Modi’s Cash Crackdown Failed, Indian Bank Data Shows
nytimes.com
nytimes.com
1. Banks were at a historical low in availability of currency in the system due to bad money hoarding and non performing assets. Dangerously near collapse. Demo as the report points out has brought so much money back into the banking system and successfully overturned this.
2. Prior to demo. the capital in the stock market was dominated by FII (foreign institutional investors) almost 70%. This resulted in volatility and the Indian economy being vulnerable to external influence. Now the table has turned, the capital in the market is predominantly from the Indian banking system leading to greater stability.
3. Now that money is inside the system,anyone who has tried to take money out in cash beyond 5000 USD knows how difficult to near impossible it is now. This is the real effect on bad money, generation is now so damn difficult!
4. Anyone honest who has tried to buy a home from big realty developers in India recently would be pleasantly surprised that now you have to purchase it with good money and also pay proper GST tax for it. Before demo this was one major area of bad money generation. It is as good as dead now. Recent reports on the huge huge increase in GST tax revenue increase is a proof.
5. Good and bad currency sweeping back into the system (Gov allowed conversion also) has effectively nullified the funding of militancy and the fact that from demo the country has not seen any terrorist actions is a possible indicator.
6. Whether you like it or not one more area which encouraged bad money circulation was evangelism (convert to christianity for money) and that is one more area that also been severely impacted.
Most US media outlets want to feed the stereotyped view of India and jump at any chance to do that.
Most people who cry against demo are those who do it, just because they dislike Modi as a person (not a very charismatic personality). They would not be able to substantiate how they were personally impacted.
If demo was any good you would see such exercises all over the world on a regular basis.
IndianBanks are in bad shape because of loans they have made and have to continue to make to politically connected individuals.
This affects state banks mind you - private banks never has that problem.
As Raghuram Rajan pointed out, the reason banks can’t make loans is because many firms have terrible credit. That’s what makes loans unaffordable to them.
And as current reports show - All of that money is back in circulation - so the banks are back to square one.
2 - if someone is telling you this, then they are confusing matters and are misunderstanding trade.
1) Volatility will always exist
2) foreign investments are something we want because trade and more resources makes our economy grow much faster
Additionally: black money is a misnomer - it’s money on which tax has not been paid.
A large portion of India’s economy is informal, and entirely cash based AND also below the taxable slabs - this is OK.
It’s a transition point for an economy as it goes from 1970 to 2030.
What people are upset about are corrupt people who cheat the system and then launder that money.
All black money is therefore not corruption.
But demo has not stopped corruption, and even during demo the corrupt found out ways to launder their money.
Not to mention none of this was free and necessitated a shut down of the entire economy - for nothing.
This move cost us billions in opportunity cost.
The mint wasn’t ready or warned, highlighting how unplanned this entire move was.
People died
And in the end nothing happened
All of those goals could be achieved correctly and more effectively.
That's nonsense. Demonetization was a contributing factor in the following:
* Increase in tax-payers
* Increase in E-filling
* Removal of fake currency
* Crushing of Real-estate black market
* Removal of shell companies
* Decrease in funding of Naxalites and Kashmiri separatists
Demo failed because the government didn't have a clear objective in the first place. Later they started shifting goal-posts to prove it as a success. However, saying that it acheived nothing is ignorance at best.
> People died
This is again nonsense. People are still dying in India due to the negligence of hospitals, civic officials etc. Blaming this on Demonetization doesn't make sense.
Demonetization deserves to be criticized but the criticism should be objective and not just a mere reflection of opposition propaganda.
Sources:
https://www.livemint.com/Opinion/sH5FSnXPkuAhknhzuPgH3M/Demo...
https://www.quora.com/99-3-demonetised-notes-came-back-conce...
Since then reality has only conspired to be itself, thus my assessments have been shown to be right.
And furthermore - my argument is gentle with people who support demonitization.
A full argument would be harsh and unforgiving.
The opportunity cost of Demonitization?
The actual execution cost of the whole exercise?
the HARM to the economy?
All that time standing in line? That was time people would have been working and generating tax revenue across the country.
That money to create 2000 RS notes which didn't fit ATM trays? The MANY technicians and over time which had to be paid to get everything working?
The country was brought to a standstill. IF the previous govt had done something like that we would have lynched them (and rightfully so)
What goes on in peoples minds to believe in these things?
Paint, Steel, Cement, Bathroom fittings, Tiles heck every single company that connects the RE market is on the stock exchange.
You can't register a hut in the property registration office since a decade without a PAN number. And builders haven't been taking cash since more than a decade now.
Where is this non-existent black money in the Real Estate market?
Looks like people build fictional theories in their minds and then go enact rogue policies which ruin many other things as side effect.
Anecdotally, RE is by far one of the largest destinations of black money. A friend is still unable to sell his flat 'coz he doesn't want to accept cash. Another has had to bring down the price from ~2Cr to ~1.7Cr, still no takers for the same reason.
Sure, all those measures (PAN etc.,) exist but so do enough loop holes. One common practice is to register the property at a super low (almost nominal) price compared to actual transaction amount. This is what I as a common person know. I'm sure those involved in daily RE dealings have more tricks up their sleeves.
So yeah, it's clearly not fictional.
Also don't forget bulk of India is poor with high birth rates, so you will have these problems for several decades may be even till the end of this century.
Bangalore alone gets hundreds if not thousands of people coming in every day. With that sort of demand, you can't run a housing market and supply homes at a cheap price. Nor will you be able to run a pure bank/electronic transaction based market. The reason for that is that the base infrastructure for such an economic ecosystem isn't ready. Even in Bangalore you have several hour long power cuts. And that is Bangalore. The rural centers have it way worse.
In all this your every day people, every one from street vegetable suppliers to cement and paint vendors for RE have to work seamlessly. That means 'cash' will be exchanged. Also merely cash being exchanged doesn't make it black.
