The author is a known critic of the demonetization policy. This was a complicated decision and it is still unclear whether it worked or not. I personally know a lot of business owners and merchants who really hate Modi for this move - which I feel is a good sign given these are the very people who kept the so called black money hidden from the govt and were negatively affected. Of course, the GDP would fall given economic activity got affected at the grass roots level.
That said, there were some benefits 1) people would think twice before hoarding onto cash and keep it hidden from the govt 2) more people would use banking facilities as the govt basically forced a lot of people to create bank accounts and deposit cash there for easy tracking. Also, there are long term tax benefits for the govt too given now it has a snapshot of who exchanged how much black money (in old notes) with the new notes. As such, the answer isn't black or white here.
Maybe it would have been more widely received, if the country in general had been prepared more for digital transactions. When electricity supply is often unstable (especially during and after natural disasters as the one that struck the south east coast last year), it did not make sense to roll out this measure when it was rolled out.
You are confusing the purpose of the demonetization. You might think it is to improve the economy. False. You might think it is to make payments more fluid and fast. False. Modernization ? No. You might even think it is a corrupt measure to make the banks richer. False.
It is to get the people making the decision reelected. It is to give the government party control of the spending of other political parties that might replace them [1].
This decision had a very specific aim, and achieved exactly that aim. In very predictable fashion it did a ridiculous amount of economic damage to the country in the process, but that shows nothing more than what the priorities of Mr. Modi are.
It was very well received (judging by voting afterwards) and further cemented the current party into power. That was the purpose. That aim was achieved. Why was the timing what it was ? It was election time ... [2]
Immediately before this "make or break" (dixit BBC) election BJP suddenly made itself the only party capable of doling out cash and other direct political favors in that state. Coincidence ?
This is conspiracy theory masquerading as a political strategy. The judgement on demonetization should be withheld for couple of years, the banks while accepting old cash collected substantial amount of information before giving new cash. This is going to be a busy year for tax man in India and so will be the next one. Even though most of the money made back into system, there are enough breadcrumbs to triangulate bad actors and black money. Expect some drastic policy changes with real estate, corporate taxation and gold.
Like indian traffic and indian traffic cops, there weren't ever enough tax men to enforce anything too strictly even before all this new data was collected. But I agree in general that it takes things in a positive direction long term.
The digitization allows for more automation and wider enforcement. Its going to take some time to settle. Hope the opposition doesn't complicate the story with mindless hysterics.
> Expect some drastic policy changes with real estate, corporate taxation and gold.
Nope. I don’t expect any changes on real estate or corporate taxation, except to help people who have/control them become richer and have even more lax regulation. A lot of real estate is held by politicians of all political parties. So there’s no reason they’d shoot themselves in the foot. One “maverick” Prime Minister cannot overrule hundreds of others with vested interests, however clean or idealistic he may project himself to be.
As for corporates, the NDA government is highly favorable to them. The tax rates are set to decrease as announced a couple of years ago anyway.
Gold is probably a slightly easier target. It has already seen restrictions before, which means the rich and powerful likely don’t hold too much of it or transact a lot with it.
>>The judgement on demonetization should be withheld for couple of years
How many? 10? 20? After than what happens? People stop taking bribes? Start paying taxes?
Drive around Bangalore anytime during day light. See how many policemen are standing every 1 km negotiating bribes from motorcycle/car users. Go for property registration anywhere, go see what is the going rate for a single registration...
Things like Demonetization changed/changes NOTHING. You need to change people. And that is next to impossible in India.
>>Even though most of the money made back into system
0 Black Money came back into the system, as per the government's own admission.
>>Expect some drastic policy changes with real estate, corporate taxation and gold.
So we learn nothing from the mistakes?
Only thing this will do, is make millions of people jobless. Destroy family incomes, disrupt their ability to provide for their families and put the economy in tremendous strife.
For any policy to work, People need to cooperate. In India its basically every one, all the time optimizing only for personal profit. The only thing you will end up doing in this set up is harming a lot of innocent people, and end up providing immunity training to the crooks.
While we are speculating without any sense of data/proof (no, just linking articles is not proof), why don't you also talk about JFK assassination, NASA Moon Landing or who killed Aarushi?
It is perfectly clear to everyone that it DID NOT work at all. Govt removed 1000/- notes and introduced 2000/-, the biggest irony of supposed anti-corruption move.
And how many of corrupt people, and among them include most MLAs, MPs etc. were caught hoarding black money? ZERO.
I personally know a lot of people, popularly called as BHAKTS, no matter what logic you give them, they remain illogical and keep sucking Modi's dick.
Didn't they report that almost all the cash came back - proving that there was basically no black money returned and the only people they inconvenienced was ordinary citizens with their hard-earned cash reserves?
All the cash coming back was one thing, now everyone has to file their income tax returns, which is when it gets interesting. There’s going to be a lot of people filing tax returns for the first time, and a lot of explaining to do.
