Currency Demonetisation and Future course of Indian Economy

[shiv]

Let me put down a few thoughts about the "advantages of black money" and "patience of people wearing thin"

It was the famous economist, now chief minister of UP, Akhilesh Yadav who informed the world that Black Money protected India against economic collapse when other economies were suffering.

It is a mistake to say that black money makes some individuals rich. It builds an ecosystem around which everyone gets more wealth but the prime generators are filthy rich.I used to consult at a private hospital which was run efficiently, had the latest equipment, but used to charge very high rates and accepted money in black. General practitioners were paid off to send patients for surgery that they did not require. All doctors, including me got payments partly in cheques and partly in cash and we were expressly told that the latter money need not be declared as part of income. This ensured that the hospital owner was very wealthy and the doctors who lived off this system, while not "filthy rich" were not poor and satisfied with their incomes. This in fact was the normal system in Bangalore until IT started raiding hospitals in the 1990s. And we doctors were the early adopters who ran the parts of the economy of shining India - we were the first to invest in mobile phones even when dead dumb brick sized phones cost Rs 45,000 in white (and 25,000 in black) - I should know I bought one in black. It was black in colour also. We were part of the India growth story - at a time when cellphone calls were Rs 15 per minute (anyone recall those days). But we got a special deal from Hutchison Whampoa or was it Hutchison Max (now Airtel) for Rs 5 per minute.

The problem with this system was that we the well off supported each other's economies. We all had 2 cars or more each while the rest had to manage in overcrowded buses. The little tax we paid was skimmed off by government officials who also belonged in our ecosystem. They were the ones who had the black cash to pay 5 star hospital expenses. The "aam junta" was fugged in all ways. It has always been that way and we need to see if Modi makes a difference.

A word about "patience wearing thin". Let me state up front that I disagree and I will be happy to accept that I am wrong if people point out examples of patience wearing thin. Let me defend my assertion. "Shortage of cash" is there only for us privileged people who are unaccustomed to shortage of cash. But aam junta in India have shortage of cash all the friggin time. That shortage of cash is just continuing now. That is why people are patient. And I bet my left youknowwhat that they will remain patient and see this through. if those who had cash in India far far outnumber those who were short of cash then the anger will boil over. But if India consists mainly of people who were short of cash - then the minority who had access to cash whenever they wanted it will show impotent anger for a while and predict earthquakes. I believe it isn't going to happen. India's "growth and wealth" story includes only 20% of its people who are now beginning to complain. The rest are living their normal lives with no cash or not much cash

[rohiths]

The only question that we as a country should decide is that will be stuck in this poor equilibrium of corruption, mediocrity in government and every day, a very small productive class and consequent tax evasion or will we move into a better equilibrium of good governance, excellence, large productive base and low tax rates.
If it is status quo we will remain in the poor equilibrium. After a few years our GDP will stop growing as all the low hanging fruits would be plucked and we will never reach western per capita incomes. We have to disrupt the status quo to reach anywhere significant. If we play by existing rules at a slow pace, we will go nowhere. This is true in Defence, Economy, Education, etc.

[shiv]

The only question that we as a country should decide is that are will be stuck in this poor equilibrium of corruption, mediocrity in government and every day, a very small productive class and consequent tax evasion or will we move into a better equilibrium of good governance, excellence, large productive base and low tax rates.
If it is status quo we will remain in the poor equilibrium. After a few years our GDP will stop growing as all the low hanging fruits would be plucked and we will never reach western per capita incomes. We have to disrupt the status quo to reach anywhere significant. If we play by existing rules at a slow pace, we will go nowhere. This is true in Defence, Economy, Education, etc.

Many pages ago I pointed out that this disequilibrium is exactly what Pakistan has even today. India cannot pull away from Pakistan because of this. Of course we are pulling away - but only the top 20% are pulling away. The human statistics of the bottom 50% in India are similar all over "South Asia" with India generally hanging around in the same region as Pakistan, Nepal and Bangladesh.

India has changed only a little from the Mumbai of Naipaul in the 1960s. Naipaul wrote that his guide was looking upwards and pointing at all the tall Mumbai buildings as evidence of great development but Naipaul himself was looking downwards to avoid the "twists, butts and squirts" of shit on the ground.