Ultimately if you are buying cement, paint, steel, bath fittings etc. You are paying white money only, because it goes to registered and tax accounted compaies. Plus you can't buy a flat in any city from a medium and above builder in cash. No one accepts it. And yes, if you are buying a flat for 2 crores, you need to go in for a loan, which comes from a bank, so there is accountability at another layer. And registrations requires PAN, there you have door for audit open.
Another hard thing to come to terms with regards to Indian RE market is people invest in lands decades in Advance, These are not necessarily rich people, these are your ordinary businessmen, shop keepers, salaried masses. In Bangalore, outskirts lands are bought out like >20 years in advance for chicken feed prices, when the demand grows and people come to settle they are faced with impossible prices because investors have long bought the lands. Or they have to rent at exorbitant rates. Real estate is another of things where people with long term vision and enterprise to spend time physically, have a disproportionate edge over those who don't.
I have seen even top managers with top salaries end up with extremely bitter feelings and deep resentment towards common folks on the streets because the latter had the sense to buy lands some 20 years in advance and are now worth 20x more than the manager, despite the managers having 1000x a better career than them.
These problems are not going to go anytime soon.
And lastly even in the middle of DeMo prices didn't move in Bangalore. People who tossed around opportunities to buy flats at 50L-60L in 2008-2010 thinking they will buy in the crash period, were in for a big shock that prices are 1.2Cr-1.5Cr and the market didn't crash either.
The only way to win the RE game is to enter early and play. Come late or don't play you lose by default.
The fact is owners (not builders) of built houses are unable to sell them even 2years post DeMo because they don't want to accept cash. This has got literally nothing to do with paying for labourers, bathroom fittings as that payment has already happened.
I was responding to your dismissal of the GP's claim that RE is driven by and large by black-money. Specifically;
>>Crushing of Real-estate black market
> What goes on in peoples minds to believe in these things?
> Where is this non-existent black money in the Real Estate market?
The above statement just doesn't line up with the ground reality. Ask just about anyone who deals in RE on a daily basis. The real-estate-agent-shops are dime a dozen in Bangalore streets. They will straight up tell you that they expect you to pay a certain amount in cash (i.e., unaccounted) because the buyer doesn't want to show that money to tax authorities. This is how vast majority of RE dealings are done in India, the builders (i.e., RMZ etc.,) share of the pie is minuscule compared to untracked dealings.
> Ultimately if you are buying cement, paint, steel, bath fittings etc
A wise man once said RE is all about 3 key aspects;'location', 'location', and 'location'. But for location housing/building prices would be same across the country as cement etc., cost the same everywhere. So no, I'm actually not paying much for cement etc., as much as I'm for the location.
Just last week I visited a sub-registrar office in Mysore. Only couple of hours of observing activities there is sufficient to dispel the myth that black-money is non existent in RE. The number and amount of cash dealings going on there was mind blowing, PAN notwithstanding.
BTW this is just one aspect of RE. Then there's about farmland dealings. Just about every politician and govt employee of high ranking hide their cash in hundreds of acres of farm land by buying them in cash. This is not only black-money but also illegal too. You see the details in news all the time, when ED authorities raid a politician or public servant to unearth ownership documents of huge tracts of land.
tl;dr Indian RE is awash with black and illegal money. You either have to be blind or far away from ground action to deny that.
You have to be wilfully blind to say this. In every part of the country, real estate transactions used to have a cash and a cheque component. The value is under-reported to avoid paying stamp duty and registration, as well as in many cases to recycle black money.
The proportion of these transactions has reduced since RERA, GST and demonetization. But it still goes on.
Where I stay(Mumbai suburb), taking some percentage of money as cash was always the norm. For example, for a flat worth 90 lakhs, you were expected to pay 60-75 lakhs in white and the rest in black(cash). This inflated the costs and many folks could not afford a flat due to this. It's mostly gone now thanks to RERA but Demo also played some part.
Why do you think they have accounts in Mauritius?
Nothing. It's just blind faith in Dear Leader and in everything he says or does.
Most countries of the world don't have the black money problem that India does; and of those that do (many third-world countries) there is no will to crack down on black money.
and
>A large portion of India’s economy is informal, and entirely cash based AND also below the taxable slabs - this is OK.
50% of India's GDP is from the "informal" sector, and it employs something like 90% of Indians. So it's not just a "large portion". It is the majority. And it is this very informal sector that demonetization targeted so to formalize it. FDI makes a very small portion of GDP growth in India.
>And as current reports show - All of that money is back in circulation - so the banks are back to square one.
The money is back in circulation after people paying at least 50% tax if their cash was unaccounted for, but could range up to 200% penalty if the accounting was particularly shady. Which is why you see such a high deposit rate. People would rather see 50% of their cash than nothing.
So "all" that money going back into the economy makes sense. Now the government has actually account of what is going on.
You should look at the actual number of prosecution claims and convictions by the Income Tax department and the number of instances wherein compounding was admitted (taxpayers admitted to hiding income and paid a penalty), before you call demonetisation a big success in this regard.
Cases filed: 2225 Convictions: 48 Instances of compounding: 1052
Source: https://timesofindia.indiatimes.com/business/india-business/...
Also the voluntary income disclosure scheme of 2016 ran prior to demonetisation. Not many people signed up for that, but for whomever did so, it had nothing to do with demonetisation.
I wonder if it's mostly a logistics reason they don't do it often. To do it smoothly, you've got to produce and safeguard a mountain of currency, with a high degree of secrecy, and deploy it in short order when the demonetization is activated.
It reminds me a lot of the 1962 replacement of the Hwan with the Won in South Korea. I get the impression this was a complete shock change (new Hwan notes were introduced less than a month prior to demonetization, and the replacements were produced abroad).
They pulled it off only with a fair bit of challenge-- old coins got forced back into circulation, and several type of the new notes were replaced almost immediately, and this was in a country which had a tiny population and economy compared to India.
What works is vigilance, expenditure on policing, courts and the creation of civilized systems.
Which takes time, sacrifice and independent police forces/strong judiciaries.
1. I am from Tamilnadu, a southern state in India. A proud Tamil Indian from a middle class background. My father was a govt. employee and is a staunch anti Modi :-) oh also I am not a Tam.Bhram.