Black money largely isn't held as large stacks of suspicious looking cash - that's a Bollywood trope.
It's invested domestically in real estate, art, gold, or other assets, or held offshore, either in the form of freely convertible currency or other assets, which is why 98.96% of the cash was returned.
I strongly doubt a significant number of criminals openly advertised their possession of black money by returning it themselves.
No. Just 1% of the cash evaporated, as opposed to 33% as Modi predicted, and majority of that was probably just due to loss or unlucky circumstance.
For such a disruptive event, that's pathetic.
The only winner was the banking system, who saw one of their major competitors (cash), hobbled. Modi now seems to be saying that this was the point all along.
Direct evaporation is only one part of this. You need to consider the overhead as people tried to get money into the banking system without alerting the government.
AKA, If you started with X money hidden then you don't get to keep 100% of that money if you hand it to other people to deposit.
On top of that people where caught, so actual black money disappearing was much greater than 1%.
Just because cash came back into the system doesn't mean anything. The real troubles for those avoiding income tax begins now as the govt tries to go after those who replaced more cash than their declared income.
For real estate, art, gold, assets and overseas moves, the question still remains as to what the sellers then did with the cash. The buyers might have gotten away, but the sellers are still caught with bags of that need to be laundered.
There was a huge collateral cost, I don't think anyone can deny that, but whether it was worth is still too early to call.
The sellers reported they sold real estate, art and gold before the cutoff, no? How would the government know they sold it illicitly if it was cash? How would some of these art, gold and real estates salespeople know for that matter?
Some would point that a lot of Jan Dhan accounts were flush with much smaller amounts. So any large sums of cash held by someone found a way to get into the system and back out again within a few months.
I am not an economist or a sociologist. These are my personal observations.
Ordinary citizen is not a monolith in India. Ordinary citizen can be subdivided into (with overlap)
1. Middle Class
2. Salaried Class
3. Farmers
4. Daily Wage Workers
5. Unskilled, Semi-skilled and skilled working in Unorganized sector.
6. ... and so on
Different people were inconvenienced to different extent. Middle class salaried category was inconvenienced to the extent that there was a cash crunch and India being a cash economy buying stuff became difficult for a few days.
The ruling party the BJP won a major state election with record margin just 4 months after demonetization. Probably a large majority was not too much inconvenienced. BJP also re-aligned with a political ally in another major state. Had ordinary people being inconvenienced as some stories in media and reports suggest BJP would have become a political pariah.
A lot of money has come back to the banking system. How it happened is another long story. This has reduced bank lending rates. Banks are offering housing, business and other loans at a lower rate.
>> Had ordinary people being inconvenienced as some stories in media and reports suggest BJP would have become a political pariah.
Chalk it up to the successful propaganda by the party. Anybody against it was either a corrupt/black money hoarder or unpatriotic or both.Nobody wanted to be labeled that with the growing nationalism. Of all the leaders of corporate houses only one spoke out against demonetization.
>> This has reduced bank lending rates. Banks are offering housing, business and other loans at a lower rate.
Yes, a major side-effect of this is that banks flushed with cash can show a reduction in NPAs(which is a major crisis India's banking sector is grappling with), and can freely lend again, which will lead to more NPAs down the line.
Yes - basically everything about this move was bad but BJP is so politically skillful that not only they came out unscathed but continued winning!
And nice try on using NPAs as an argument. Not denying it could have been a factor but simply saying that was the reason the govt made such a big move vs. potential tax benefits & getting ppl to open more bank accounts seems ignorant.
In india two third economy was unaccounted. With demonetization everyone had no other option but to deposit it in to bank accounts. Which made a money trail.
-- 2$-3$ billion worth of old currency IT department last year.
-- The total tax base is increased. Evidence of this is that PAN card applications have increased 3x (Daily Issuance of PAN Nearly Triples Post Demonetisation), number of people filing tax has grown a lot [Income tax base expands by 9.1 mn people after note ban) and net tax collections is also significantly up. This is good for a lot of reasons. It makes the taxation fair and also can help government increased budgetary allocations.
-- Economy is able to run normally with 20% lower currency levels.Which makes it harder for households to hoard money. When money is not hoarded, it makes for greater efficiency in the economy.
-- Bank deposits have grown significantly
-- Digital banking became a way of life atleast in the urban India.
Your sources are staggeringly biased. Misrepresenting statistics by making it intentionally complicated.
>No it didnt
Average ~25-30% growth in urban india.[1]
> Questionable
Seriously ? Official data is available. Can't you judge it yourself? Communist 'thewire' is your source that too for when there is official clarifications?[4]
> Communist 'thewire' is your source that too for when there is official clarifications?
The value of your comment dropped with this statement. Calling something or someone as “communist” and using it as a derogatory term in an unrelated context is inappropriate, IMO.
If you don't know where the bias is coming then how can you judge it objectively ? I will not take fox news or British tabloids seriously just like these guys.
It is not name calling when the editors have a history with the ideology. Its a common knowledge. If you ask them they will say the same (In india, its not a derogatory term) !.
