

Simple. Higher gold prices = additional loss margin to tax/penalty upon deposit.

Same reason hoarders are pushing up prices of basic essentials - margin padding for when they try to deposit it. This needs a firm statement from GoI that they will be punished even more severely for doing this.

[Sicanta]

Simple. Higher gold prices = additional loss margin to tax/penalty upon deposit.

Same reason hoarders are pushing up prices of basic essentials - margin padding for when they try to deposit it. This needs a firm statement from GoI that they will be punished even more severely for doing this.

Suraj ji, can you please explain the hoarders bit in more details?

[Picklu]

From my banker friends: branch hopping were possible and done yesterday but today all branches of all banks are linked by KYC and payment is being stopped at the 2nd attempt without any prior warning.

The elephant is performing break dance for last few days and it is just beautiful to watch.

We are a privileged lot to live in this time.

[Kati]

Just to share my personal experience ...

A few years back we bought a small flat in Kolkata, and after the day we made the last installment to the promoter we
suddenly get a letter from the IT dept demanding to prove that all transactions were done legally. So we had to rush with
all bank passbooks, receipts, etc. Within half an hours, after scanning our papers, the IT Dept let us go....

I guess for much higher priced flats BM works.....

[nachiket]

Suraj, can't the jewellers claim that the gold price went up due to sudden high demand?
In any case, the money will still enter the banking system. So all is not lost.

[kvraghav]

Wouldn't the govt ask for wholesalers invoice in that case with higher price?

[Suraj]

Suraj ji, can you please explain the hoarders bit in more details?

You're a hoarder. Your pile of rs.500 and 1000 are TP now. You have to deposit it. You are facing a very large haircut. All the fancy 'find 10000 abduls and make them deposit it' is way too complex to do in real life. Even Amma cannot find enough loyal idiots to do that, so how does a neighborhood profiteer do it ? So what's the next best ? Make one last effort to pad your cash pile by hoarding now, then take the hit on deposit when GoI imposes the huge tax penalty upon it and walks away with the revenue gains AND gets it all in deposit base.

The current estimates are a $45 billion boost to current fiscal year revenues from this action. That seems like a low estimate to me. It should be north of $50B. Bloomberg-ud-din sayeth:
Modi May Reap $45 Billion Budget Gain on Anti-Graft Cash Ban, To Boost Budget By 3X Iceland's GDP
Note that this is just the amount of penalties estimated, levied and earned from all investigations through March 31. There'll be more in FY2017-18. And of course, all of this is backed by new deposits in bank accounts that add up to much more.

Suraj, can't the jewellers claim that the gold price went up due to sudden high demand?

What does that have anything to do with it ? Sarkaar doesn't care about gold price/dal price/onion price, just your reported income in Rupees. So no, this is just padding their pile to make an effort to reduce the hit upon declaration.

[srinebula]

https://twitter.com/rvaidya2000/status/ ... 6814564352
RVAIDYA ‏@rvaidya2000 · 8h8 hours ago

I am sure Govt is working on enhancing credit availability to Uninc using the demonitised money-it will lower cost of borrowing RT

[nachiket]

Suraj, can't the jewellers claim that the gold price went up due to sudden high demand?

What does that have anything to do with it ? Sarkaar doesn't care about gold price/dal price/onion price, just your reported income in Rupees. So no, this is just padding their pile to make an effort to reduce the hit upon declaration.

But doesn't this make them even more vulnerable to taxman's danda? The gold sellers are probably already worrying what to do with their pile. So they increase it and deposit an even bigger pile? That will take them into 200% penalty and jail territory for sure if they hadn't been there earlier.

[Suraj]

Of course. Go big, or go home (via jail)

Everyone's in a panic. Don't expect every action to be logical or rational. It makes logical sense not to worsen your crime, but then the criminal might just think if he commits more of it, he will just have extra cash to pay off the fine and keep a little more afterwards, even in 100% white money.

