Currency Demonetisation and Future course of Indian Economy

[shiv]

Hospital clinic practice is down 40%.

Hakim saab, any chances of consultation/procedural fees going down in the near future due to decrease demand?

Zero chance of that happening. Doctors see a cross section of society wherein the first patient is from a slum, the second a Customs officer with loads of cash and the third a person staying at the Taj West End with a tummy upset. All people ask for concessions and medicine is pretty much the only speciality in which the doctor gets paid last. I mean it like this - when a patient is admitted for a procedure the hospital either gets an advance payment or a promise from the insurance company that X amount will be paid. The doctor does not get paid at all till the patient goes home and the hospital pays a cheque. Sometimes my payments have come after 12 months - just like private defence component supplier.

When patients get admitted they can speak only to their doctor with whom they have relationship. The hospital and pharmacy do not give a flying fuk and will not give one paisa rebate, It is the doctor who gives a rebate because of the relationship. He should not, but he does,

When a person spends his entire life seeing people begging for concession the need to "offer a business incentive" of reducing consultation fees does not sit well with the "business of compassion". Patients get concession on a case by case basis. Only patients know how many times their doctor has seen them without fees. This is a doctor's mistake because he really should charge for every minute of his time. The nation has decided that medicine is a service and doctors are entitled to charge for their service. Patients can and do ask how much treatment will cost. I can't speak for others but I give an up front estimate of how much I will charge. Patients can save money by choosing to go to a general ward or shared room. It will be more expensive if they take a private room or a suite - but my charge remains the same from the moment I declare it.

As an aside I bet my left testimonial, which is still with me that Jayalalitha's hospital expenses for 75 days have probably not been met fully. Hospitals and doctors take a big hit with VIPs who sometimes do not pay.

[shiv]

They are coping(the other option is dying) but with great difficulty.

There appears to be more coping than dying as far as I can see. If people were dying I would get more business in my clinic. Not happening.

[shiv]

But if 90% of the notes are returned it will confirm (to me) that the black money cash hoarding in India was probably not by the real biggies with 100 of crores - those are probably only a few in number, but the vast majority are undeclared income by "chota-mota" hoarders like my octagenarian aunt.

I actually read a similar thing somewhere - either on this forum or somewhere else. The argument there was that if BM were to fall on the bell-curve as well it would be the chota-mota people.

Which has its own interesting implications.. GoI for instance will now have to go after the chota-mota people.

I must be one of the "3 Idiots" who had zero undeclared hi denomination cash at home or anywhere on Nov 8th. But I do know that many friends and colleagues had "minor stashes" of Rs 50,000 to maybe a few lakhs which promptly went into their accounts. They will all explain and/or pay tax

There must have been thousands of government corporation employees and water/electricity etc depts with stashes from 50 lakhs to 5 crores. many of these would be contributors to politicians paying for hoardings, transport trucks for rallies etc. Many would have converted the cash. There are probably only a few hundred with 100s to 100s of crores

[Subdas]

Paid media is reporting that small business has been hit. But how is that possible? Small business that have current accounts can pull 2L per month. Small customers can pull 1L per month. I am sure that both these limits are more than adequate. So why are there less transactions? Are banks not in a position to honor these limits?

[Akshay Kapoor]

They are coping(the other option is dying) but with great difficulty.

There appears to be more coping than dying as far as I can see. If people were dying I would get more business in my clinic. Not happening.

Hahaha.

[Suraj]

GoI said at the start of demonetisation that about 14.5-15 lakh crore money was in higher denomination. Now they already got back 11.5 lakh crore. Still 3 weeks to go. What if it reaches 14.5 lakh crore or even exceed ? Wouldn't it be a joke on GoI and all the people who supported this effort? How will GoI answer this?

Where did you read such nonsense from ? GoI doesnt lose out here! When all money's back in the system, GoI knows who deposited all that money, and can apply a penalty on everyone they want to penalize.