If you are saving for retirement by hoarding cash and not investing it at least in bonds or the very least a savings account with some interest, you are doing it wrong, or you have breaking bad problems I’m not familiar with.
>>Digital banking became a way of life atleast in the urban India.
People did some PayTM when they had no cash.
These days if you ask them for a digital transaction, they smile at you gently and ask you trade in cash.
I can't even remember the last time I used cards/PayTM to buy anything near my home. Even for online buying I use cash on delivery, where I pay through cash. Have to, as my mom or dad have to receive the package at home.
Structural reforms are way harder in India than people are thinking. Trust me, Indians care only to optimize for personal gains, and personal gains ONLY. Everything else comes secondary. You can use a hammer and smash approach. People have their own timelines as to what you do.
Nobody here is in a hurry to sign up for your world disruption scheme.
Where are you coming from ? I live in Bangalore and been to Delhi. Every shop including kirana's have wallet facilities. Now they are graduating to UPI. And its backed by statistics by RBI. Mobile payments increased 61% last year.[1]
Indian's are just like any other middle,lower-middle income society. They are careful where they spend money. Your parents are part of 'late majority' in the Diffusion of innovations curve [2]. Look what collage kids do not parents.
I live in Bangalore, I shop with push cart vendors, buy medicines from the round corner the medical shop. I(my family) buys rice/wheat/eggs/whatever from a shop from a guy who lives a few homes up our lane(We have been doing so from 20-25 years).
I buy clothes from the main road, from the vendor who keeps 'Pick any shirt for 250/-'. Recently I bought a fidget spinner for my nephew from a hawker. I eat out at near the Idly shop near my home where a grandma cooks breakfast, with her son, and bajji and bonda snacks in the evening.
None of these guys accept cards or PayTM. And that is how most of the Bangalore is and how it works.
Bangalore has a lot of this tech crowd, who live in pockets in areas around IT parks and thinks that how the whole universe looks.
Even after a year, calling whether it worked as unclear is being naive or ignorant. Would you say ripping off 80% of your code base and rewriting it was a good idea if you are still unclear about the benefits ? To wit, you can't go back to the old code base also.
I so wish GRR Martin had put this in GoT. Then most Indians would have been aware of it. I'll repeat it here once again.
Not all black money is in cash. Not all cash is black money.
A major portion is in real estate, gold, businesses and other financial assets. Cash is just ~8-10% of the economy.
Most people with unaccounted cash had access to networks which would launder it for them. Even if you have a digital trail, the justice system is not digital. Sure some would have to pay up, but a majority would have enough accountants/lawyers to avoid the taxes.
People complaining about black money in India, forget that the relatively low consumer prices that they enjoy is partly due to black money. If one wants the SMEs to pay their taxes, the consumer should be ready to pay more in price. People want low prices, low taxes and no black money/corruption. Well, pick any two.
>> 1) people would think twice before hoarding onto cash and keep it hidden from the govt
Of course not all black money is in cash. However, because of this move all assets which are known carriers of black money including real estate, gold etc. also took a hard hit. Additionally, the thinking is that people would be more careful dealing in cash going forward.
And I would abstain from using absolute stance like you are using. I think this move definitely falls into the grey territory.
No I'm not a bot, but here is another link you should read and understand why demonetisation has been good for India. programmer_dude asked for sources and thats why I'm posting them.
Yes but the argument for those who didnt like demonetisation (the corrupt ones with things to hide) was that poor people were badly affected. However one of Indias poorest states still went with BJP. The statement that poor people were affected was political spin, everyone was affected.
Its well known as just one example that terrorists stop recieving funds from Pakistan as Pakistan use fake Indian notes, its well documented in Indian circles heres an example drama of what happened: https://www.facebook.com/KasheerHinduzFront/videos/123509249...
While I wonder what makes HN interested about India's demonetisation, The biggest irony of Demonetisation is not how the ruling government started listing down auxiliary benefits as the intended objects, It's how rural Indian is always being ignored by the people who celebrate the success of Demonetisaion. We who live in Cities like Bangalore have got Card swiping machine with every merchant, Imagine a village where there is only a few ATM machines, That's where the real impact - the failure is. It may not be even captured by a metric like GDP but when you travel across the country - not just hopping from Station to Station but actually to places, you'd find it out!
Edit: Ppl celebrating demonetisation doesn't refer to HN but a broader group in India.
No one here is celebrating demonetisation. And the initial hype about the digital transactions was long dead. Most of the people who were using cash, went back to using cash for transactions.
Travel to rural India and talk to a money lender. There was a nice much needed shake down. They were all sitting on cash that had to be pushed into bank accounts. This is a long term net positive in shedding light on the shadow economy which has been exploiting the unbanked rural poor for the longest time.
Wow so in your reality what was reported about money lending one year ago, one week after demonetization still holds? All the money lenders in India went into retirement is it?
