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Old 13th November 2016, 14:55   #586
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Default Re: What next after demonetisation?

I think they are going to hit a big whammy after 30th December. Will be related to real estate and hoarding of cash.
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Old 13th November 2016, 14:56   #587
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

A question in general - how does the government plan to recover the the tax and 200% penalty on these deposits. Do they freeze the accounts? Or it's left to the IT department to figure out in next assessment year? If it's latter, we are in for a long haul here.

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And when you go to resell them, how much will you lose on resale? - a large percentage, probably bigger than the tax you may pay on these if you deposit the notes in the bank.
If they deposit in a bank and if it's later assessed as black money, they are losing 90% value approx (30% tax + 200% penalty), and i am sure they can find ways to retain more than 10% value in such transactions.

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And for gold, anyone buying gold is doing the same thing as depositing into the bank - leaving a very visible trail of this action to the taxman, because the only jewellers that will accept these notes are the honest ones paying their taxes, and keeping the records that include this trail.
That's a big assumption to make. For every honest merchant, there will be a dishonest one too who will know how to get around this.

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Foolish man. All he achieved was about Rs 50 lakhs - peanuts. And he will not be able to get more than 25 lakhs when he tries to sell them, as he will soon find out. Buyers will be clever Indians, not fools.
25 lakhs is still better than 0, and if he can manage to avoid having tax men at his door while at it, even better. However finding buyers with cash in new notes will be next to impossible for next few months.

Last edited by SilentEngine : 13th November 2016 at 15:01.
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Old 13th November 2016, 15:08   #588
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

A jeweller that is not honest will hesitate to add to his own problems now. And it isn't something that is "easy" to get around.

The 200% penalty does not automatically apply by the way; it is in line with Income tax law provisions that have been around for some time now and will be applied on those lines, not arbitrarily.

And rest assured that in the bureaucracy, there are a lot of very clever minds, armed now with digital tech, who also know Indians well; they will go after all major attempts to circumvent the objective and use of these notes like blood hounds on the scent - they are smart enough to not bother the honest merchant that has accepted, deposited and paid tax on demonetised notes. But any action they take will be based on the law and rules of Indian Income tax.

The real issue isn't this to be honest, this is minor - the real issue is the fact that quite probably, the much larger part of black money accumulated over the years is in forms other than 500/1000 rupee notes. Including that parked outside India.

Last edited by Sawyer : 13th November 2016 at 15:11.
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Old 13th November 2016, 15:22   #589
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Though gold looks like the best alternative, it is not as liquid as currency. Let's say someone paid you 20 lacs in gold coins or biscuits, the chances of them adulterated is much higher. It's not easy to validate the purity and close the 'deal' on the spot.

Only way is they convert it back to new currency when things cool down. But then the govt can demonitize again.

I feel large black money transactions should come down a bit though small transactions and bribes will just continue the same old way.
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Old 13th November 2016, 15:33   #590
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by m8002? View Post
Though gold looks like the best alternative, it is not as liquid as currency. Let's say someone paid you 20 lacs in gold coins or biscuits, the chances of them adulterated is much higher. It's not easy to validate the purity and close the 'deal' on the spot.

Only way is they convert it back to new currency when things cool down. But then the govt can demonitize again.
The first para quoted is the reason why representative money guaranteed by the government was invented many centuries ago.

Demonetisation is harsh medicine, like a heart bypass, not like a laxative. Doing it over and over will most likely kill the patient on the operating table.