[JohnTitor]

Once the current Dec31 is complete, the GoI/RBI should stop printing 2k notes and print notes of denominations 10,50,100 and start replacing all 500/2000 rupee notes. Best to keep 100 as the highest value (or even 50). This in itself will force a lot of transactions to go cashless. I mean to pay 20k or something large in 100 rupee notes will take up too much space.

Additionally, the GoI should step in and ensure that PSPs (payment service providers) reduce/eliminate their charges for merchants (does anyone know the names of some of the PSPs there in india? In the UK theres Barclaycard, Elevon, Worldpay etc. US has Stripe, Dwolla, Bluesnap etc). Perhaps provide them with tax incentives or the like.

[SBajwa]

The other sector that is hit is various religious and charitable trusts where money is hoarded both over the table and under the table (in containers).

Don't know how BR missed the latest

mamata-banerjee-has-credential-to-be-prime-minister-baba-ramdev

It is a presstitutes spin. He said "If a tea vendor can become a PM then anyone can become a PM" as a reply to a question "Can Mamta become a PM?"

Presstitutes needs to be shipped off to Bakistan!

[Sachin]

Where did you read such nonsense from ? GoI doesnt lose out here! When all money's back in the system, GoI knows who deposited all that money, and can apply a penalty on everyone they want to penalize.

But then a whole lot of things depend upon the current crop of Income Tax (and other tax related agencies) and their honesty and efficiency. Looks like many black money hoarders also have the confidence that they can still pay the dues to the corrupt officials and get away with it. I feel the real test for GoI, RBI etc. comes after Dec 31st when they have to do the account & audit of the money received. That would prove if this exercise was bad or good.

[shyamal]

Paid media is reporting that small business has been hit. But how is that possible? Small business that have current accounts can pull 2L per month. Small customers can pull 1L per month. I am sure that both these limits are more than adequate. So why are there less transactions? Are banks not in a position to honor these limits?

Money in banks get over by midday.
You get the full amount (24000) if you go before 10 am. After that they decrease the amount. By 1 pm all cash is over.

[habal]

Most branches are playing with ₹6-20 lakh, just imagine if an entire state got ₹75 crore in ₹500 notes how many will a single branch get.

3 current a/c customers can empty out entire branch in a day.

[shiv]

Paid media is reporting that small business has been hit. But how is that possible? Small business that have current accounts can pull 2L per month. Small customers can pull 1L per month. I am sure that both these limits are more than adequate. So why are there less transactions? Are banks not in a position to honor these limits?

I was going to answer this by saying "Nobody has enough cash to spend" but your question evoked a sudden epiphany in my mind

If you look at India as field where a crop - say tomatoes has been planted and water is the currency(cash) . The scenario before demonetization was one where some areas got buckets and buckets of water. In these areas the plants grow close together in clumps, grow tall and produce lots of luscious tomatoes. In other areas there was no water at all and the plants there were drying up or stunted.

Suddenly GoI took most of the water away. The water is now being returned as a fine spray spread over the entire field (country). So what is happening is that the parts of the field where there was very little water - there is still a little water being sprayed and the plants are not struggling that much. But in other parts of the field that were thick with tall and thirsty plants growing in bunches - the spray is just enough to keep them alive - but they are not getting the wealth of water that they used to get. At least some of that wealth was black money. That will not come back again quickly. Those plants will wither. And as they wither they will complain

[Deans]

the two banks you visited and got a loan are an exception. These may be private banks.

the way you guys write 'not true' makes it seem as if your bubble is the universe.

I'm a CEO of a SME and the 2 banks we use - ICICI & HDFC are performing all functions for corporates, albeit with a delay of 1-2 days.
In the past week we have got an international remittance done, new accounts opened, import documents processed etc. While banks have
allotted more staff for deposit/ withdrawal work, the problem is not manpower but shortage of cash.