2. Modi wave is not a fact in Tamilnadu, similar to other southern states. I think it is difficult for any Hindi speaker to truly gain support. Arghh! Hindi! ;-)
3. I studied in a Christian Society of India school, am a Hindu but I know the difference between serving as a Christian and selling Christianity for money
4. I successfully exited my startup with 5x returns for my investors. As a startup founder I first hand experienced the govt. machinery and can vouch that being an entrepreneur in India is still difficult even after many reforms.
5. However 2 yrs back, the IT dept actually refunded me for 15lakhs without any follow up or bribe, the cheque actually came by mail, can you believe! The govt is putting all efforts to make the system non personal and digitized which has a huge effect on bribes. Bribes thrive where there is subjectivity and misinformation, automate it and you have bribe gasping for air.
So that's it, sorry for disappointing your stereotype assumption on me.
Its kinda funny to see that many people, whether they are pro or anti Modi expected overnight results for any actions taken. Many SMB type companies are ecstatic that refunds are automated. Sadly, for those who have no idea or information about such improvements, they'll only see the failures of such moves.
Indian banks' foreign currency assets have ballooned since demonetization [1], the principal source of which has been FDI. Long story short, Indian bankers' share of the economy grew by sacrificing the country's balance of payments.
As an American investor who knows many wealthy Indians: (1) demonetization was a boon to the wealthy in India, as it provided them with cover under which to move money and (2) the entire exercise has been destructive to the soundness of India's economy. Fortunately, the world economy is growing, so the country has time to mend. But this was a bone-headed move, albeit an expertly-marketed one.
[1] https://rbi.org.in/Scripts/PublicationsView.aspx?id=18271
Did your banker friend tell you that most people in queue were not millionaires but laborers and mostly people who didn't even fall under a tax bracket.
Did he tell you people couldn't withdraw money for months? Their own hard earned money. Not govt money, their own hard earned white money was locked up in banks.
RBI governor wasn't even in support of this decision so he was kicked out. Like how low can all this really get?
Doesn't all this sound like a dictatorship to you?
What did look like dictatorship to me was a prince tearing up a government ordinance and the poor PM running around trying to appease him. Or a queen pulling strings from behind with her own unaccountable "cabinet" - the NAC. Or the parcelling out of government departments among partners to loot the country. That is as low as it can get.
The huge NPA crisis that you see now happened under his watch. The Air India deal, the 2G scam etc etc. It is conveniently forgotten for example, that under Manmohan Singh in 2010 the congress government declared that more bank licenses will be given out, flatly contradicting the RBI whose job it is to issue these licenses.
By the standards we are holding this government to, almost any government prior to this would be called a dictatorship.
Banks have low funds, so you force the public to return their own cash. That doesn't solve the underlying problem of NPAs and public banks not being managed properly.
Also, FYI, RBI recently reported the cash in circulation right now is more than it was before the demo.
Increase in tax collection is great, but it's due to GST, let's not give credit to demo for that.
Yes it did some good, definitely, but have you seen how bad the situation got. I'm not sure if you've lived in a tier 3 city during the demo times but I've seen the plight of people. It was ridiculously stupid to just ban cash in an 80% cash society where majority of the small businesses (who bring in >30% of tax revenue) depend on cash.
People died, lakhs of businesses shut down, multiple factories shut down where they depended on cash to pay daily wages. Lakhs of jobs lost. GDP taking a solid 2% dive. So you're saying all this was worth it? Ground realities are very different from what your comment portrays.
It was a common sight to see people lining up outside ATMs at 2 in the night just to withdraw cash they earned through their hard work.
If this was meant to solve the "black money" issue, it was akin to using a flamethrower to kill an ant. The collateral damage was way, way too high
If you burnt the house down, and said "look, I killed the rats" would anyone in their right mind tell you "hey you did good?"
No not really, people are crying because messing with money happens in banana republics, I thought India was better.
> They would not be able to substantiate how they were personally impacted.
I personally lost 10,000 Rs because I dont want to go to India to exchange the notes, who is going to reimburse me when the govt steals my hard earned money?
You have no way to prove this.
> Most people who cry against demo are those who do it, just because they dislike Modi as a person (not a very charismatic personality).
You have no way to prove this. Also see No True Scotsman fallacy.
> They would not be able to substantiate how they were personally impacted.
You are implying nobody was actually impacted. And yet the economy lost a percentage point in GDP growth. The people that were the most impacted were people in blue collar jobs, and they are not on HN.
Rest of the question, I couldn't find the answer in the earlier BBC link though.
I abhor these thoughts and don't justify the association though.
Here is the video on YouTube: https://m.youtube.com/watch?v=uLXYzvI_FWs
Most people want it be biased in their favor.
Shutting down the economy... seriously? I was in the economy, it did not seem shut.
Unfortunately the outrage seems manufactured, like so much outrage nowadays.
All of these arguments are parrot-repeating-cliches kind of arguments made by Modi supporters in India.
Read his last para -
>Most people who cry against demo are those who do it, just because they dislike Modi as a person (not a very charismatic personality). They would not be able to substantiate how they were personally impacted.
This is not how someone makes an argument. This is just a political statement.
Also this para -
>Most US media outlets want to feed the stereotyped view of India and jump at any chance to do that
I'd say this is possibly a valid argument but this argument has been repeated so many times (esp in last 4 years) that it has become more of an excuse to discount/discredit every criticism. Ironically, stereotyping India is on the decrease but accusing western media of stereotyping India is on the increase (esp among right wing section. )
>Whether you like it or not one more area which encouraged bad money circulation was evangelism (convert to christianity for money) and that is one more area that also been severely impacted.
This is how right wing Hindu nationalists (Modi followers) look at everything these days. You talk quantum mechanics to them and they will tell you the knowledge of QM is already there in Vedas. Though religious conversion is a fact but the scale is relatively small and money involved (when comparing to the scale of demo) was also very small. And even after demo, this money was available within few months.