[Sicanta]

https://twitter.com/rvaidya2000/status/ ... 6814564352
RVAIDYA ‏@rvaidya2000 · 8h8 hours ago

I am sure Govt is working on enhancing credit availability to Uninc using the demonitised money-it will lower cost of borrowing RT

Well they have a specific channel available - Mudra bank working under SIDBI.

And Thank you suraj ji for that explanation

[ManSingh]

What does that have anything to do with it ? Sarkaar doesn't care about gold price/dal price/onion price, just your reported income in Rupees. So no, this is just padding their pile to make an effort to reduce the hit upon declaration.

But doesn't this make them even more vulnerable to taxman's danda? The gold sellers are probably already worrying what to do with their pile. So they increase it and deposit an even bigger pile? That will take them into 200% penalty and jail territory for sure if they hadn't been there earlier.

The gold being offloaded by jewellers was excess unaccounted for stock. It was in the newspapers today. Jewellers charged a premium for this. Now their books will match their holdings. They can adjust their books for this sale i.e. show the remaining stock to be lower value , for ex 18 carat vs actual 22 karat etc. A classic case wherein books showed a different holding vs real actual stock. You cant stop every crook.

[ManSingh]

http://m.timesofindia.com/india/Demonet ... 375646.cms

[Suraj]

Modi May Reap $45 Billion Budget Gain on Anti-Graft Cash Ban

Prime Minister Narendra Modi’s biggest move to fight tax evasion and graft can add $45 billion to India’s budget, or about three times the size of Iceland’s economy.

Mumbai-based brokerage Edelweiss Securities Ltd. predicts the government’s surprise crack down on high-value currency notes will uncover 3 trillion rupees ($45 billion) in black money, which is cash that’s stashed away to avoid tax. ICICI Securities Primary Dealership Ltd. is even more optimistic, pegging the figure at as much as 4.6 trillion rupees ($70 billion).

Economists are scrambling to calculate potential gains from Modi’s late Tuesday decision to ban 500 and 1,000 rupee ($15) notes as legal tender. The move will suck out about 86 percent of the 17.8 trillion rupees of currency in circulation. The analysts say as much as a third of this will prove to be illegal and be unclaimed. Those funds can then be used by the government to narrow Asia’s widest fiscal deficit.

"This money can now get utilized for various economic reforms’ funding," said Edelweiss analyst Manoj Bahety. The central bank can reduce its liabilities by an equivalent amount or share the cash with the government, he said.

Here’s what the funds could offer Modi:
The chance to slash by more than half his projected 5.3 trillion rupee budget deficit for the year through March 2017
The opportunity to double expenditure on defense and energy
Or increase three-fold federal spending on social services such as education, health and housing

"As investments drive up the supply capacity of the economy, overall gross domestic product growth is expected to benefit in the long term," economists including Dharmakirti Joshi at Crisil Ltd., the Indian unit of S&P Global Inc., wrote in a report on Wednesday. "In the short-term, GDP growth may get impacted negatively as the cash based economy feels a crunch and consumption and investment moderates."

[pankajs]

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?

They think they can manage it via some back dated book entry. Possible for small amounts. Taking risk for earning some mota maal. Some people will always try to game the system. To be expected on a small scale.

[hanumadu]

Some how every body is arriving at 3lakh crore as BM from the 15lakh crore bills.

[Bart S]

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 .

Well, this is just a bogey. Systems with or without cash are vulnerable to fraud and malicious activity, since banks/insurers/payment gateways are already digitized to the point where many consider themselves more tech companies than financial, so such problems don't have to wait till a cashless economy to present themselves. There are safeguards in the system and there will always be a struggle since there are always good guys and bad guys. It's a fact of life. Not a justification to get all paranoid and get paralyzed while the world moves forward.

We have massive problems with the cash economy, where two bit nations like Pakistan are able to harass us. And moving to cashless is actually an opportunity to make a quantum leap forward, even bypassing wealthier nations, just like the jump from DOT landlines to private mobiles. It will be revolutionary and empowering for all.