While I am totally impressed by the treatment Jayalalitha received - parts of India have maternal and infant mortality that rivals Pakistan. Someone tell me that there is no connection between Jayalalitha and the black economy

[habal]

The only question that we as a country should decide is that will be stuck in this poor equilibrium of corruption, mediocrity in government and every day, a very small productive class and consequent tax evasion or will we move into a better equilibrium of good governance, excellence, large productive base and low tax rates.
If it is status quo we will remain in the poor equilibrium. After a few years our GDP will stop growing as all the low hanging fruits would be plucked and we will never reach western per capita incomes. We have to disrupt the status quo to reach anywhere significant. If we play by existing rules at a slow pace, we will go nowhere. This is true in Defence, Economy, Education, etc.

hi rohith, tell me something.

we live in era of fiat money. Govt prints currency through central bank as per its discretion. Unlike pre-70s, these days currency need not be backed up by gold as well, just by full faith of the govt and even that is beginning to waver now. So what prevents govt from creating more money supply and credit except fear of inflation and too much money chasing too little (comparitively) goods and products and thus diluting value of govt issued currency. Indirect tax (like tax on cars, petrol) does mop up quite a bit of tax even among those segments that do not pay a single cent of tax.

So what is objective of aggressive taxation apart from fighting inflation. Or is it a form of punishment imposed for the crime of earning a profit. And secondly do we prefer a contracted economy with 70% tax compliance or a larger economy with 35% compliance with both percentages resulting in almost similar tax collection numbers.

[shiv]

And secondly do we prefer a contracted economy with 70% tax compliance or a larger economy with 35% compliance with both percentages resulting in almost similar tax collection numbers.

The question was not directed at me, but if taxes must be paid I certainly prefer a contracted economy where everyone pays tax.

You are dividing the country into 3 groups
1. Government (collects tax)
2. Taxpayers (pay tax, lose some of their money)
3. Non taxpayers lose no money

You see in every case the government makes money. But the people who take the biggest hit are the taxpayers. This is the logic that tells one that it is better NOT to pay tax. In fact the argument you make makes sense in a libertarian manner. I don't know if you are a supporter of libertarianism or not but true freedom is having no laws. If the government cannot impose tax I don't even need the government to impose any laws on me. In fact government itself is unnecessary.

This is definitely subject for debate - and I am certain those who support such arguments should work towards ensuring a truly libertarian society.. But until that happens we are stuck with government and laws and tax laws are part and parcel of government. Those who do not abide by the law should be liable for punishment.

Libertarian society is not for this thread. No tax. No laws. Total freedom.

[Suresh S]

good observation from rohiths.I agree that is the only way we will move forward as a country in the long run. Only 35% paying taxes and black economy will not get you too far. I had a heated discussion with my delhi relatives last year about this topic. He said Modi ne sab black money band karwa dia ha sala sab kam band ho gaya , he is no good. Khao or khane do was what he said.Babus are not allowed to take bribes anymore and his business is all in the doldrums because no body is buying any clothes, suitcases and other items. He was cursing Modi for that.I told him in the short term some pain but in the long term lot of gain for India but could not convince him though.

[habal]

And secondly do we prefer a contracted economy with 70% tax compliance or a larger economy with 35% compliance with both percentages resulting in almost similar tax collection numbers.

The question was not directed at me, but if taxes must be paid I certainly prefer a contracted economy where everyone pays tax.

ok, but we do lose out on employment numbers. India is labour intensive because labour is cheap and taxes are iffy. If one were to apply all the rules of the book, most businesses would streamline in order to further reduce overheads and casual labour may take a hit. This is exactly the type of people a 'pro-poor' govt (as every govt in India claims to be, seeks to protect).

Employers will not tolerate a hit on their margins, that hit would come elsewhere. They cannot start charging more prices because demonitization has taken that charm out of the system. More prices mean more taxes to govt. So where else can the hammer fall, most likely on labour or if that is not possible there will br increased investment in automation just like in west.

[achoudhury]

So what is objective of aggressive taxation apart from fighting inflation. Or is it a form of punishment imposed for the crime of earning a profit. And secondly do we prefer a contracted economy with 70% tax compliance or a larger economy with 35% compliance with both percentages resulting in almost similar tax collection numbers.