Go find an article on what moneylenders are doing today. They are still lending. But from their bank accounts not from under their mattress.
Just blind reactions without knowing how the world works has become very fashionable today.
I think that is suspect, do you have anything to substantiate that?
Heres some actual data, which is very worrisome and is not getting the attention it deserves
Microfinance data -
>As shown in the table, PAR > 30 days has spiked drastically across most of the states. Compared to the figures for March 31, 2016, Uttar Pradesh and Maharashtra registered an incredible increase of nearly 100 times as on 31st March, 2017. States such as Rajasthan, Tamil Nadu, West Bengal, Gujarat, Punjab, Madhya Pradesh and Karnataka experienced increases between 11% and 22% compared to the much lower pre-demonetisation levels. By 31 December, PAR>30 days had increased from a meagre 0.5% in the previous quarters to around 8%.
This means that money lenders are quite likely going to get stronger, because this suggests very large distress at the bottom of the pyramid.
And This data never shows up in GDP, by definition the unstructured part of the economy is not part of GDP figures.
This has a knock on effect on demand, and therefore on economic growth.
And recent news suggests that MNREGA funds have not been released by many states because they haven;t gotten them from the center.
I think this is imperiling the BJPs chances of survival. I expected some loss of seats in the next election (I know that even the BJP top brass didnt expect a full majority during the last election.) but if these canaries in the coal mine are accurate, it suggests large distress which is still to come down the pipe.
>>We who live in Cities like Bangalore have got Card swiping machine with every merchant
May be in places like Kormangala, Marathalli or alike, where techies pay 1.5 crores for a 2BHK home, or rent it for 50K a month. And shop at DMart's and BigBazaar.
In rest of the Bangalore, we don't have merchants with card machines going around the corner. In my home we buy vegetables from push cart vendors, and other groceries from the shop around the corner. They don't have card machines. Their profit margin, and people shopping there, have their thin incomes, where they can't afford to pay for the infrastructure or the transaction fees.
The only winners are the credit card companies and the banks here. Getting rid of cash is the final step of their financial prison for the average Joe.
", the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. " And this is not only true for India.
The problem is that its a digital prison for normal people. If there is no cash then bank accounts, CC and transactions should be free, as cash is free itself. But they are not. It's just a money making machine for banks and CC companies.
Furthermore if people want to hide something they'll manage, especially if it about big money.
Technically paper money is not free either, people support the paper money machine with their taxes and in the cost of goods. Money must be printed & reclaimed & replaced, bills must be counted & sorted & transported, etc. Any currency system has overhead, the paper money overhead is just very hidden.
So if the fees are appropriately low, a system of private banks and CC's could be ultimately similar in cost to normal people.
> Third, in a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause.
Assuming the data is correct, demonetization was flawed from the beginning.
The title itself is a misnomer. No one checking stuff in HBR? Only denominations of 500s and 1000s were made illegal. This was replaced with new 500 and 2000 Rupee notes. All the other denominations remained valid throughout.The intent was to control counterfeit currency.
It also appealed the public to use more digital transactions.
Today, in TV there was news about a district in Kerala (Malappuram) having 50000 crores worth of old currency in the hands of various people there. The person whom the reporter interviewed was an agent who sold these old notes to some people for a percentage of the value of the old notes. They didn't say for what purpose the old notes are bought. A friend of mine who knows some Gujrathi cloth merchants in Kochi's main market was told these old notes are bought so that its thread can be taken for counterfeiting new notes.
Thats a non trivial percent of the missing cash, whihc is very unlikely to be in one place.
Kerala gets most of its money via remittances, the idea that they would be a store of cash, especially when most of people convert it into gold around India anyway, makes it extremely hard to accept just from the face of it
It is not in one place, but in the hands of different people. Hawala (https://en.wikipedia.org/wiki/Hawala) is very active in certain northern districts of Kerala.
I agree, its a fairly non-trivial amount of money.
Even I am not sure who is correct here. Either the guy is lying about the amount or the Govt is lying about amount received. Things aren't quite clear here.
There's this thing which goes by the name "Kunjalikutti fund" which isn't that trivial from what I heard ;)
The govt isnt lying - if they were the economy would lose altitude and correct at a much lower level - thered be no reason to keep faith in any of the govt numbers, and we would have moved much closer to banana republic status.
If the govt wanted to lie, they would have put up better numbers - meaning a larger gap between money demonitized and money received.
This is one of the largest transfer of money from individuals & small businesses to corporate sector. Since notes were denotified, people had no choice but to move to businesses which could support digital payments. This led to huge loss of business for smaller players who were dealing in cash and a drop in economic activity. And the small businesses are the ones which employ highest number of people, so the subsequent job loss. Additional domino effects is loss of man hours spent in exchanging the notes and the general anxiety it caused amongst people. Moreover data shows [1], the whole exercise only caused a temporary change in behaviour & cash in back in vogue, so essentially a pointless & damaging exercise.