[Bart S]

Just to share my personal experience ...

A few years back we bought a small flat in Kolkata, and after the day we made the last installment to the promoter we
suddenly get a letter from the IT dept demanding to prove that all transactions were done legally. So we had to rush with
all bank passbooks, receipts, etc. Within half an hours, after scanning our papers, the IT Dept let us go....

I guess for much higher priced flats BM works.....

This is pretty rare actually. Probably the promoter got audited and hence the customers.

BM is more for second sales, land (as opposed to flat) sales and transactions where a loan is not taken.

[Marten]

Bart, the question was not about being paranoid - it was an attempt to understand if they are pushing any new platforms to ensure digital security, We work on a layer that is used by most govt. employees at some point and is being planned for bank employees/customers (at branch locations). Over time, we expect the normal consumer to also be using some of this functionality. The level of security required at this point and the possible manners in which to break the system are known. However, scale will present a problem that none of us are yet prepared to handle. I cannot say more because I do not know the details of how these layers integrate or whether the GOI is actively working on any long term plans or will it be left to the banks and whatever applies to them is enough -- basel 3 cyber security norms etc. I think asgkhan would also be able to answer some parts.
PS: Suraj san, thank you!

[suryag]

Sajjano while all this BM whitewashing is true, this demonetisation also gives a way to the GoI to weed out a lot of fake aadhar card holders, obviously if you dont have a bank A/C which you operated and havent deposited/changed a 500/100Rs note then you are most likely a phantom notwithstanding really impoverished people.

It will be interesting to see what NaMoji now does with all the extra taxes collected, i hope he comes up with some durable social schemes that will show to common man right away that his inconvenience has paid off.

Let us see what the GoI can do with 50BUSD(lower bound)
1. choose to shave of fiscal deficit - really ? Aam Abdul like me doesnt really understand the difference between physical and fiscal deficit(although i have both )
2. recapitalise banks - well anyways they are in gutters why do something about it, anyways this money shouldnt be used to write off bad loans that will have no impact on aam abdul
3. build 60-70 central medical universities so that poor get quality healthcare
4. complete all pending infra projects specifically dams and drinking water schemes
5. reduce Income tax by a significant amount - anyone above 12L to be taxed only
6. subsidise move of all small/medium merchants to digital payment
7. strengthen our armed forces - no visible impact
8. subsidize mega ports so that we can generate employment and snatch business away from others
9. invest in drug research, fund startupindia initiative
10. clearance of urban slums and provision of better public transport
11. create a price stabilisation fund so that dal and onion cannot defeat NaMo in 2019
12. reimburse all college expenditure for all poor/middle class people

[shynee]

In the coming months, a lot of things will change in value. Not just real estate and big ticket things, but even basic groceries, which have been subject to decades of merciless fleecing by hoarders, whose play money is now useful as toilet paper onlee.

.

There is a possibility that they may fleece even more with vengeance to compensate their losses.

[Suraj]

In the coming months, a lot of things will change in value. Not just real estate and big ticket things, but even basic groceries, which have been subject to decades of merciless fleecing by hoarders, whose play money is now useful as toilet paper onlee.

.

There is a possibility that they may fleece even more with vengeance to compensate their losses.

And run up a larger liability to be taxed and potentially jailed for... Yeah you could say 'but they'll demand payment in Rs.100 notes or less'. Sure, and the customer can go elsewhere then. They don't have leverage because they don't have 'money' as such, just paper. So it's hard to buy, hard to sell, hard to unload their paper.

Meanwhile, to keep hoarding more, they have to BUY things to turn around and sell. They have no 'money' anymore. That's the thing - someone needs to be willing to accept paper that no longer has any worth, but needs to be taken to a bank to have worth. To do that they need to prove it's white, or be penalized. This is a transaction between multiple crooks, and one needs to demonstrate that one crook is willing to take on the liability of the other.