Conceptually, If there was a ledger for government, then taxes will be assets and "services provided to citizen" are liabilities in its ledger. As a non-profit organization, Govt objective is to collect tax to provide basic services to citizen with no profit motive. Is India providing basic services to citizens is the paramount question? Answer is pretty obvious. There is leakage on both side. leakage on tax collection and leakage on providing services. You are arguing that plugging leakage on collection side will contract economy and thereby reduce services too. That may be the case. But right now, reality speaks otherwise. only 1.5 crore of Indians pay direct tax and even indirect tax payment is not that noteworthy. GoI is trying to plug leakage on both indirect tax through GST and direct tax through steps like demonetisation. Now we could argue that why pay taxes if there are leakages galore on the delivery side. But, that is circular logic. Services are bad so why pay taxes, not paying taxes results in even worse services and the spiral continues. What we should be arguing is how to plug leakage on delivery side, not how we should not pay taxes. People see that Modi is trying to plug leakage on delivery side as well and that is why support for demonetisation is still holding.

[habal]

plugging leakage is not solved by collecting more liquids (taxes). More liquids may just mean more leakages. It may be solved by administrative reforms (GST is one aspect of this) & automation or curtailing discretionary powers that could create more mischief/corruption. We are nowhere on administrative reforms or automation.

tax audit -> conversion -> deployment

this will tell us where the leakages are. We do know statistic given by Rajiv Gandhi, out of ever 100 Rs invested by govt only 15p gets deployed. Is there going to be an improvement in those numbers.

[shiv]

ok, but we do lose out on employment numbers. India is labour intensive because labour is cheap and taxes are iffy. If one were to apply all the rules of the book, most businesses would streamline in order to further reduce overheads and casual labour may take a hit. This is exactly the type of people a 'pro-poor' govt (as every govt in India claims to be, seeks to protect).

Cheap labour is one side of the story
"Employment for many" is the other side

"Cheap labour" is when labour do not get much and benefits that they should have from employment do not go beyond a meal or two a day.

'Employment for many" is the huge advantage of cheap labour. Pay less, employ more and say "Jobs have been created". Those jobs are going to be lost by demonetization

The fact is that most jobs in India are in the informal sector - there is no employer paying wages and where they do not have security. And the people in the 'formal sector" - employees of businesses ALSO do not have security because their employers like to boast that they are creating employment but do not give them benefits. I quote:
http://www.ilo.org/wcmsp5/groups/public ... 496510.pdf

The vast majority of workers in India are in informal jobs. Although there has been a shift out of agriculture, construction has absorbed more workers than other sectors in recent years What is more concerning is that, most of the new jobs being created in the formal sector
are actually informal because the workers do not have access to employment benefits or social security.

I see that the people who howl "jobs will be lost" are only partly justified. Many of those jobs were cheap labour paid in cash with no benefits of employment. It is OK to run an economy like this but it is easier to keep people poor in this environment.

I see a lot being said about how people are "against wealth creation". But the fact is "wealth creation" per se is only a buzzword like "garibi hatao". Ask building contractors if they provide toliet facilities for construction workers of if those workers kids can get an education - at least basic 123. They do not and there is no point boasting about job creation if basic human needs are not being met

[rahulm]

The haramkhors are still pursuing their haramkhori. Yesterday, at Sawantwadi, Rs 2lac demand in bribe to convert 10 acres of agricultural land to NA. Official rate 5 lac so total cost 7 lacs.

Sourcing the 2lac bribe amount is the applicants problem.

But since the babus in the registrars office

1. Have tilak on their fore head
2 visit temple on all important days and eat sabudana khicchdi on fast days
3. Touch cows wheneve they one
4. Celebrate all major and minor festivals and jatras

It's all ok and should be forgiven.

And thI n you have reports about the fall in property registrations across the country http://indianexpress.com/article/busine ... n-4419646/

Move to plastic and plastic notes is welcome.

[Suraj]

hi rohith, tell me something.

we live in era of fiat money. Govt prints currency through central bank as per its discretion. Unlike pre-70s, these days currency need not be backed up by gold as well.

India was never directly on the gold standard post independence. We signed up for the Bretton Woods Agreement and maintained a pegged rate against the USD, which in turn was on the gold standard until the Nixon shock.