> Good and bad currency sweeping back into the system (Gov allowed conversion also) has effectively nullified the funding of militancy and the fact that from demo the country has not seen any terrorist actions is a possible indicator.
Poor guy. What a big white lie. Anyone can check the stats. The numbers of Indian army personnels casualties are far greater as compared to pre Modi era.
All of his arguments can be easily debunked. The fact is that not a single person from lower middle class/elite clads stood in a queue outside a bank to exchange/deposit money. And no one went bankrupt.
Only people from extremely lower economic class suffered badly. Many even died. And we don't hear their stories.
Pls check out my comment: https://news.ycombinator.com/item?id=17901835
linking this article (which argues, among other things, that "all money back" does not = no black money):
https://indianexpress.com/article/opinion/columns/demonetisa...
Excerpt from the above link:
>> I remember arguing in one of my articles that I wished all the cash was returned to the banks. Why? Because such people will be identified and will have to face the consequences of gaming the system. This is a long litigious process but major hints of the magnitude of black money involved (that was not supposed to be returned) is high. In his February 1, 2017 budget speech, Finance Minister Arun Jaitley stated the following: “After the demonetisation, the preliminary analysis of data received in respect of deposits made by people in old currency presents a revealing picture. Deposits of more than Rs 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crores.” (Para 142).
Let us reflect on these data. Just after demonetisation, and even over the last few days, a lot of experts continue to opine that demonetisation was doomed to failure because “No one hordes black money in cash”. Just think about it — Rs 3.31 crore was approximately $5,00,000 (2017 exchange rate) and there are 1,48,000 such individuals. There are not that many Colombian drug lords who individually keep $5,00,000 in cash. In the aggregate, this cash — and it is reported to be cash — is close to Rs 5 trillion. How far is this number from the Rs 2-3 trillion that was supposed to not come back? It maybe the case that most of us made a very conservative estimate of black cash in the Indian economy.
BS. This is a right wing fundamentalist template cooked to save the face from pathetic failure of demonetisation.
As other commentators pointed out, it was underprivileged people who were most affected by this preposterous nonsense.
1. Poor people died of starvation, standing in queues at ATM i.e if they had a bank account in first place. [Only 53% had bank accounts as of 2014 & much of it was inactive] & mental agony of loosing their life long savings.
2. Privileged people exchanged their demonetized unaccounted money to new one's by bribing bankers & by forcing under privileged people to do it under their names.
3. Paytm (India's leading payment wallet) grew over 1000% in revenue with demonetisation running full front paged ads featuring the prime minister.
Shows how desperate the search for a justification of a horrible and rash public policy decision which costed lives, time and money has become.
Is that ... really common in India?
The church hides behind the garb of being a minority
representing about 3 percent in India, while actual
numbers are estimated to be much higher. It is not always
money, it can also be career. The church is extremely
well organised and way too powerful, no politician is
ready to face reality and deal with it.
On Christmas and other christian festivals, I personally noticed surprisingly large number of 'poor' people attending church prayers. And I found out they were all converted (though not sure about the extent money played a role).
Depending on the region, such conversion may or may not face any backlash.
I really wish the govt would show more interest in the plight of the 'lower' caste rather than just seeing them as a vote bank.
[1] https://www.theguardian.com/world/2015/feb/24/india-modi-rel...
As for evidence of conversions for money/material goods, here's a couple of links for you to browse at your own pace:
https://www.dnaindia.com/india/report-meerut-priest-tries-to...
https://amp.theguardian.com/global-development/2017/aug/15/t...
https://m.huffpost.com/us/entry/4470448
https://blogs.economictimes.indiatimes.com/et-commentary/con...
The Indian "Jati"system is similar to English/German family names based on profession like Mason, Smith, Carpenter or Schumacher.
The Indian "Varna" system is similar to the separation of the church and the state but included merchants. It was guidelines rather than a hard and fast rule.
A new population of untouchables/Dalits were created by the "Criminal tribes Act" that outlawed people by birth.
It is true that caste divisions and inequalities are a reality today but the solution lies in free market & economic development/mobility. This isn't something specific to India alone all ex-colonies like Rwanda, Syria .. have a minority ruling elite coopted by the colonist and the "others".
The Indian "Jaati" system itself was much more flexible and mobile compared to the European class system. The church has been so successful with this narrative that today the most prominent caste clashes and segregation is in the Christian population.
While older strands of Christianity have long since adapted to the culture of India the recent arrival of Evangelical Christianity from the U.S. since the 1980's is a problem since it is culturally jarring, morally self-righteous, and backed by donations from the U.S.
Christians are just 2% of Indian population (20 million out of 1300 million) After dividing into the various Christians sects you are talking about small groups of people that are linguistically and culturally disconnected. A Goan Konkani has little in common with a Keralite Syrian Christian or a Mizoram Presbyterian.
For Hindu nationalists, these distinctions don't matter and they have been very successful in creating a common Christian bogeyman to rally political support. Sadly, you can find these talking points repeated on HN by educated Indians.
If Modi does something wrong, his supporters wouldn't see this wrong. They would defend it.
Recently, Modi told a story about making tea with gas from gutter. His story was pure lie. Every sensible person knew it.
But his supporters nevertheless defended him. This was pathetic.
1: https://www.npr.org/sections/money/2017/05/10/527803742/epis...
The most unbelievable part of it for me was when the host asks about the difficulties endured by a poor farmer unable to exchange his dead wife's life savings (approx $50), the person just dismisses it saying, "he's a poor guy, he is used to difficulties" (paraphrasing here).
India is taking advice from those sort of people who have no care whatsoever for the poor. Just unbelievable! Can't imagine how difficult life must have been for these people.
I would also look at the increase of money other than cash. People love cash but a good banking system is vital to start small businesses to help people out of poverty.
The RBI still has to take out public interest advertisements featuring top cricketers to convince people to open bank accounts. Because if you were poor, you kept your money in cash, and after DeMo, your trust in the government is even lower than it was before.
Day 1- This is to remove black money!
Day x - removal of counterfeits! Please bear with us.
Day y - cashless economy !