[habal]

Deans saar, you are in another bubble.
You are dealing with a pvt bank exclusively for corporate a/c.

nothing is happening in most public sector banks apart from forwarding all kinds of queries on JDY a/c's, inactive a/c's with deposits above 50k post denom etc. Only those branches with only ₹2000 notes are very relaxed and have free time.

[shiv]

But one thing has changed. The queues in most banks in Bengaluru have all but dried up.

[Prasad]

Dunno what position habal holds and how much pan-india ops hes aware of, but mothership does. While overall biz was affected, they're getting back on track. it isnt zero work done by any stretch and its getting better given queues have reduced considerably, esp after inking started.

[Prasad]

Also, that 75 crore amount? Pittance. nowhere near enough to make a serious dent. Needs a daily infusion of that amount at that scale.

[Marten]

Most branches are playing with ₹6-20 lakh, just imagine if an entire state got ₹75 crore in ₹500 notes how many will a single branch get.

3 current a/c customers can empty out entire branch in a day.

4.5 lac crores worth notes have been distributed all over. How can an entire state of the size of KA get only 75cr per day? Are you saying only 2500 odd cr has been received by KA? It sounds implausible to be honest.

Maid did not receive her monthly pension yet and started cribbing. Her neighbors, also of full of love persuasion, wished for Modi and JJ to have swapped places! Imagine how the deep state must be manipulating this issue to gain traction.

Added to ask one OT question to Doc saab:
>>As an aside I bet my left testimonial
(make that two questions: how many times has said testimonial been hocked thusly? AND has the right testimonial no less lucky?)
Apologies in advance - it is only in jest. I know you could probably fling me clean over that tall fence!

[Suraj]

Where did you read such nonsense from ? GoI doesnt lose out here! When all money's back in the system, GoI knows who deposited all that money, and can apply a penalty on everyone they want to penalize.

But then a whole lot of things depend upon the current crop of Income Tax (and other tax related agencies) and their honesty and efficiency. Looks like many black money hoarders also have the confidence that they can still pay the dues to the corrupt officials and get away with it. I feel the real test for GoI, RBI etc. comes after Dec 31st when they have to do the account & audit of the money received. That would prove if this exercise was bad or good.

Well so what ? IT officials are within GoIs ability to control . In fact they've already started catching some bad apples among the police as you posted .

On the other hand if 1-2 lakh crore wasn't deposited , that much black activity was never detected at all . They may get 'free money' that way. But they're left with no clue about some aspects of black economy that may revive .

So that is the tradeoff here . My estimation of Modi is that he would be happier to have all the cash back and everyone's deposits known, than get free money with an information deficit .

[habal]

Most branches are playing with ₹6-20 lakh, just imagine if an entire state got ₹75 crore in ₹500 notes how many will a single branch get.

3 current a/c customers can empty out entire branch in a day.

4.5 lac crores worth notes have been distributed all over. How can an entire state of the size of KA get only 75cr per day? Are you saying only 2500 odd cr has been received by KA? It sounds implausible to be honest.

Maid did not receive her monthly pension yet and started cribbing. Her neighbors, also of full of love persuasion, wished for Modi and JJ to have swapped places! Imagine how the deep state must be manipulating this issue to gain traction.

Marten read linked article in previous page on ₹500 notes in west bengal. 75 cr tranche figure is specific to west bengal. They received 2 more tranche of ₹500 notes worth 50 crore each.

here:

3rd tranche of Rs 500 notes in, partial relief for customers
http://timesofindia.indiatimes.com/city ... 847513.cms

KOLKATA: The arrival of third tranche of 500-rupee notes has brought partial relief for customers. Many banks, both private and nationalized, received a sizeable part of their cash requisition in 500-rupee notes on Monday. There is a temporary respite and customers are happy that they won't have to return home empty-handed now.

Sources in the banking circle said that Rs 75 crore in 500rupee notes (15 lakh notes) was infused on Monday across the state. This was the third tranche of infusion of Rs 500 notes.In the first two tranches Rs 50 crore each was infused.