The movement in the exchange rates since this significantly reflects the existence and growth of the black economy. Black money feeds inflation, since its leeches off white money and competes with it for goods and services, without contributing a share of taxes. That keeps the cost of money (white) high, and the competition for goods and services drives up inflation. That inflation hits both white and black money, which has to maintain its value - in the absence of formal banking interest - by leeching even more white money off. The large black economy is why we've chronically had high inflation, since it's a vicious cycle of inflation begetting more inflation.

As others mentioned here earlier, DeMo is a reset button to when there was no black money all. It's our combined choice today to decide whether or not to start afresh, or simply beget the same old system all over again by generating new black money. Please don't point fingers solely at the government. Every last one of us has a responsibility too.

The government actually did something spectacularly bold by implementing DeMo. There is, arguably, not a single major economy whose leader has the ba11s to do this. USA ? Nope. Half their country hates the new President, and the other half hates the current one. No mandate to ask people to be inconvenienced. Japan ? They seem to have a new PM every year or two; no one lasts a reform action. China ? The moment Eleven suggests it, his Politburo will ask him "you moron, don't you remember Chinese history ? If we inconvenience the entire country at once we'll be overthrown like the last N dynasties." Instead they just round up some usual suspects and shoot them, regularly. UK/Europe ? Hah. Britain is the same as US - split between brexit/remain camps . France president decided to walk away rather than contest 2nd term. Italy PM just resigned. Korea President just impeached.

In short, GoI made an extraordinary political bet on this. But they can't do it alone - long term benefit requires the people to see a new future that doesn't involve informal economic activity predominating, and to let formal economic growth help them in the long term.

[shiv]

this will tell us where the leakages are. We do know statistic given by Rajiv Gandhi, out of ever 100 Rs invested by govt only 15p gets deployed. Is there going to be an improvement in those numbers.

Let me resort to some rhetoric here:

You see Rajiv Gandhi was expressing so sooo much angst about the huge numbers of people who get only 15% of the cash, while those above them retain 85%. One could only imagine how that vast mass of people used to feel with the cash not flowing in.

What demonetization has done is to make the people above the poor - the very people who used to skim off 85% of that cash feel the way the poor know - what it feels like to not be able to get and pay cash. It does not feel nice, but is easier to cope with if one is accustomed to living without much cash. It tales some getting used to but it is possible - since 75% of Indians do it.

I think most people forget that "freedom to live in any country" comes with bondage to that country's laws. There is no such thing as "my own money" as long as I am using government issued paper as money.

[Rishi Verma]

I tried google search but could not find any pointer. Is there a mathematical model (of course approximated) re the effect of BM on the economy?

One can explain the effect in words only so much. Without modeling one can't see the effects of various variables - may be the "butterfly effect" gets ignored.

By the way I like the analogy of BM being a parasite on the economy. Not because I understand it mathematically but because the BM hoarders are certainly parasites on the society.

Something like below (but would have been much more complex)

Interest rate model (short-term)


Stock / Derivatives price model

[Suraj]

How does one provide a mathematical formula for something that's opaque to actual data collection ? Formulas work when you have data to apply to them.

[habal]

In short, GoI made an extraordinary political bet on this. But they can't do it alone - long term benefit requires the people to see a new future that doesn't involve informal economic activity predominating, and to let formal economic growth help them in the long term.

.. are there any precedents to this in history. I thought that the govt of India turned a blind eye to informal sector because atleast it was generating much more jobs albeit in a chaotic and dysfunctional manner. The old formal sector was just having fights with their unions and general stagnation like Bajaj continuing to make autorick's even after many an incident and social shaming. And today we have such confidence in our banking systems and administration that our formal sector can support all those who are displaced by informal sector. The formal sector in India was the old money economy of bajaj's, Tata's, Birlas, Modi's (UP wale), Dalmia's, Wadia's, Godrejs, Piramal's etc. The new entrants or one's who forcefully barged into this club were the Ambanis, Murtry's, vegetable oils, biocon's etc.

See this is the problem, I just cannot see this group resorting to more employment at the cost of more automation. Why should they sacrifice profits. How can new entrants come into picture when they will have to take the complete tax burden from get go, their ability and motivation is not sustained by the poor rates of return they get. Now I will not continue more into doom & gloom, because my thoughts are getting more negative as I type.