And I vaguely remember there being some other reason(s) which were added later.
This was a farce.
But it does show how deeply Indians feel about corruption and wealth inequality.
The government allowed people to deposit their cash, but taxed it something like 50-70% if it had NO accounting at all.
Most people with black money exchanged their currency notes at a 10% to 20% cost via services that laundered via corrupt employees at banks or routing through newly opened accounts of poor people.
Except it's really not. It's been two years and 100+ lives have been lost. Not to mention the countless man hours and productivity wasted. The decision was condemned from the get go - even discouraged by the then Indian central bank chief.
Such measures should have been pursued through legislative means rather than executive. The way it was done indicated the Indian Governments lack of faith in democracy.
I don't necessarily think wallets are a better way to pay but they are a hell lot convenient than carrying petty cash and having to hit the ATM every now and then.
I can't comment on the convenience of digital wallets for all sections of the society. For the urban middle class I can say with conviction, that digital wallets trump cash. The biggest obstacle for digital wallet adoption were the mom and pop shops. Now even a juice vendor accepts PayTM. I don't think the wallets are as harsh as the credit card guys on the merchants. So I see the adoption as a win-win, at least for the urban middle class.
All of this doesn't negate the endless suffering ulneashed by the cash crackdown though.
How about this scenario - the govt one days makes every Indian pay a fine for holding cash, instead of using one of the many private e-cash wallets out there.
This would be a massive state subsidy given to digital players- but would it be fair or correct workings of the market economy?
Instead if the market was left to itsel the wallets would have invested in ways to convince people and improve services, all the while paying taxes and adding to govt coffers.
One model is wealth creation and the other is regulatory waste paid by us at astronomical costs (1% gdp growth for better metro city use of e wallets??)
No one who talks about this seems to mention the opportunity cost and massive wastage for effectively a one off payment to advertise private entities.
> But not all of that is attributable to Mr. Modi’s efforts.
I think you give him too much credit in saying that.
http://www.financialexpress.com/india-news/demonetisation-bj...
Talk about this move's ill effects and you'll find the other side changing the topic from black money to digital transactions to tax base and so on. None of those claims have been validated. Cash use is back to how it was before. Digital transactions saw a temporary increase, but have gone out of favor among those who didn't really use them often before. Tax increases have other reasons to credit.
What's even worse is that the government made it easier to hoard large amounts of cash by invalidating the Rs.1000 note and by introducing a Rs.2000 note. The main use of the Rs.2000 note could be to hoard cash since it's not something that's useful on a day-to-day basis for most people (can't easily get the change when the spend is much smaller).
Tax evasion is primarily done through real estate, gold, etc. Cash bills form a minuscule percentage. The government could've focused on bigger things than attempt to flush badly run banks with cash by this move.
Hopefully this or any future government won't dare to try this kind of a gimmick again.
Saying that demonetization is disrupting black money real estate deals is... Not evidence of pain or failure.
Can you not imagine legitimate reasons for doing this?
A small business owner makes a deal with a property owner to operate the business out of the property on a payment plan where the profits from the business buy out the property owner over time. The customers of the business pay cash so the business pays cash.
The buyer or seller doesn't trust the local banking system (e.g. because they have seen recent evidence of not being able to withdraw their money from it).
The banks charge some fees that can be avoided by cutting them out of the transaction. Even small percentage-based fees add up to a lot of money on real estate sized transactions.
The seller is also the buyer of a different property and they or the other seller wants to transact in cash for one of the above reasons, so they would prefer to have cash from this transaction to use for the other one.
In theory the transaction could be made to involve the banks by everyone doing extra work for no reason, but at the margin that scuttles the transaction and even when it doesn't it still generates overhead that dampens the local economy makes peoples lives harder unnecessarily.
Imagine someone writing that anti-virus brings pain with it, because it has a negative side effect on programs that need to shim and redirect system calls. Yes, it does, because the vast majority of the time that use case is a virus. If that's all they wrote on that front you'd wonder if they really understood computers.
The article's point is that good people are using it too and getting rid of it hurts them as well -- or hurts them worse, because criminals have alternatives that are only available if you break the law (or have the margins that come from black market trading).
And people do make that argument against antivirus. It detects things that aren't viruses and not things that are. Half the non-tech people with Windows PCs have antivirus and twelve pieces of malware installed at the same time. So if it has high cost and low effectiveness then why have it?
I've had to open and maintain bank accounts in India. (No more.) The only way I got anywhere was by threatening lawsuit, under force of a lawyer and New York State's financial regulator, in an American court.
You can then take that cash with you to your next real estate purchase, or maybe break it up over time -- maybe take less cash out when you deposit your paychecks, maybe buy larger small items with cash, maybe pay for part of your car with cash, etc.
And the only reason the local currency is so liquid is because there is one. If you got rid of it, people would start using something else and it would have the same liquidity because then it's the thing that people accept.
I also stood in line 4 or 5 times, but than every "Line" in India is average 10m long for any kind of services. We are used to it !!!!
For the want of killing crocodiles, we drained the whole pond and only ended up killing the fish instead. Crocodiles were back after a month.
> Overall, however, our study strongly suggests that India’s 2016 demonetization, the largest the world has ever seen, effectively stimulated the transition from a cash-based to digitally enabled economy.
https://www.forbes.com/sites/nusbusinessschool/2018/09/01/in...
https://www.ndtv.com/india-news/less-cash-less-terrorism-mor...
India's economy is hugely cash driven and to suck out 80% of that in a single night was an economic shock. The aims were changed repeatedly. Black money, digital transactions, recapitalising idle assets etc. I don't really buy any of that but I'm willing to give the government the benefit of the doubt. Now that it's, for all practical purposes, proven to be a failure, they should accept responsibility for it.
At what cost? Was it worth the lives that were lost?
> 2. I have seen cash-distribution by candidates during elections to influence votes! They were mostly absent in the immediate subsequent state elections.
Because you diligently monitored every single election personally after this fiasco? And you also have certain guarantees on why this won't happen again?
>3. Many "Poor" people made extra money by queuing in the line for "Rick" people.