"Today , I have been able to withdraw four 500-rupee notes. I am so happy that I cannot express myself. Though I had a few Rs 2000 notes, they were of no use because you can't exchange them unless you make big purchase," said Samrat Sarkar, who trades in leather goods in Mott Lane. At an Indian Bank branch in central Kolkata, fresh cash was infused on Monday night and a large percentage of that was in Rs 500 notes. The bank officials are happy that they won't have to push 2000-rupee notes now. "Of course, there will be some Rs 2000 notes if someone is withdrawing a big amount, but we are trying to give quite a few 100and 500-rupee notes too. The real crisis lies in Rs 100 notes now, Rs 500 notes are gradually being made available," said an official.A huge percentage of the Rs 500 notes supplied to banks were used to re-fill ATMs.

[Marten]

That is probably to ensure Sarada scam proceeds or BiDiJihadis stashes aren't redistributed or punarjanamed easily. Let's talk of states where business is at a standstill or slowdown and whether cash flow is ebbing. KA and MH are not! No complaints from Dilli region? That is most unmisfortunate.

[Gus]

I don't think all the remaining money is coming in. If they were going to deposit, they would have done it already. The non political, business BM may take the GKY route towards the end. Political BM cannot be exposed as that is the end of their game. Better to eat loss and look to start fresh

[Rishi Verma]

Akhilesh Yadav in all wisdom announced that UP gov will give compensation to anyone dying while standing in a bank queue.

[Chandragupta]

But if 90% of the notes are returned it will confirm (to me) that the black money cash hoarding in India was probably not by the real biggies with 100 of crores - those are probably only a few in number, but the vast majority are undeclared income by "chota-mota" hoarders like my octagenarian aunt.

I actually read a similar thing somewhere - either on this forum or somewhere else. The argument there was that if BM were to fall on the bell-curve as well it would be the chota-mota people.

Which has its own interesting implications.. GoI for instance will now have to go after the chota-mota people.

There are two issues.

If all the money makes it back to the banking system, all the DDM and opposition is going to go howling around the town saying the real black money is in swiss banks (as is the popular notion in India) and this exercise is just a hogwash.

Second, if the Modi government then goes after small time traders and chota mota people, while leaving the big fish alive, they will pay a severe electoral price.

The real BM hoarders with muscle power seem to have settled their stash. This might blowback badly on the GoI. UP elections will be the litmus test.

[Primus]

Hakim saab, any chances of consultation/procedural fees going down in the near future due to decrease demand?

.............. All people ask for concessions and medicine is pretty much the only speciality in which the doctor gets paid last. I mean it like this - when a patient is admitted for a procedure the hospital either gets an advance payment or a promise from the insurance company that X amount will be paid. The doctor does not get paid at all till the patient goes home and the hospital pays a cheque. Sometimes my payments have come after 12 months - just like private defence component supplier.

When patients get admitted they can speak only to their doctor with whom they have relationship. The hospital and pharmacy do not give a flying fuk and will not give one paisa rebate, It is the doctor who gives a rebate because of the relationship. He should not, but he does,

When a person spends his entire life seeing people begging for concession the need to "offer a business incentive" of reducing consultation fees does not sit well with the "business of compassion". Patients get concession on a case by case basis. Only patients know how many times their doctor has seen them without fees. This is a doctor's mistake because he really should charge for every minute of his time. The nation has decided that medicine is a service and doctors are entitled to charge for their service. Patients can and do ask how much treatment will cost. I can't speak for others but I give an up front estimate of how much I will charge. Patients can save money by choosing to go to a general ward or shared room. It will be more expensive if they take a private room or a suite - but my charge remains the same from the moment I declare it.

As an aside I bet my left testimonial, which is still with me that Jayalalitha's hospital expenses for 75 days have probably not been met fully. Hospitals and doctors take a big hit with VIPs who sometimes do not pay.

Same story here except it is illegal to offer a discount to anybody.