One option is if we can generate more export based economy. That will mean we have to supply cheap as pi$$ energy and automation and exports will mean no taxes to be paid in India. That is an option, otherwise everything is going to sit down economically.

One reason IT sector escaped this lack of returns was at first 10-year tax holiday given to IT companies in India, and then their export oriented status meant that their products and services were not taxed in India. This is what saved that sector.

[GShankar]

are these NRIs salaried worker bees or businessmen ? even salaried bees may have stashed away cash in india from property sales in the past and need to convert now.

Almost all of them are double income couples. Just realizing one guy is in business and is a CPA. He is the one who gave me the suspicion because I had to meet with him for some accounting needs in October ( I had filed an extension on my tax return here in US) but told pre-poned it by a week because he is going to India. But the had to make an unscheduled trip in November for 2 weeks. His biggest clientele - hotel/motel owners here.

One can only wonder..

[Paul]

There are US citizens who have opened FDs in post offices. That is not as per the law.

[habal]

Something like below (but would have been much more complex)

Interest rate model (short-term)


Stock / Derivatives price model
http://t1.gstatic.com/images?q=tbn:ANd9 ... yB2kXGNP1g

Wah Rishi ji, kamaal hain.
is sab ka matlab kya hain.

[Suraj]

In short, GoI made an extraordinary political bet on this. But they can't do it alone - long term benefit requires the people to see a new future that doesn't involve informal economic activity predominating, and to let formal economic growth help them in the long term.

.. are there any precedents to this in history.

Precedents ? Every prosperous developed economy is a precedent It's absolutely true that weak political rule combined with regressive economic policies beget an informal economy. The converse is also true - a strong government trying to implement concrete policies will do everything to ensure informal activity moves to formal activity. DeMo is done and dusted. It's for the populace to now reorient their thinking from 'but but' and work within the new formal economy.

[shiv]

otherwise everything is going to sit down economically.

Everything is still sitting economically for between 30 to 60 % of all Indians depending one one's definition. The thought of joining that group should depress anyone. But that group will need to benefit from demonetization. If they do benefit nothing else will matter

Most Indians basically have no drinking water, mothers and kids still die of various simple to address problems. But no roads to reach them and no electricity. No money to do that because of skimming and parallel black economy.

Everyone has been hit now.

Need to see which way income distribution will go

[habal]

Nice !

So if it doesn't go as per expectations. It is the poor that get hit the hardest.

from subsistence living and living on the edge with no savings, they descend into unemployment and nothing.

does everybody agree to this.

Most Indians basically have no drinking water, mothers and kids still die of various simple to address problems. But no roads to reach them and no electricity. No money to do that because of skimming and parallel black economy.

shiv saar, you should not say this. In another post you said if people were dying they would rush to hospitals.

lly if people had no drinking water, would they be living ? Living on subsistance wages mean mothers and kids die of various problems but atleast they have a chance. But now with no income, does their chance to living go up or go down.

roads and electricity have different dynamic. In many parts of the country, there is no economic justification for roads, it is a state largesse and favor done by the state to it's people. Same goes for electricity.

[Suraj]

roads and electricity have different dynamic. In many parts of the country, there is no economic justification for roads, it is a state largesse and favor done by the state to it's people. Same goes for electricity.

This is nonsensical talk. Rural infrastructure and connectivity is absolutely critical to poverty alleviation and development, probably the most important drivers of economic activity and growth in such settings. There are any number of publications that emphasize this, not to mention real world examples, whether its our NHDP & PMGSY to the US TVA and interstate development
World Bank: infrastructure and poverty
Indian School of Business: Do Rural Roads Create Pathways out of Poverty? Evidence from India

What's more, the spending on such roads is almost exclusively public spending out of tax revenues. Low tax base from a largely informal economy condemns vasts parts of the country to continued grinding poverty by leaving them incapable of connecting with the wider economic network of the country.

Feel free to find *any* study that backs up your claim.

[habal]

roads and electricity have different dynamic. In many parts of the country, there is no economic justification for roads, it is a state largesse and favor done by the state to it's people. Same goes for electricity.

This is nonsensical talk. Rural infrastructure and connectivity is absolutely critical to poverty alleviation and development, probably the most important drivers of economic activity and growth in such settings.