Those small businesses were the ones taking cash only, paying employees in cash, and generally continuing the trend of no one paying any taxes what-so-ever.
Of course they could employ more people- they were unfairly competing with the companies that were following the law. I have a hard time sympathizing.
Lesson one: Payment processors are taxing bodies. The degree to which your society operates without cash is the degree to which your governing bodies lose all control over the supply of money in your nation. Value of your currency is handed over to payment processors who do little beside moving numbers from place to place, and charge a percentage cut of every such movement on the fictional basis of moving larger numbers somehow costing more or being a harder service to provide. Should the payment processors wish your currency to be in greater supply, they will lower their rates. Should they wish to restrict the supply of money, they will raise them. Their influence is more flexible and has many fewer restrictions than stodgy old things like 'central banks'.
They certainly could. And I would argue that in the USA right now they absolutely should. If not providing a modernized federal ACH system that can handle realtime funds transfers, then at least by absolutely and criminally forbidding charging a fee which scales based upon the amount of money changing hands (a small flat fee would be warranted, the problem is that they charge more just because the numbers are bigger which is nonsensical, we're not talking about them extending credit or doing the liability hot potato that credit card transactions are, this is just pure transferring from one account to another). Ideally the government would establish their own cryptocurrency, but I think that ship has sailed. Society in general has accepted that the standards of cash - anonymity, non-traceability, non-freezability, etc - are simply too dangerous to trust people with.
This. I wonder if the proponents of digitization realize this at all. Do the government policy makers/central banks realize that in their drive to digitize transactions to make them traceable, they are ceding some power to these payment processors.
>"It most recent GDP growth figure has fallen to 5.7%, and part of that, too, can be attributed to the policy move from last November."
It would be interesting to quantify what "part". AFAIK GDP growth has many contributing factors both short term and long term. It would really help readers to better comprehend the affect and also help policy makers to be cautious going forward.
>Lesson One: Choose Your Experts Carefully :
Agreed, we must choose our experts carefully. However, author is silent on "how". Instead what author presents is his take on who are experts. I am not questioning the authors credentials but as HBR article, I expected authors to present a methodology instead of what seems a subjective view to me.
>Lesson Two: Don’t Ignore Basic Data :
Authors criticism that basic data was ignored seems more of a speculation.
No concrete sources that such data was not consulted at all.
>Lesson Four: Beware of Digital Silver Bullets :
Here I feel author selectively uses the citation to benefit his narrative. The very citation states the following verbatim.
http://www.moneycontrol.com/news/business/economy/digital-pa...
>"Still, it is appreciable that the numbers have not come down by a large amount. There are many who have permanently moved on to digital, which is a bigger benefit."
If I were to make a statement on this, I’d say that other countries shouldn’t attempt such an exercise, and if they do, they should certainly look at how it was done in India as a classic case study of “how not to do it.” There’s close to nothing that came as a benefit from this exercise. But the so called “collateral damage”, that the richer classes ignore, on people’s livelihoods, their very lives (many people died) and the economy was significantly bad.
The “first cashless village in India” touted during that time has gone back to using cash. [1]
Dreams about digital money alone won’t do. There’s a long, long way to go on telecom/Internet infrastructure improvement, availability of electricity, availability of devices that are easy to use, education and awareness on security, etc.
I believe any future government in India would be downright foolish to consider doing such a thing again. Now all that the government has done by eliminating the Rs.1000 note and introducing the Rs.2000 note is made it easier to hoard and transport large sums of cash.
All the destruction that was unleashed in its aftermath, could have been avoided, if PM Modi had heard the best economist he had at his disposal, and not an accountant masquerading as one.
I live in a country that is rapidly becoming cashless.
This was not a government program. It happened naturally and was deemed to be in the best interest of all. At every purchase people can freely choose to use cash or a card/phone.
An advanced economy, low corruption, efficient banking system, top level infrastructure and supreme faith in civilization are not things you can just implement.
The article axiomatically attributes demonetization as the reason for a reduction in GDP growth, even 3 quarters after the event. Is it that obvious as I don't see the direct connection - more currency flowing through official channels = increased GDP and taxes. What am I missing?
Invalidating 90% of the stock of currency notes to catch 6% of illegal wealth was a clear case of using a hammer to kill a fly.
The rationale of a crackdown on counterfeit notes was also misleading since India's central bank's own estimate was that fewer than 0.02%
India's stock of high-value currency was growing in line with GDP and the share of such currency in India's GDP remained constant at around 9% for half a decade
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[ 2.4 ms ] story [ 166 ms ] threadThat said, there were some benefits 1) people would think twice before hoarding onto cash and keep it hidden from the govt 2) more people would use banking facilities as the govt basically forced a lot of people to create bank accounts and deposit cash there for easy tracking. Also, there are long term tax benefits for the govt too given now it has a snapshot of who exchanged how much black money (in old notes) with the new notes. As such, the answer isn't black or white here.
It is to get the people making the decision reelected. It is to give the government party control of the spending of other political parties that might replace them [1].