Oh nice. Should we add this to the tally of 10 million jobs that were to be generated by the present government?
>4. Terrorist activity immediately stopped all over the place because they are mostly cash sponsored.
Just look at what has happened in Kashmir since, and whether the situation is better or worse. How has immediately stopping the terrorist operations helped?
> 5. Situation normalized within 3 month.
Get out of your bubble. http://knnindia.co.in/news/newsdetails/msme/small-businesses...
> 6. Many of counterfeit presses in neighboring countries stopped working for some time at least. Irrelevant AND wrong. From [1], "9254 Fake Indian Currency Notes (FICN) of newly introduced Rs 2000 were seized between November 9, 2016 and July 14, 2017, "
I'll leave the cringeworthy remark you made towards the end alone. I'm sure you are used to losing your loved ones [2], [3] to the nonsense of power hungry idiots, others are not.
[1] http://www.zeebiz.com/india/news-govt-seizes-rs-255-crore-in...
[2] http://naradanews.com/2016/12/here-are-the-97-people-who-die...
[3] https://indianexpress.com/article/india/india-news-india/dem...
Edit: I did read https://news.ycombinator.com/newsguidelines.html.
Again, I appreciate you taking out the time to point out your concerns with the comment. I've taken a note and will be more mindful of the policy.
You should not expect a sentence-by-sentence accounting of where you lost civility points. That's not how it works.
The telecom companies in the Philippines (as one example) had phone-based digital payments in 2007 or so. It was just a matter of time and critical mass of cell phone ownership, until such payments happened.
There are many such cases across India. Personally, I do think Demonetization was a failure but that's because shifting of goal-posts and not because it achieved nothing.
Another friend's family opened a luxury car dealership overnight, buying cars wholesale from legitimate car dealers who could then pass off any income as legitimate.
I'm very skeptical when anyone says black money was affected significantly by Demonetization.
Question is did they.
This entire thing was a stage managed farce to inconvenience political opponents. Citizens were collateral damage.
Much of the impact of demonetization was experienced as an acute cash shortage, with restrictions on accessing money in bank accounts and difficulty withdrawing cash from ATMs, whereas actual cash could be exchanged relatively easily on the black market. The lesson learned was, quite correctly, not "keep your money in banks where it'll be safe from future demonetization attempts", but "keep your money out of banks where it'll be safe from future demonetization attempts".
It was a failure on every level.
A big part of what drives the shady payday loan industry in America is the poor's lack of access to the regular banking system.
Tell me again why I should trust banks?
If (?) you agree that it's a bad idea to trust banks, why do you think it's a good idea for everyone to trust banks?
If banks are not trustworthy, everyone who distrusts banks is making the right call. More people making the right call is a net win for society. After all, all society is is a bunch of people.
Banks are not ordinary businesses, this is why they're regulated so heavily. Society needs more bank regulation so that people can trust them more. That is what I am arguing that is good for society.
The real reason for this was political chest thumping. The previous government was seen as incapable of taking decisions and getting work done. This was mostly a signal from Modi that he was willing to get work done, take hard decisions and see them through. That he and his government had the willpower to work and act, unlike his political opponents.
The results of the UP elections that happened after this validate it. UP is a state with a lot of farmers and low income people, who were supposedly the worst hit segments of the population. Yet they voted for him.
Just some food for thought.
This was as much a poll winning strategy as it was, purportedly, about demonetization.
To me, regardless of whatever good this government does, it will remain one of the worst decisions economic decisions taken by any Indian government to date
As well in your own camp. Your cash is not different from your opponent's cash. Unless the cash you are using is unaccounted.
https://www.huffingtonpost.in/2018/06/22/amit-shahs-director...
So please drop this 'Income tax return' bogey. Most of the political donations and spending is unaccounted. You don't pay taxes on things that don't exist on your books.
> You don't pay taxes on things that don't exist on your books.
Its not others fault that you keep your party funding off the books. No one asked you to. You can keep it on the books, pay the tax, and pay you vendors legally without issue. The restrictions were on cash, not on any of the other payment systems.
2. If a party already knew that demonetisation is coming, it could have acted accordingly. https://www.financialexpress.com/india-news/demonetisation-b...
3. Ruling party had an advantage on getting money, organisational structure, advertisement, etc, etc. Many vendors don't accept checks but real currency.
https://www.thehindu.com/opinion/editorial/shifting-goal-pos...
https://indianexpress.com/article/india/demonetisation-rbi-a...
https://economictimes.indiatimes.com/news/politics-and-natio...
https://m.huffingtonpost.in/2018/06/22/amit-shahs-directorsh...
Ahmedabad District Cooperative Bank received deposits worth Rs 745.59 cr soon "after" the policy was announced, according to an RTI reply.
Please check it is "after" the policy and not Just few days before demo as you claim
https://www.ft.com/content/7dbe0e14-8d8a-11e7-a352-e46f43c58...
This is one of those 80's era misconceptions that continues to exist today.
No one, not even beggars on Indian streets keep their cash beneath their mattress these days. Money is invested in businesses, where the unorganized sectors works. In short if you pull the plug on this kind of economy you ruin the livelihood of people working in unorganized sector. Which is basically most of the Indian economy.
The remainder of your post is basically the hilarity I have to deal with day-in-and-out from people and their round-corner-barber-shop level discussions on how their random hacks and their political heroes will go around fixing everything. Urban centers are full of these idiots. Who think their barely held together theories, which won't survive 5 why questions in a stretch, should be forced implemented and others be made to suffer through it as a test of patriotism.
Demonetization was a devastating failure for one simple reason. Tax accountability is one thing. Capital is a totally different concept. Capital has always been invested in productive businesses. If you destroy that you destroy the economy. In essence the question is how to fix tax accountability without destroying the economy along the way.
Nobody gets applauded for burning down a city to eradicate rats.
That was my point. A point that I think went over your head. Maybe I need to dumb down my language more?
> people and their round-corner-barber-shop level discussions on how their random hacks and their political heroes will go around fixing everything.