Feel free to find *any* study that backs up your claim.

Sure, they are critical. But they are long gestation projects. Initially they need not have any economic value, they slowly assume value when volume of trade and commerce on that route picks up and starts generating returns.

does private sector invest in slow gestation projects. Usually not !.
secondly they need not necessarily be your tax money ploughed back into these projects. It can be govt's own credit creation at work.
govt is free to create it's own credit and controls monetary supply.
can we agree on this ?

[Austin]

How much black money came into system post demonitisation and how much revenue did GOI earned so far ? Is there any official stastics ?

[Suraj]

Sure, they are critical. But they are long gestation projects. Initially they need not have any economic value, they slowly assume value when volume of trade and commerce on that route picks up and starts generating returns.

You're moving the goalposts here when you're called out.

does private sector invest in slow gestation projects. Usually not !.
secondly they need not necessarily be your tax money ploughed back into these projects. It can be govt's own credit creation at work.
govt is free to create it's own credit and controls monetary supply.
can we agree on this ?

Of course not. It's tax revenue that is put into public spending! Public spending is done from tax revenues or by issuing bonds, whose return is paid out of future tax revenues. There's no other way. If you claim "here, I've printed a Rs.1000 note, go build a road with it" is a financial paradigm, you don't quite understand what a fiat currency note is.

[rohiths]

The only question that we as a country should decide is that will be stuck in this poor equilibrium of corruption, mediocrity in government and every day, a very small productive class and consequent tax evasion or will we move into a better equilibrium of good governance, excellence, large productive base and low tax rates.
If it is status quo we will remain in the poor equilibrium. After a few years our GDP will stop growing as all the low hanging fruits would be plucked and we will never reach western per capita incomes. We have to disrupt the status quo to reach anywhere significant. If we play by existing rules at a slow pace, we will go nowhere. This is true in Defence, Economy, Education, etc.

hi rohith, tell me something.

we live in era of fiat money. Govt prints currency through central bank as per its discretion. Unlike pre-70s, these days currency need not be backed up by gold as well, just by full faith of the govt and even that is beginning to waver now. So what prevents govt from creating more money supply and credit except fear of inflation and too much money chasing too little (comparitively) goods and products and thus diluting value of govt issued currency. Indirect tax (like tax on cars, petrol) does mop up quite a bit of tax even among those segments that do not pay a single cent of tax.

So what is objective of aggressive taxation apart from fighting inflation. Or is it a form of punishment imposed for the crime of earning a profit. And secondly do we prefer a contracted economy with 70% tax compliance or a larger economy with 35% compliance with both percentages resulting in almost similar tax collection numbers.

India needs enormous amount of investment in both private sector and by government to the tune of atleast $10 Trillion in the next 10 years. Out of this government needs to invest atleast $2 trillion in the next 10 years. We need to improve almost everything right from roads, electricity, water, education, defence, telecommunication etc etc all of which has to be done by the government. Government needs to collect taxes for this investment.

In a proper society taxes should be seen as an investment so that we will get higher future income by developing a more prosperous society. However given the level of corruption in India, taxation is a way of enrichment of some individuals at the expense of others. However we can't just give up saying everything is corrupt. There has to be a start on imposing costs and collecting revenue. Demonetization is a good way of kickstarting investment because a) It will lead to lower interest costs due to higher deposits and increase private investment b) It will bring more people into the tax bracket c) It can lead to windfall gains in case some currency does not come back d) It will redistribute existing power equations and will throw up new challengers to the staus quo.

[Dasari]

The rate at which IT and ED are catching hoarders is very encouraging. If anybody wants to celebrate the failure of demonetization, hold it off. Even if all the money is deposited, it looks like a significant portion of the BM will be caught. It is like the Rat got smoked out from its hole to open. It is up to the Govt to catch it. I hope this continues much after Dec 30.

Meanwhile situation is improving slowly. This week is very crucial until Rs 500 notes come in big numbers. In the meantime card transactions have increased 500-1000%, depending on the card network. I'm very hopeful the rupay card hits 1cr transactions per day by middle of 2017 and 2cr per day by end of 2017. Just for comparison, the 3rd largest credit card network of the world has about 2 cr transactions worldwide per day. This would be a remarkable achievement of digitization unparallel even in western world. I hope the rupay platform is scalable for this volume.