Here in the US I get paid by insurance companies and the 'copayment' by the patient (which sometimes can be almost the entire amount) is the only thing I can waive and thus offer a discount.

What is interesting though is that by law I am NOT allowed to waive any copayments at all. The thought is that this amounts to solicitation and an incentive to patients to prefer seeing me instead of Joe Schmoe down the street, but more importantly it means I am charging different people different fees for the same service which under the law is a crime. There are very severe penalties in place for any transgression although sometimes I will still allow a 'courtesy' discount to a fellow-physician, something that is standard practice in India.

The irony is that physicians are about the only profession where you get no breaks even within your own society, except perhaps a little more attention when you are sick, which unfortunately means a worse outcome usually.

[Rishirishi]

What i do not understand.

1
People who exchanged the old notes with a 20% to30% discount, must have got something in return. What did they get?? was it 100 rupee notes? If so, we know where the Rs 100 rupee went. Or was it gold? property?

2
It is clear that this will not alone make a dent on the bribes. Even if the economy goes cashless, poeple will be able to give bribes in form of gold, holidays, international bank transfers etc.But government will be able to raise more Taxes to spend on infrastructure.

3
The bank notes represent about 15% of the GDP. There will be a drop in the GDP by approx 2%-4%.

4
As I see it so far, only money laudrers has made a profit on this, the rest of the people have lost.


I cant really see that going after BM holders will benefit the country. Yes we do not like them, but they spend, invest and emply people. An election actually adds value to GDP.
yes corruption must be adressed. Perhaps a better way would have been to introduce the Lokpal bill.

[Rammpal]

Akhilesh Yadav in all wisdom announced that UP gov will give compensation to anyone dying while standing in a bank queue.

That's a witty one, but, do UP folks understand such jokes ?

[Rudradev]

When it comes to estimating the political fallout of demonetisation, it's important to remember:
-Facts mean little, figures mean less.
-Perception, especially the emotional component of perception, means EVERYTHING.

These are the lessons not only of Brexit and Trump-xit but indeed of May 2014.

If the majority of Indian citizens, 2.5 years from now, have the gut-level impression that their economic lives have changed for the better, it's a plus for Modi. If those same Indian citizens feel that their sacrifices during the demonetisation campaign contributed towards their economic lives having changed for the better, it's a HUGE plus for Modi... it means that they feel invested in a long-term success that they and Modi achieved together through a period of shared hardship. The fact that this wasn't easy, wasn't handed out on a platter, involved inconveniences and had to be EARNED... that can all end up being a major boost to national morale and a powerful touchstone of emotional resonance with Modi's leadership.

The worst case scenario really isn't going to devolve from just a prolonged period of demonetisation-related inconvenience, IMHO.
The worst case scenario will unfold:
a) If the benefits of demonetisation are too slow to accrue (as with NDA-1) and/or too intangible to perceive. If by 2019, people don't end up feeling like they got anything out of demonetisation in terms of their own pockets, it won't matter that they stood in line or faced liquidity crunches for 5 days or 50 days (hence, the relative competence of implementation is of little consequence in the big scheme of things).
b) If in addition, the BM ecosystem at all levels adapts to the new post-demonetisation regime more quickly and effectively than the GOI's enforcement organs. The slightest perception that the big fish got away with most of their ill-gotten gains while the common folk were inconvenienced, will be disastrous. People are willing to brave inconveniences in a fight for justice, in which Modi is currently seen as a trusted ally. If this doesn't end with a broad and deep sense that justice has been done... it will be seen to have been a waste, or worse, a scam.

Only if conditions (a) and (b) are satisfied... that is, if there is ambiguity (or less than compelling, gut-level certainty) amongst the public regarding their improved economic well-being and the delivery of justice to the corrupt... only then will media psyops about how much cash was deposited, how many points the economy contracted, etc. etc. become relevant to political outcome. These are the tea leaves and chicken entrails that people gaze at for explanations when their own, direct experience of reality isn't giving them the unambiguous answer they yearn for.