This decision had a very specific aim, and achieved exactly that aim. In very predictable fashion it did a ridiculous amount of economic damage to the country in the process, but that shows nothing more than what the priorities of Mr. Modi are.
It was very well received (judging by voting afterwards) and further cemented the current party into power. That was the purpose. That aim was achieved. Why was the timing what it was ? It was election time ... [2]
Immediately before this "make or break" (dixit BBC) election BJP suddenly made itself the only party capable of doling out cash and other direct political favors in that state. Coincidence ?
No.
[1] https://www.forbes.com/sites/timworstall/2016/12/17/this-is-...
[2] http://www.bbc.com/news/world-asia-india-39228615
Nope. I don’t expect any changes on real estate or corporate taxation, except to help people who have/control them become richer and have even more lax regulation. A lot of real estate is held by politicians of all political parties. So there’s no reason they’d shoot themselves in the foot. One “maverick” Prime Minister cannot overrule hundreds of others with vested interests, however clean or idealistic he may project himself to be.
As for corporates, the NDA government is highly favorable to them. The tax rates are set to decrease as announced a couple of years ago anyway.
Gold is probably a slightly easier target. It has already seen restrictions before, which means the rich and powerful likely don’t hold too much of it or transact a lot with it.
How many? 10? 20? After than what happens? People stop taking bribes? Start paying taxes?
Drive around Bangalore anytime during day light. See how many policemen are standing every 1 km negotiating bribes from motorcycle/car users. Go for property registration anywhere, go see what is the going rate for a single registration...
Things like Demonetization changed/changes NOTHING. You need to change people. And that is next to impossible in India.
>>Even though most of the money made back into system
0 Black Money came back into the system, as per the government's own admission.
>>Expect some drastic policy changes with real estate, corporate taxation and gold.
So we learn nothing from the mistakes?
Only thing this will do, is make millions of people jobless. Destroy family incomes, disrupt their ability to provide for their families and put the economy in tremendous strife.
For any policy to work, People need to cooperate. In India its basically every one, all the time optimizing only for personal profit. The only thing you will end up doing in this set up is harming a lot of innocent people, and end up providing immunity training to the crooks.
It is perfectly clear to everyone that it DID NOT work at all. Govt removed 1000/- notes and introduced 2000/-, the biggest irony of supposed anti-corruption move.
And how many of corrupt people, and among them include most MLAs, MPs etc. were caught hoarding black money? ZERO.
I personally know a lot of people, popularly called as BHAKTS, no matter what logic you give them, they remain illogical and keep sucking Modi's dick.
https://news.ycombinator.com/newsguidelines.html
Didn't they report that almost all the cash came back - proving that there was basically no black money returned and the only people they inconvenienced was ordinary citizens with their hard-earned cash reserves?
It's invested domestically in real estate, art, gold, or other assets, or held offshore, either in the form of freely convertible currency or other assets, which is why 98.96% of the cash was returned.
I strongly doubt a significant number of criminals openly advertised their possession of black money by returning it themselves.
Modi's ploy was an unmitigated failure.
For such a disruptive event, that's pathetic.
The only winner was the banking system, who saw one of their major competitors (cash), hobbled. Modi now seems to be saying that this was the point all along.
AKA, If you started with X money hidden then you don't get to keep 100% of that money if you hand it to other people to deposit.
On top of that people where caught, so actual black money disappearing was much greater than 1%.
There was a huge collateral cost, I don't think anyone can deny that, but whether it was worth is still too early to call.
Chalk it up to the successful propaganda by the party. Anybody against it was either a corrupt/black money hoarder or unpatriotic or both.Nobody wanted to be labeled that with the growing nationalism. Of all the leaders of corporate houses only one spoke out against demonetization.
>> This has reduced bank lending rates. Banks are offering housing, business and other loans at a lower rate.
Yes, a major side-effect of this is that banks flushed with cash can show a reduction in NPAs(which is a major crisis India's banking sector is grappling with), and can freely lend again, which will lead to more NPAs down the line.
And nice try on using NPAs as an argument. Not denying it could have been a factor but simply saying that was the reason the govt made such a big move vs. potential tax benefits & getting ppl to open more bank accounts seems ignorant.
-- 2$-3$ billion worth of old currency IT department last year.
-- The total tax base is increased. Evidence of this is that PAN card applications have increased 3x (Daily Issuance of PAN Nearly Triples Post Demonetisation), number of people filing tax has grown a lot [Income tax base expands by 9.1 mn people after note ban) and net tax collections is also significantly up. This is good for a lot of reasons. It makes the taxation fair and also can help government increased budgetary allocations.
-- Economy is able to run normally with 20% lower currency levels.Which makes it harder for households to hoard money. When money is not hoarded, it makes for greater efficiency in the economy.
-- Bank deposits have grown significantly
-- Digital banking became a way of life atleast in the urban India.
No it didnt [1]
>The total tax base is increased.
Questionable [2]
[1] http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-...