They can try to a limited extent, like the gold price going up, but gold is not an essential item one needs to survive.

[nachiket]

Those who bought the gold at the jacked up prices to save their BM have already incurred a loss. The prices will not stay there for long. And they can't sell it immediately, because who has enough 2000 and 500 rupee notes already to buy it?

[ShauryaT]

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?

Report anonymous and stolen PAN ID numbers as the source?

Anecdotal. One jeweler in Mumbai had his place open till 4 AM in the morning on the night of announcement. Business worth 10's of crores reported.

[Brad Goodman]

From what I gathered on BM to buy gold scheme. Looks like it was a panic decision. Especially by corrupt officials who could not come up with any better idea in such a short time. One family story I heard was gathering all the cash stashed at home and in lockers to gauge how much they had and I can tell you even their adult kids were amazed at currency collected on bed. must have been quite a sight.

[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?

Report anonymous and stolen PAN ID numbers as the source?

Anecdotal. One jeweler in Mumbai had his place open till 4 AM in the morning on the night of announcement. Business worth 10's of crores reported.

Suraj and others explained it well. Basically cook the books and try to pass off the huge earnings as legitimate income. Some will still get caught and have to pay the fines.

[shiv]

I'm guessing that the next logical step would be to put a cap on the carrying and transport of cash more than 5 or 10 lakhs - i.e if you are carrying more than that you must declare it to tax authorities.

[Marten]

Those who bought the gold at the jacked up prices to save their BM have already incurred a loss. The prices will not stay there for long. And they can't sell it immediately, because who has enough 2000 and 500 rupee notes already to buy it?

Think of it this way - they will lose ALL of it except 10%. In this case, their hope is to salvage 50% or more. The largest buyers are the corrupt officials. The next strike will be on jewellers - I remember a Malayalam movie about the gold import business and how it was a large scam across SRK. It starred perhaps Mohanlal. The jewellers were already rebelling due to the new taxes imposed and NaMo couldn't care less about their financial support.

[ragupta]

5. reduce Income tax by a significant amount - anyone above 12L to be taxed only

Would not recommend it, rather just reduce the tax by 5% accross the board.
Yes more spend on social benefit, medical, transport infrastructure would be nice for common man(I hate using word aam aadmi now) and for the country. Relief to Farmer, more irrigation and other facilities for poor.

[shiv]

I am utterly amazed at the shameless manner in which Mulayam and BSP MPs demanded a 15 day notice before demonetization. They ar eopenly saying we need time to hide our black money

[shiv]

[hanumadu]

5. reduce Income tax by a significant amount - anyone above 12L to be taxed only

Would not recommend it, rather just reduce the tax by 5% accross the board.
Yes more spend on social benefit, medical, transport infrastructure would be nice for common man(I hate using word aam aadmi now) and for the country. Relief to Farmer, more irrigation and other facilities for poor.

This is a one time wind fall which is not equal to an year's deficit. What will happen to the govt revenue from next year with the reduced taxes?

[Kashi]

This is a one time wind fall which is not equal to an year's deficit. What will happen to the govt revenue from next year with the reduced taxes?

But wouldn't government expenditure be expected to go down in Rupee terms as well? Once there's less black money to compete with legitimate money in the market, the legitimate currency should increase in value and thus, purchasing power. The rupee should then reasonably, stretch further than now.

[Suraj]

This is a one time wind fall which is not equal to an year's deficit. What will happen to the govt revenue from next year with the reduced taxes?

THis is not merely a one time windfall . All the depositors declaring newly disproportionate income become tax assessees. GoI can also pay down part of its fiscal deficit such that it's annual interest burden falls, further improved by falling interest rates due to the deflationary nature of this whole exercise .

[ragupta]

Would not recommend it, rather just reduce the tax by 5% accross the board.
Yes more spend on social benefit, medical, transport infrastructure would be nice for common man(I hate using word aam aadmi now) and for the country. Relief to Farmer, more irrigation and other facilities for poor.