[manjgu]

some wag remarked and i find merit in it...people find it hard to spend with new currency..they like to hoard new currency ! here in punjab , there are reasonably big lines in front of banks... but generally folks have money for basic living but now focus is on getting more and more cash.

[GShankar]

Demo needs a few big time busts, like right now. The best way to legitimize this in mango memory. Seems to be very elusive.

[ramana]

8 December marks one month of demonetization. Has the media figured out the real impacts or still going atrocity reporting?

[Rammpal]

8 December marks one month of demonetization. Has the media figured out the real impacts or still going atrocity reporting?

Probably been busy with Pearl Harbor bombing anniversary writeups.

[srin]

In the upcoming budget and GST, they need to remove all deductions & offsets for cash expenses and cash transactions. If you have an expense you've paid for by cash, then you can't deduct and show reduced profit (and hence pay reduced tax). If you have paid your supplier by cash, you can't claim tax credits for that.

[vijayk]

What happened to 2 lakh crores IDS case?

[shiv]

I cant really see that going after BM holders will benefit the country. Yes we do not like them, but they spend, invest and emply people. An election actually adds value to GDP.

When I want to buy a house or a plot of land - I have only so much money and can get so much in a loan. The seller wants 40% in cash unaccounted. I have no such cash. The person who finally gets the house if the one who has such cash to offer.

Alternatively, I take a loan and show that as payment while I pull out all my savings as cash and present it to the seller without a record.

I lose in all ways.

I pay my taxes regularly and diligently. I expect certain services. For example I need street lights, a paved road and clearing of garbage

For street lights my tax money is controlled by the corporator . He employs a private contractor who checks all the street lights but saves money on safety switches and fuses - leaving open ends. An electricity board employee comes and connects the live wires. The saved money is split between contractor and corporator When it rains, it short-circuits and fails. Once in a while someone gets electrocuted. Here is a video from near where I live
https://www.youtube.com/watch?v=i3quLqeozQc

For roadwork the corporator employs a contractor who has machiens to lay the road surface. No one knows the regulations which say that the layer of tarmac should be at least 10 cm thick. The contractor lays tarmac just 4-5 cm thick. The money saved is split between corporator and contractor

For garbage the corporator employs a contractor who is paid to collect an dump garbage at the rate of 15 truckloads per day. The contractor actually does only 10 truckloads per day. The difference is split between the crooks

These people - with all that loose cash can afford to pay that extra in black to but the property that I cannot afford because i don't have that extra black cash.

I lose as do all other taxpayers.

But people such as yourself think that all the extra black money is actually doing good to the economy. It is certainly doing good to some. But I am being cheated every minute. So I am supremely happy to see BM hoarders taking even a small hit - even if that hit is temporary. I am hit anyway and have stayed hit for the last 30 years. I cannot be any worse off. I am supremely happy to see the economy wind down to the level I am forced to live at by being honest

[shiv]

The economy has only X Rupees.

Some percentage of that X needs to come into the banks for development activity and services like power, water, roads

If everyone paid his taxes and did not cheat the banks would get say 10% of X to spend. I could get a loan from that X/10 to buy my house. I would of course repay with interest

But if too many people cheat, the banks do not get 10% of that X. maybe they get only 5%. I have to take my house loan from that 5%. Since the banks have less money and need to make extra money - they will charge higher interest rates - so that only those who can afford higher rates will take those loans. Those who cannot afford those higher rates will have to cope without that loan. Or die - like someone said.

In the meantime the remaining 5% of X which was not paid as tax remains in private hands. The people who have that money can now bypass the system. They need not take a bank loan. When they want to buy a house they will offer cash up front. The seller too finds this attractive because he has the choice of accepting a cheque from a white money buyer - for which he will have to pay tax. But cash down from the black money buyer absolves him of the need to pay tax.