[2] https://www.ndtv.com/india-news/did-demonetisation-increase-...
https://thewire.in/168434/fact-check-claims-increase-income-...
http://www.livemint.com/Politics/C4Q8mpskSbfEzmG8ZWBY9H/Can-...
>No it didnt
Average ~25-30% growth in urban india.[1]
> Questionable
Seriously ? Official data is available. Can't you judge it yourself? Communist 'thewire' is your source that too for when there is official clarifications?[4]
[1] https://timesofindia.indiatimes.com/img/61556580/Master.jpg
[2] https://timesofindia.indiatimes.com/img/61556578/Master.jpg
[3] https://www.rbi.org.in/scripts/neftview.aspx
[4] http://pib.nic.in/newsite/PrintRelease.aspx?relid=170087
[5] http://indianexpress.com/article/business/demonetisation-imp...
The value of your comment dropped with this statement. Calling something or someone as “communist” and using it as a derogatory term in an unrelated context is inappropriate, IMO.
It is not name calling when the editors have a history with the ideology. Its a common knowledge. If you ask them they will say the same (In india, its not a derogatory term) !.
In other countries, we call this 'saving for retirement.'
People did some PayTM when they had no cash.
These days if you ask them for a digital transaction, they smile at you gently and ask you trade in cash.
I can't even remember the last time I used cards/PayTM to buy anything near my home. Even for online buying I use cash on delivery, where I pay through cash. Have to, as my mom or dad have to receive the package at home.
Structural reforms are way harder in India than people are thinking. Trust me, Indians care only to optimize for personal gains, and personal gains ONLY. Everything else comes secondary. You can use a hammer and smash approach. People have their own timelines as to what you do.
Nobody here is in a hurry to sign up for your world disruption scheme.
Indian's are just like any other middle,lower-middle income society. They are careful where they spend money. Your parents are part of 'late majority' in the Diffusion of innovations curve [2]. Look what collage kids do not parents.
[1] https://telecom.economictimes.indiatimes.com/tele-talk/mobil...
[2] https://en.wikipedia.org/wiki/Diffusion_of_innovations
I buy clothes from the main road, from the vendor who keeps 'Pick any shirt for 250/-'. Recently I bought a fidget spinner for my nephew from a hawker. I eat out at near the Idly shop near my home where a grandma cooks breakfast, with her son, and bajji and bonda snacks in the evening.
None of these guys accept cards or PayTM. And that is how most of the Bangalore is and how it works.
Bangalore has a lot of this tech crowd, who live in pockets in areas around IT parks and thinks that how the whole universe looks.
I so wish GRR Martin had put this in GoT. Then most Indians would have been aware of it. I'll repeat it here once again.
Not all black money is in cash. Not all cash is black money.
A major portion is in real estate, gold, businesses and other financial assets. Cash is just ~8-10% of the economy.
Most people with unaccounted cash had access to networks which would launder it for them. Even if you have a digital trail, the justice system is not digital. Sure some would have to pay up, but a majority would have enough accountants/lawyers to avoid the taxes.
People complaining about black money in India, forget that the relatively low consumer prices that they enjoy is partly due to black money. If one wants the SMEs to pay their taxes, the consumer should be ready to pay more in price. People want low prices, low taxes and no black money/corruption. Well, pick any two.
>> 1) people would think twice before hoarding onto cash and keep it hidden from the govt
Or they could change the govt :).
And I would abstain from using absolute stance like you are using. I think this move definitely falls into the grey territory.
heres an example dramatisation of what happened to terrorist funders too: https://www.facebook.com/KasheerHinduzFront/videos/123509249...
So a person is corrupt just because he deals with cash?
No I'm not a bot, but here is another link you should read and understand why demonetisation has been good for India. programmer_dude asked for sources and thats why I'm posting them.
https://timesofindia.indiatimes.com/business/india-business/...
http://www.hindustantimes.com/opinion/four-clear-benefits-th...
http://www.hindustantimes.com/opinion/four-clear-benefits-th...
Edit: Ppl celebrating demonetisation doesn't refer to HN but a broader group in India.
http://www.thehindubusinessline.com/money-and-banking/indias...
Go find an article on what moneylenders are doing today. They are still lending. But from their bank accounts not from under their mattress.
Just blind reactions without knowing how the world works has become very fashionable today.
Heres some actual data, which is very worrisome and is not getting the attention it deserves
Microfinance data -
>As shown in the table, PAR > 30 days has spiked drastically across most of the states. Compared to the figures for March 31, 2016, Uttar Pradesh and Maharashtra registered an incredible increase of nearly 100 times as on 31st March, 2017. States such as Rajasthan, Tamil Nadu, West Bengal, Gujarat, Punjab, Madhya Pradesh and Karnataka experienced increases between 11% and 22% compared to the much lower pre-demonetisation levels. By 31 December, PAR>30 days had increased from a meagre 0.5% in the previous quarters to around 8%.
http://www.livemint.com/Opinion/jVE367mp7AamTbHD5dG0lK/Demon...