This is a one time wind fall which is not equal to an year's deficit. What will happen to the govt revenue from next year with the reduced taxes?

Agree but if you are getting $50B, you can reward $6B. People will get reward for honesty and some will be little less hurt in losing their BM.

This money will directly go in the economy.

http://thewire.in/32648/new-data-indica ... ecade-low/

Growth in economy should take care of the shortfall in future. Charges for services can be increased little bit to mop up more cash, people with more money in pocket should be able to pay little more for the Govt services, which are cheap anyways. Next would be push for Egovt for many more services so people can get more services without travelling to govt office and meeting govt employees who demand uper ki kamai for even simple work.

[Manish_Sharma]

Rahul Gandhi yesterday went to parliament street bank to stand in line to get 4000 rs. and created drama.

On news 24 Pallavi joshi gave such a tamacha to congi bsp and actress kunika. She said "...you are so concerned about people standing in qeue for hours, why did you never care about little girls walking to their schools 4 miles away, where was your concern then?"

[Rishi Verma]

TOI reporting that in UP about 18,000 zero balance JDY accounts suddenly have 49,000 which is near the max deposit of 50k allowed without PAN. The poor guys were given 500Rs "bakshish".

[chetak]

Glad that some one is having a ball in all this gloom and doom


Demonetisation: Brisk biz for sex workers accepting big notes

Demonetisation: Brisk biz for sex workers accepting big notes
Kolkata, Nov 11, 2016

Sex workers who charge below 500 are facing tough time as they have hardly got any customers in last two days. Reuters File Photo for representation.

As demonetisation of high value notes hit small businessmen across the city, sex workers of Sonagachi, South Asia's largest red-light area, here are seeing brisk business as they are accepting high denomination notes.

"Our girls have been asked to accept Rs 500 and Rs 1,000 notes. But they are telling customers that they will not accept those after this week. Therefore there is a huge rush of customers.

"Although sex workers in top categories are facing no problem but those who take only Rs 300 to Rs 400 are facing great difficulty," said Bharati, the mentor of the Durbar Mahila Samanwaya Committee, a sex workers' organisation which claims to have over one lakh registered sex workers under it across Bengal.

Sex workers who charge below Rs 500 are facing tough time as they have hardly got any customers in the last two days.

Prospective customers first inquire whether the sex workers will accept Rs 500 and Rs 1000 notes. "If we say no, we will lose the customer. We have to accept the notes and Durbar and Usha bank had assured us that our money will not go in waste," said Rekha, a sex worker.

In the last two days, sex workers in and around Sonagachi have deposited more than Rs 55 lakh in Usha Multipurpose Cooperative Bank, which was formed and is run by former sex workers since 2001 for women in the same trade.

"Due to the huge rush of customers in Sonagachi, the sex workers in last two days have deposited more than Rs 50 lakh in their bank accounts in Usha Bank. Generally sex workers prefer to keep money in their homes but after demonetisation, there is a rush among them to deposit the money in the bank," Shantanu, a senior official of Usha Bank said.

In normal circumstances, Usha Bank carries out a business of around Rs five lakh per day.

[Pratyush]

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.

If he won't the business will not start to begin with. But on the positive side, these low rung govt employees cash holdings have just evaporated. I am no a small business man, but if I was and was compelled by these guys to pay bribes. I would be rubbing their noses in this news. While wishing that this happens at random ones every year. And with 1 week notice, instead of 50 days like this year.

[MohdKav]

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.

If he won't the business will not start to begin with. But on the positive side, these low rung govt employees cash holdings have just evaporated. I am no a small business man, but if I was and was compelled by these guys to pay bribes. I would be rubbing their noses in this news. While wishing that this happens at random ones every year. And with 1 week notice, instead of 50 days like this year.

Their money has evaporated, not their means of making money or their power.