[habal]

Sure, they are critical. But they are long gestation projects. Initially they need not have any economic value, they slowly assume value when volume of trade and commerce on that route picks up and starts generating returns.

You're moving the goalposts here when you're called out.

Not really. It is just another angle of looking at things.
One way of looking at it is:
a) projects in rural are critical, absolutely vital to rural economy. Without this there is no go.
OR
a) projects in rural areas are long gestation, they are not instant returns type but generate value long term.

The high speed freight rail corridor between Delhi-Mumbai is not slow gestation, it can yield instant returns.
But railway line between Bastar and Darbhanga is critical, only if you ask people living in Bastar.
but that line doesn't make immidiate economic sense. It may make sense in future.

World bank uvacha:
https://www.microfinancegateway.org/sit ... p-2010.pdf
Infrastructure For Agriculture & Rural Development In India
Need For A Comprehensive Program & Adequate Investment
Dr Amrit Patel

The studies unanimously confirm that rural infrastructure is a sine qua non for significantly improving the
quality of human life and phenomenally accelerating the process of agricultural development. Infrastructure
projects, however, involve huge initial capital investments, long gestation periods, high incremental capital
output ratio, high risk, and low rate of returns on investments. Rural infrastructure has direct and strong
relationship with farmers‟ access to institutional finance and markets, and increasing crop yields, thereby
promoting agricultural growth. Agricultural infrastructure has the potential to transform the existing
traditional agriculture or subsistence farming into a most modern, commercial and dynamic farming system
in India.

[Suraj]

Sorry, you've moved away from what you said originally:

roads and electricity have different dynamic. In many parts of the country, there is no economic justification for roads, it is a state largesse and favor done by the state to it's people. Same goes for electricity.

That is COMPLETELY wrong. In fact the very first line of what you just quoted contracts the above:

The studies unanimously confirm that rural infrastructure is a sine qua non for significantly improving the quality of human life and phenomenally accelerating the process of agricultural development.

The spending on that is government spending. That spending comes out of tax revenues, either directly, or by paying down bonds issued for the purpose. Bonds can only be feasibly issued when interests rates aren't so ridiculously high that any project has no leeway for cost overruns or delays. With no functional bond market when there's no broad financial system (which is the case when most people don't keep their money in the bank) the entire concept of public spending simply cannot take off. Which in turn means the villagers remain dirt poor and incapable of ever bettering their lot because government cannot spend any money on their upliftment through infrastructure spending.

[habal]

I said many of this was state largesse. And I stand by it, because there no monetary cost involved if the project in a rural area is not implemented urgently.

That spending comes out of tax revenues, either directly, or by paying down bonds issued for the purpose. Bonds can only be feasibly issued when interests rates aren't so ridiculously high that any project has no leeway for cost overruns or delays. With no functional bond market when there's no broad financial system (which is the case when most people don't keep their money in the bank) the entire concept of public spending simply cannot take off.

I have to confess that I do not know much about bond market, or that all rural electrification programs and rural roadways have to be funded 1:1 basis of bonds or 1:1 basis of tax revenue. Need to study up there. Will be glad to be educated in this matter.

[Suraj]

I said many of this was state largesse. And I stand by it, because there no monetary cost involved if the project in a rural area is not implemented urgently.

Boss, you just posted something that tells you you're wrong, and you still want to stand by what you said, by all means do so

[habal]

ok, so you are saying that entire white economy expansion will help in ability to expand bond markets and fund rural infra expansion. See this is new information, and I need to chew this.

parkalam.

[ArmenT]

Forgive me if this is a dumb question. While the majority of the posts in this thread have dealt with black money, there has been very little discussion on fake money. How does the system account for people depositing fake money into bank accounts? Is fake currency not as large a problem as black money?

[Marten]

are these NRIs salaried worker bees or businessmen ? even salaried bees may have stashed away cash in india from property sales in the past and need to convert now.

one thing I have learnt is that while NRIs will carefully follow the law in Massa, they are plenty ok with cutting corners in india just as their resident biraders do. they mentally justify it saying everyone does it here, so why not me. then he will go back, grab the old monk and rant about the chaos and corruption in india

Precisely why I told all my friends asking for help converting their stashes to take a walk, or I would report them! Imagine the gall - we pay for the infrastructure with taxes and they will both avoid paying taxes and crib about the same lack of infra (due to their tax avoidance).

