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Comment by the_watcher | Hacker News Reader

Black money is clearly a problem in India, and figuring out how to address it is almost certainly critical to the well-being of the nation. That said, simply cancelling 86% of the currency seems like an absolutely terrible solution, and possibly one of the most regressive monetary policies I've ever seen. Does anyone have more insight into what the government thought would happen? Did they expect the cash crunch? Did they simply not care that it would be those who are most likely to depend on regular work for basic necessities (the poor) would be hit hardest? Or was there some kind of plan here that wasn't rolled out well?

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The Economist reported that ~15T of the 15.4T affected bills were redeemed. That would suggest that only ~$5-6 billion of black money was trapped. So as a way to kill black money, it seems woefully ineffective.

Source: http://www.economist.com/news/finance-and-economics/21713842...

Well govt changed course mid-way by allowing people to deposit money and pay fines, lock-in period etc. It effectively ensured that most money would come in because any money left after fines and all is gain to hoarders as compared to zero by not depositing at all.

But it was effective if people and businesses switched to using banks. That could happen even if no black money was trapped. Get rid of petty and unintended corruption, and they you can focus on the truly corrupt whom this change hasn't affected.

Yes, all the farmers got free bank accounts, as well as everyone who buys from them. /s

Thanks - that gives a better overall picture than the NYT article.

My read is that they did understand the risks and had thought things through, but they they underestimated the degree to which average people (not just poor) and businesses shunned the formal banking/finance system.

One story told on NPR was of a couple getting married that had been saving money - in cash - for a few years, and had to get it all converted to the new currency before the wedding. All the vendors expected to be paid in cash (I assume because they are all corrupt) and they probably also needed to pay off some corrupt officials. Anyway, they distributed bagloads of cash to enough trusted family members that they were able to convert enough to go through with the wedding and pay all the vendors.

My understanding is that some honest Indians support Modi. I also understand that being honest in India is a fool's errand.

> they underestimated the degree to which average people (not just poor) and businesses shunned the formal banking/finance system

My aunt bought a CD for me from ICICI, an Indian bank, when I was young. Only I can withdraw the funds, and then only into an Indian bank account.

I started the process with another Indian Bank, YES Bank, in February of 2016. I got an account a month later, but online access did not work with a U.S. phone number. Emails routinely took 2 to 3 weeks to be followed up on, phone calls produced conflicting advice and two managers copied me as they went back and forth with other managers berating each other and their respective employees.

In December of 2016, I was able to log into the account. Unfortunately, I'd been tolled fees from February despite receiving assurances from a manager, in writing, that this would not happen. It is now January and nothing has happened.

Note that ICICI only started responding once I wrote a letter to New York State's Department of Financial Services, something that is possible only because ICICI have a legal presence in New York (and I am a New Yorker).

The amounts involved are small. I pursue it because it's right and I don't want to disrespect my aunt's generosity. That said, I would never, ever encourage anyone to deposit substantial amounts of funds for any amount of time, nor any amount of funds for a substantial amount of time, with an Indian bank.

My experience with Indian banks has been great albeit some unnecessary fees once in a while. I opened the non resident account in SBI when I visited last time and was able to get the account number, passbook and checkbook on the next day. They shipped the debit card and the pin to my home address.

The online banking details were not handed to my parents so I visited again when I went earlier last month and was able to get the online bank details right there. The account activated later that evening and I was able to transfer money the next day.

When I stayed there, I had similar experience wrt opening of accounts as Indian residents with Axis, Kotak and even ICICI. So this treatment is not new or limited to just NRI accounts.

But if they truly understood the risk, shouldn't they have had a handle on how many citizens (and more importantly, how much of the economy) depended on this?

> Black money is clearly a problem in India

Why is it a problem? I understand that it means untaxed money. But what good will do just removing that money from trade entirely?

If they had inflation to stop removing money from the economy would be good idea but if not they'll cause inflation to drop, maybe become deflation.

Or do they want to print money in place of the one destroyed and distribute it in legal parts of the economy?

> Why is it a problem? I understand that it means untaxed money.

The real problem with black money is corruption. When money flows through the banks corruption is much harder to hide.

I see. They basically try to remove the money that was coming back into the economy through bribes.

To reduce bribery (bad for way more clear reasons) they went after the money that was used for bribing. Taking money from the hands of people that dodged taxes is just nice educational side effect.

Except it was taken mostly from people who paid taxes, e.g. VAT on produce, or those who are beneath tax brackets.

They simply didn't care. They cared about a number of elections and falling reputation of Narendra modi. Nothing else.

Did they even pay lip service to a plan? Even one that they never had any intent to implement, or one so obviously impractical that any rigorous thought would poke holes in?

Of course they did. It was said to remove corruption, stop black money and stop terrorism. Just emotional non sense and fake hopes. It shut a lot of people's mouths as they labelled the opposers as anti national. There was a lot of online abuse to netizens as well. Still is.

They efficiently managed to pull off this massive failure without widespread anger.

Words can do a lot of damage than weapons. Gandhi used it for uniting people into a good cause and this guy uses it for his own fantasies.

I'm glad the veil is coming off though. People are disgruntled that it's just talk and no work.

> Does anyone have more insight into what the government thought would happen?

I doubt the government thought about this at all.

Creating fear in mind of corrupt. They need to he more creative. This increases the cost of corruption. If the cost achives parity with taxes, people will prefer paying taxes.

How exactly have they created this fear?

  Black money is clearly a problem in India

"Black money" will always exist as long as goods and services humans find valuable are illegal. Altering legal transactions to thwart "illegal" transactions will actually make it easier for illegal transactions to hide in plain sight as legitimate transactions are pushed into loopholes which look "illegal".

I think he means transactions not being accounted for properly, not necessarily for illegal goods. At least my experience of India is that there are quite a lot of deals being made that never show up in any government tax books.

This is mainly what I was referring to. Obviously black markets are essentially impossible to eradicate without the elimination of any sort of legal restrictions. But it seems like a big problem for India is that otherwise legal transactions are happening in cash, and off the radar of the required tax authority.

I wasn't commenting on whether this solution is a good one. It seems like a really poor one to me. Your comment that black markets/money will always exist as long as things people find valuable to be illegal is very true! That said, that doesn't mean that their existence (and particularly the size of it relative to the legitimate economy) isn't a problem for governments.

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