The success of a democracy depends on these barber-shop level discussions. Any working democracy should be proud of the fact that normal people discuss and have their own political views. Democracy is born from the bottom, not handed down from the top by the ever changing and confusing whims of a failed dynast.
> Who think their barely held together theories, which won't survive 5 why questions in a stretch, should be forced implemented and others be made to suffer through it as a test of patriotism.
Where did I make any of these points? Please stay on topic. If you don't have anything relevant to the topic then please stop.
> Demonetization was a devastating failure for one simple reason. Tax accountability is one thing. Capital is a totally different concept.
What is difficult to understand? Demonetization cannot be a failure on tax accountability or capital because it was never intended for this. It was to make a purely political point and it made that very clear to the people. The GST reforms are the reforms for the tax system. Not demonetization.
What you are essentially saying is that the government is not beyond passing policies that result in disruption, death, drop in GDP, and more just to push their political party to win state and other elections
As in many things in politics, things are not 100% this way or that way. Every political and Economical action has a "signalling" component, which in itself does not mean that "signalling" is the only component.
One needs to look at below for a counter viewpoint, if willing to hear both sides of the debate:
https://indianexpress.com/article/opinion/columns/demonetisa...
Excerpts from the above:
>> The return of cash:
Many of us felt (including the government) that of the Rs 15.8 lakh crore (or trillion) rupee notes that were demonetised, about Rs 2-3 trillion would not be returned. The assumption was that this was the minimum of black cash in the system, and since those hoarding cash would be afraid of getting caught by the tax official, they would burn the cash, rather than return it to the authorities.
What happened was that all the cash got returned, and those expecting that this would not happen, were naïve. Let me speak for myself — I am surprised, and at the same time I am impressed by the ingenuity of Indians, especially those with black money. If the only objective of demonetisation was to not get all the money back, then clearly the policy failed.
>> cash to GDP ratio
cash in fiscal year 2017/18 is 10 per cent below what it was in 2015/16 (the GDP has gone up for those wondering).
>> Tax Compliance:
I remember arguing in one of my articles that I wished all the cash was returned to the banks. Why? Because such people will be identified and will have to face the consequences of gaming the system. This is a long litigious process but major hints of the magnitude of black money involved (that was not supposed to be returned) is high. In his February 1, 2017 budget speech, Finance Minister Arun Jaitley stated the following: “After the demonetisation, the preliminary analysis of data received in respect of deposits made by people in old currency presents a revealing picture. Deposits of more than Rs 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crores.” (Para 142).
Let us reflect on these data. Just after demonetisation, and even over the last few days, a lot of experts continue to opine that demonetisation was doomed to failure because “No one hordes black money in cash”. Just think about it — Rs 3.31 crore was approximately $5,00,000 (2017 exchange rate) and there are 1,48,000 such individuals. There are not that many Colombian drug lords who individually keep $5,00,000 in cash. In the aggregate, this cash — and it is reported to be cash — is close to Rs 5 trillion. How far is this number from the Rs 2-3 trillion that was supposed to not come back? It maybe the case that most of us made a very conservative estimate of black cash in the Indian economy.
>> tax buoyancy, that is, the ratio of growth in tax revenues and growth in nominal GDP
The fact remains that an improvement in tax compliance has been a major success story of demonetisation.
>> Withdrawal of cash from ATMs (plus paper clearing) as a proportion of all transactions (for example, RTGS, POS, IMPS) has declined by 30 per cent in volume and 17 per cent in value. The two periods are Jan-June 2016 (pre-demonetisation) and Jan-June 2018 (post-demonetisation).
The first sibling comment of the third highest voted comment throws out a worry, and it was downvoted.
I don't know what this means exactly, but I think it's worth the average HNer to ponder.
In practice, however, immediate action in complex systems is likely to have negative side-effects.
We this desire for action in Trump and Brexit too.. Or when a young naive junior developer sets out to rewrite a system from scratch :)
If anyone thinks that he didn't get exactly what he wanted, they are absolutely incorrect.
For the record, my meager guesses of Modi's moves once he became PM were correct, so I have faith in my assessment of him.
Modi didn't give a rats ass about the stated reasons for this exercise.
Thats why the target moved so many times. Cashless/Terror/ counterfeit etc. etc.
Contrast that with ACTUAL projects he works on - those get targets, goals, and media communication which is spot on.
Modi would never abandon the exercise, because in one move he crippled opponent political infrastructure.
Every day, Modi fights a scorched earth political battle to destroy the Congress.
I mean, there was people like Vajpayee, Adavani and many others who have actually known Nehru/Indira/Rajiv more than Modi and even they didn't fall so far down to criticize Congress. They criticized but with dignity.
Dignity is foreign word for Modi. And that is why, since his rise, stories like Nehru was sexually pervert and had STD, Mahatama Gandhi was homosexual, ancestors of Nehrus were Muslims and so on are on the rise.
Central bank data shows 99.3% of the demonetized notes were exchanged; there was effectively zero "dirty" money destroyed via demonetization.
1. Cash in Bhutan and Nepal where indian currency was widely used. 2. NRIs who legally held INRs but the cost of exchange was too high 3. Residents who have loose cash lying around - under mattresses, long forgotten jeans and missed the deadline for exchange.
Anyone who makes such statements is a complete moron. Sorry about the inflammatory language, but that's the truth.
Can you imagine what would have happened if the Parliament was "consulted" ? All of the money hoarders would have immediately converted their cash, negating the move.
When you want to set a trap to catch something, the last thing you want to do is announce your intentions loudly and put big blinking signs there.
Unless you disagree with the figures RBI has reported, this (precisely this) has happened anyways; the move has been negated. I am baffled at the number of people on HN who still believe that this chicanery really made the rich throw their hoarded cash somewhere.
I mean, come on folks! That's the whole point of the article we are talking about here! 99.7% of the demonetized currency is back. The rest of it could be in Bhutan or Nepal, with the NRIs or could be hiding under the pillows of those who were too poor to get it changed; we don't know.
You mean those holding 0.7% of the currency?