I fully support any move that goes after those that have avoided paying their dues to society. Start with the land mafias because it is they who fuel politicians across party lines.
PS: Apologies to those who dislike political commentary - but the general posturing in media is that AJ was not involved (as soon as the move seems to less popular than anticipated). The Delhi gang is very much active. I think it is also time for NaMo to demand the price for disloyalty and impose strictures on all those who have been straddling party lines.

[manjgu]

a) ArmenT..ideally fake currency should be identified at time of depositing curreny into ur back a/c. the note counter identified fakes and shuld not be deposited. I am not sure if indeed this happened in KAshmir/NE ? b) my friend owns petrol pumps in delhi and he is happy with cashless stuff..saves him lot of hassles with cash counting, safety and transportation to bank. the people dispensing petrol are not so happy..sometimes they fill less and pocket the money !! so a small window of corruption get eliminated. c) while the banks are flush with cash..the interest on the deposits is also something which will hurt them ...not sure about the magnitude though.

[Yagnasri]

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

So it not entirely true that agri and other rural activities show any great slowdown. From what I hear there are problems in rural areas, possibly due to the reason that local leaders are all getting the notes and other do not.

[suryag]

the lion roaring

https://www.facebook.com/BJP4India/vide ... 331213519/

[jamwal]

I am not good with most financial stuff, but one thing has been bugging me . I've read almost every single post on this thread and this query has not been answered in a satisfactory way yet.

Let us assume that a black money hoarder has 1 crore Rupees in old currency. He deposits the stash under his own name and risk paying a income tax penalty among other things. He doesn't want to do that. So he goes to someone offering this service and gets 80 lakh in new currency and takes a 20% hit. That 80 lakh is again out of circulation in an illegal black money stash,

But what happens to the exchanger guy ? He somehow has the means to get that money declared in a legal way. He takes the 1 crore in old currency and deposits it in bank under his own name. He will probably pay a smaller penalty or tax but the money comes back in to the banking system as white money.


I am assuming person 2 depositing money will not pay as much tax to the government, but still the money is coming back in to the system. So which action is overall good for economy ?

As I said before, I am not great with some stuff, so apologising in advance if I am missing something.

[pankajs]

Got this yesterday from one of the blogs that I am subscribed to. Just read it. This may be a OT for DeMo thread but considering the digital economy push along side the DeMo makes this borderline.

http://news.mit.edu/2016/mobile-money-k ... verty-1208
Study: Mobile-money services lift Kenyans out of poverty

Greater access to services raises daily spending, especially among female-headed households.

Since 2008, MIT economist Tavneet Suri has studied the financial and social impacts of Kenyan mobile-money services, which allow users to store and exchange monetary values via mobile phone. Her work has shown that these services have helped Kenyans save more money and weather financial storms, among other benefits.

Now, Suri is co-author of a new paper showing that mobile-money services have had notable long-term effects on poverty reduction in Kenya — especially among female-headed households — and have inspired a surprising occupation shift among women.

Published in today’s issue of Science, the study estimates that, since 2008, access to mobile-money services increased daily per capita consumption levels of 194,000 — or 2 percent — of Kenyan households, lifting them out of extreme poverty (living on less than $1.25 per day).

But there’s an interesting gender effect: Female-headed households saw far greater increases in consumption than male-headed households. Moreover, mobile-money services have helped an estimated 185,000 women move from farming to business occupations.

“Previously, we’ve shown mobile money helps you with financial resilience. But no one has understood, if you improve resilience, what happens over the longer term. This is the first study that looks at long-term poverty reduction and at gender,” says Suri, an associate professor at the MIT Sloan School of Management, who co-authored the paper with longtime collaborator William Jack, an economist at Georgetown University.

By 2015, more than 270 mobile-money services were operating in 93 countries, with an estimated 411 million accounts. The Kenyan study is important, Suri says, because it shows that mobile-money services aren’t just conveniences but do, in fact, have a positive impact on people’s livelihoods. “[That] can be useful for regulators trying to figure out if they want to allow it in their country, or whether someone wants to start a service in their country as an entrepreneur,” Suri says.