Sorry about the language, but In India honest people are being fu(ked day in and day out. This must change. If that means a contraction in the economy so be it.

[parashara]

A few days back I asked a question on this forum:
"Can the RBI erase the liability equivalent of the unsurfaced BM and transfer that as dividend to the govt?"

A banking tech friend of mine said:
"Nonsense - can't be done"

A couple armchair "finance whizzes" on this forum jumped in aggressively yelling about why my friend was dead wrong and why this was perfectly doable - see messages from Suraj et. al.

Turns out my friend was absolutely right.

And also looks like the amount of this liability is in the tune of 1.5L Cr.

Read the Urjit Patel uvaacha below:
http://profit.ndtv.com/news/economy/art ... eststories

Moral: Better to trust a good friend who speaks softly than some virtual actors low on gyaan and high on vitriol.

[sivab]

A few days back I asked a question on this forum:
"Can the RBI erase the liability equivalent of the unsurfaced BM and transfer that as dividend to the govt?"

A banking tech friend of mine said:
"Nonsense - can't be done"

A couple armchair "finance whizzes" on this forum jumped in aggressively yelling about why my friend was dead wrong and why this was perfectly doable - see messages from Suraj et. al.

Turns out my friend was absolutely right.

And also looks like the amount of this liability is in the tune of 1.5L Cr.

Read the Urjit Patel uvaacha below:
http://profit.ndtv.com/news/economy/art ... eststories

Moral: Better to trust a good friend who speaks softly than some virtual actors low on gyaan and high on vitriol.

Stop putting extra words into RBI Gov's mouth and misstate what he said.

Here is the direct link to governors interview from RBI
https://rbidocs.rbi.org.in/rdocs/conten ... 732484.mp3

Listen to the question at 14:30. He said "Withdrawal of legal tender status doesn't extinguish anything on RBI's balance sheet and therefore there is no implication for balance sheet as of now. The question does not arise as of now". The question was repeated and his answer was "Not just by withdrawal of legal tender status".

Nowhere he said it can't be done.

[Yagnasri]

The need is creating a lot of other options which are already available but not used. Now even the Udipi type hotels accepting card which they were not earlier. But one the situation improves GOI shall only issue notes for less than 100. Almost every year 20-30% of the notes are replaced as the notes get soiled. GOI shall replace the 500/2000 notes with smaller denomination notes. Over a long run that along with other regulatory/legislative measures a large section of the unrecorded/cash economy changed into recorded/electronic transactions.

The following steps may help if done ASAP.

1. Cash transactions (both withdrawals and payments) in the bank, including ATM withdrawals, needed to be taxed - say 2%.
2. Cash purchases from petrol to Railway reservations shall be made costly. Example - Rs. 10 more per litre makes people use their cards for petrol etc. than cash.
2. All wages are to be paid electronically.
3. All sales, payments, purchases done by the GOI and State Gov entities in online mode or card payment.
4. Companies and other legal entities shall be prohibited to deal with cash on the immediate basis.
5. Banks and others shall only accept lending and turnovers figures if they are recorded transactions and not cash transactions.

[shiv]

Read the Urjit Patel uvaacha below:
http://profit.ndtv.com/news/economy/art ... eststories

Madan Sabnavis, chief economist at CARE Ratings, said this basically means that instead of the RBI printing new money in place of the currency not returned and transferring that amount to the government, the central bank could keep it as special reserve to meet a possible future liability. "The notes will be on the RBI balance sheet without the status of legal tender and more likely will reside in the reserves of the central bank," he said.

The undeclared cash can be dealt with in 2 ways.

One is to print more new notes equal in value to the undeclared amount and hand it to GoI. I think I read somewhere that this will need an ordinance to be passed

But what Urjit Patel is saying is that the RBI need not do that - but just keep the value of that money as a reserve.

Whichever angle you look at this issue - the money is gone from the hands of people who were holding it. Whether it gets into GoI's hands or stays in RBIs books is a matter that has not been decided.