This means that money lenders are quite likely going to get stronger, because this suggests very large distress at the bottom of the pyramid.
And This data never shows up in GDP, by definition the unstructured part of the economy is not part of GDP figures.
This has a knock on effect on demand, and therefore on economic growth.
And recent news suggests that MNREGA funds have not been released by many states because they haven;t gotten them from the center.
I think this is imperiling the BJPs chances of survival. I expected some loss of seats in the next election (I know that even the BJP top brass didnt expect a full majority during the last election.) but if these canaries in the coal mine are accurate, it suggests large distress which is still to come down the pipe.
May be in places like Kormangala, Marathalli or alike, where techies pay 1.5 crores for a 2BHK home, or rent it for 50K a month. And shop at DMart's and BigBazaar.
In rest of the Bangalore, we don't have merchants with card machines going around the corner. In my home we buy vegetables from push cart vendors, and other groceries from the shop around the corner. They don't have card machines. Their profit margin, and people shopping there, have their thin incomes, where they can't afford to pay for the infrastructure or the transaction fees.
Unclear what the right solution is but clearly there was a problem.
So if the fees are appropriately low, a system of private banks and CC's could be ultimately similar in cost to normal people.
After that failed, they changed their stated goal (after the fact).
I never got to try, but India did.
The Trump administration would never make a mistake like that, would they?
> Third, in a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause.
Assuming the data is correct, demonetization was flawed from the beginning.
Today, in TV there was news about a district in Kerala (Malappuram) having 50000 crores worth of old currency in the hands of various people there. The person whom the reporter interviewed was an agent who sold these old notes to some people for a percentage of the value of the old notes. They didn't say for what purpose the old notes are bought. A friend of mine who knows some Gujrathi cloth merchants in Kochi's main market was told these old notes are bought so that its thread can be taken for counterfeiting new notes.
Theres so many things that raise flags there.
Thats a non trivial percent of the missing cash, whihc is very unlikely to be in one place.
Kerala gets most of its money via remittances, the idea that they would be a store of cash, especially when most of people convert it into gold around India anyway, makes it extremely hard to accept just from the face of it
I agree, its a fairly non-trivial amount of money.
Total amount demonitized is 15.44 lak crore, 15.28 returned.
thats .16 lakh crore - or .16 * 100000 = 16000 crore missing.
and 5k of that is in Kerala.
It stretches my credulity.
There's this thing which goes by the name "Kunjalikutti fund" which isn't that trivial from what I heard ;)
If the govt wanted to lie, they would have put up better numbers - meaning a larger gap between money demonitized and money received.
[1] - http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-...
Of course they could employ more people- they were unfairly competing with the companies that were following the law. I have a hard time sympathizing.
Thats the weirdest example which doesnt describe India.
Most of those firms earn less than the barrier for payment being required. So which taxes and who?
Paying taxes shouldn't work on an honour system. Not reporting income is tax evasion, which is what the Indian government wants to stop.
It would be interesting to quantify what "part". AFAIK GDP growth has many contributing factors both short term and long term. It would really help readers to better comprehend the affect and also help policy makers to be cautious going forward.
>Lesson One: Choose Your Experts Carefully : Agreed, we must choose our experts carefully. However, author is silent on "how". Instead what author presents is his take on who are experts. I am not questioning the authors credentials but as HBR article, I expected authors to present a methodology instead of what seems a subjective view to me.
>Lesson Two: Don’t Ignore Basic Data : Authors criticism that basic data was ignored seems more of a speculation. No concrete sources that such data was not consulted at all.
>Lesson Four: Beware of Digital Silver Bullets : Here I feel author selectively uses the citation to benefit his narrative. The very citation states the following verbatim. http://www.moneycontrol.com/news/business/economy/digital-pa... >"Still, it is appreciable that the numbers have not come down by a large amount. There are many who have permanently moved on to digital, which is a bigger benefit."
And then there are cryptocurrencies, which are about to teach the world economists all kinds of lessons.
Any attempt to rectify this menace is a welcome step -- hopefully regional countries like Pakistan and Afghanistan can implement similar measures.
The “first cashless village in India” touted during that time has gone back to using cash. [1]
Dreams about digital money alone won’t do. There’s a long, long way to go on telecom/Internet infrastructure improvement, availability of electricity, availability of devices that are easy to use, education and awareness on security, etc.
I believe any future government in India would be downright foolish to consider doing such a thing again. Now all that the government has done by eliminating the Rs.1000 note and introducing the Rs.2000 note is made it easier to hoard and transport large sums of cash.
[1]: https://www.bloombergquint.com/demonetisation-one-year/2017/...
http://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-sa...
This was not a government program. It happened naturally and was deemed to be in the best interest of all. At every purchase people can freely choose to use cash or a card/phone.
An advanced economy, low corruption, efficient banking system, top level infrastructure and supreme faith in civilization are not things you can just implement.