As always, humans are the weakest link and can be exploited quite easily.
Here's another example of stress in the economy.This is what Demonetization did to small businesses
Why is that surprising?
Sincerely, someone on another continent that has one of these and needs to beg a friend to go to a central bank while on holiday to “break” this legal banknote.
Must say, with what I have known about the medium and long term after affects of demonetization, I found NPR / Planet Money's research / info in the podcast terribly biased. This bias is sort of ironic since it is from a radio station that is very pro-democrat from a country that keeps harping about "Trump won because Russia" even though the process was as democratic as it could be.
Like NPR, NYT is also extremely biased against the current Indian administration, while simultaneously being subtly (sometimes overtly) anti-Hindu / anti India.
I sincerely listened to the Planet money episodes hoping to find some genuine shortcomings of the demonetization process, but was totally disappointed at the kind of propaganda based content they came up with! Sadly, NYT does the same with this piece of writeup.
There are many, many +ve effects (short, medium term) that I can talk about. But the main -ve point of this whole process is that one round of demonetization is not enough. A few more rounds of demo, and crooks will have enough fear in even accepting cash for bribes and probably will need to resort to barter system.
I personally know many who stashed illegal unaccounted money in gunny bags, and have suffered a blow to their wealth (as I wished) and I know a few who have had their black money stash replenished partially after a year of demo.
In either case, it was very heartening to see those who slept on mattresses made of cash suffer and struggle.
I was a strong supporter of Modi during the elections and through the demonetization process. But as I see the rich who had tonnes of cash were able to exchange most of the cash without lot of issues. I am sure there were long lines, it was inconvenient, it was stressful - but most of the cash got exchanged. I heard about a lot of people who used the 2 lakh tax-free income limit to deposit the cash and get it back (basically if I have 1 crore in black money, all I have to do is find 50 poor people and deposit 2 lakhs each into their accounts. Once deposited the rich person can get the money back in new bills and they pay the poor guy some cash for his trouble - trust me it's not hard to find poor people who are willing to take this trouble). The government can't question the poor guy because he's within his 2 lakh limit and need to have to show any proof where it came from. The rich is happy and the poor guy is also happy.
Now, people lost trust in the banking system, there are limits on withdrawals, ATMs out of cash, no one wants to deposit the money back - everyone wants to hold on to their cash. If people don't deposit cash, banks can't lend (btw, banks are writing off crores of money as NPAs already, that's another problem) and ultimately the economy will stagnate.
Personally I think this experiment was done with good intention to curb all black money and move over everyone into banking system - but not thoroughly thought out and it's a failure.
“Most people lost trust in banking after demonetization” seems to be widely reported, but hardly supported by reliable data. Though I believed such reports during the initial days of demo, anecdotal evidence (based on friends, relatives, ex colleagues and contractors I have worked with) seems to be that the trust seems to be strong enough for those who never evaded taxes or those who wanted to pay taxes honestly, but never bothered to deposit cash in account.
If anyone says demo was a success in solving the black money problem I’d say that’s not true. But demo, combined with GST, RERA and a bunch of other initiatives have really pushed India towards a less tax evading future, which can only mean lesser taxes in the near future since the tax net cast is much wider.
1.5 million jobs were lost during the first four months after demonetisation. And you'd like to see it repeated a few times for the sadistic pleasure of seeing a few rich people suffer. But even that will not happen because the rich people I know have converted their cash to gold bars and more real estate.
https://www.livemint.com/Opinion/GWagxJq3AzHyM0w8RnUC0O/Demo...
> A few more rounds of demo, and crooks will have enough fear in even accepting cash for bribes and probably will need to resort to barter system.
A few more rounds of demo may also lead to a run on banks and destroy the nation's banking system and currency.
Number of jobs lost is always a debatable number, so I’d prefer not to argue on the specifics.
Converting to gold bars and real estate is good. Makes sleazy transactions painful and inefficient. Easier to track.
Your anecdotal accounts of people getting paid in advance count for nothing against the millions of people who didn't get paid for past work and the millions of people who didn't get work that was scheduled to happen because nobody could pay. Markets were deserted, no goods were selling. This shit went on for months. Everybody who actually lived in India during the time saw this happen.
I agree it was a shock to the system in the short term, and that it wasn’t as effective as everyone expected it to be. But it has certainly brought many many people into the tax fold. This means better tax compliance and more money available for infra.
Bringing people into the tax fold means nothing if most people are added to the bottom tier where they pay nothing or very little tax. The IT department does not have the resources to audit and pursue everyone who filed nominal taxes in the financial year following demonetisation and is now reporting income below the taxable threshold.
And growth in actual direct tax collection this year up to July 31 has been dismal.
https://www.business-standard.com/article/economy-policy/dir...
We'll soon see what the extension up to August 31 netted. Unless there is a miraculous jump in collections in August, the entire 'we ended up collecting more income tax because of demonetisation' shtick will have fallen flat.
I'm sorry, but the RBI data counters precisely this point.
As you know, 99.3% of the cash has returned. Almost no one suffered any blow to their wealth in terms of "losing cash stuffed in gunny bags" as per the RBI; it's all back.
And if that rumor is not true, then there is enough data to track how many in India became overnight lakhpatis (those with more than 100,000 in their account). Now if RBI has enough tech chops to crunch that data and keep an eye on it, they can easily find the top 1K or 10K evaders and go after them. Are they doing it? I'm not sure. But they have enough evidence in hand.
Because bhakti is not an English word. And one of the things which congress followers mock is the use of local language, which is what the BJP leaders tend to use. After all, their own leaders usually struggle to speak any local language at all, being more comfortable in English, being mostly Cambridge and Oxford educated, or out of Doon school. Another St Stephen's alumnus, Mani Shankar Aiyar, famously called Modi a chaiwala. Modi of course, had very little education and is mostly self taught, not having been born with a silver spoon in his mouth.
So by using Hindi words in a mocking manner, the intention is to mock those leaders who use Hindi or other vernacular languages for communication. Whether this is a way to win hearts and minds remains to be seen.