On this much more interesting subject of what is next after demonetisation, there is a thread here:
http://www.team-bhp.com/forum/shifti...etisation.html (What next after demonetisation?)
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Old 13th November 2016, 15:44   #591
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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The real issue isn't this to be honest, this is minor - the real issue is the fact that quite probably, the much larger part of black money accumulated over the years is in forms other than 500/1000 rupee notes. Including that parked outside India.
Which then begs the fundamental question - Is this exercise really helpful in the scale it's made out to be? Government could have simply decided to withdraw these notes (meaning banks/ATMs would not issue these notes) and they become invalid on Dec 30, giving people enough time between now and Dec 30 to exchange them, while allowing the use of these notes for day-to-day transactions in small amounts. Along with limit on withdrawals and ban on all large transactions with old notes (real estate, gold), it would have been much more beneficial. It would have also prevented the mad rush at the banks and ATMs.
Agreed, this would give opportunity to hoarders to exchange their notes but still at end of Dec 30, enough black money would have come back into the banking system, and whatever didn't come would be in assets like gold or real estate - which could be tracked in future when one tries to transact with them. And a final twist - after Dec 30, withdraw the newly introduced 2000 as well, so whoever tried to hoard with that would be in a fix and regular common people would be unaffected.
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Old 13th November 2016, 16:11   #592
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Is this exercise really helpful in the scale it's made out to be?
The exercise is far from over. This was just an interim step. More fireworks will surely follow.
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Old 13th November 2016, 16:12   #593
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Which then begs the fundamental question - Is this exercise really helpful in the scale it's made out to be? Government could have simply decided to withdraw these notes (meaning banks/ATMs would not issue these notes) and they become invalid on Dec 30, giving people enough time between now and Dec 30 to exchange them, while allowing the use of these notes for day-to-day transactions in small amounts. Along with limit on withdrawals and ban on all large transactions with old notes (real estate, gold), it would have been much more beneficial. It would have also prevented the mad rush at the banks and ATMs.
An excellent question, the first one; I believe that only history will have a good answer to that after a couple of years.
But the actions you have suggested for conditional use and exchange of these notes, in effect are the ones in place today, and because of the panic factor, have created the mad rush. Who is to say that the same panic would not have occurred if all you say as conditions had been specified for the method you have put forth?
Answer instead the following question: what would happen if the PM had only said that from Dec 31 2016, these notes will not be legal tender any more, and will not be accepted for exchange or deposit into any bank account. In any case, at some time, the game of musical chairs that would then have started would have stopped too. What would have been the problem in doing that?

Last edited by Sawyer : 13th November 2016 at 16:13.
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Old 13th November 2016, 16:22   #594
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Default Re: What next after demonetisation?

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Not quite. That's from 2013, and it only talks about debit cards. .
Well, cash payment is not credit and hence debit cards can be compared with cash payments. But to set your mind at ease, see this article in ET:
Quote:
The cabinet has approved introduction of steps for promotion of payments through cards and digital means, a move aimed at weeding out black money menace by changing the cash-dominated payment ecosystem.
"The move aims at reducing cash transactions," an official statement said on Wednesday.
The cabinet approved several short term measures to be implemented within a year and medium term measures to be implemented within two years by government and departments.
The steps include rationalization of telecom service charges for digital transactions, promotion of mobile banking and creation of necessary assurance mechanism for quick resolution of fraudulent transactions.


Source: Economic Times

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Originally Posted by asingh1977 View Post
I think they are going to hit a big whammy after 30th December. Will be related to real estate and hoarding of cash.
My take is that real estate and gold will both be targeted, but again after giving a window to come clean

Last edited by earthian : 13th November 2016 at 16:33. Reason: house keeping
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Old 13th November 2016, 16:22   #595
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by SilentEngine View Post
Which then begs the fundamental question - Is this exercise really helpful in the scale it's made out to be? Government could have simply decided to withdraw these notes (meaning banks/ATMs would not issue these notes) and they become invalid on Dec 30, giving people enough time between now and Dec 30 to exchange them, while allowing the use of these notes for day-to-day transactions in small amounts. Along with limit on withdrawals and ban on all large transactions with old notes (real estate, gold), it would have been much more beneficial. It would have also prevented the mad rush at the banks and ATMs.
Agreed, this would give opportunity to hoarders to exchange their notes but still at end of Dec 30, enough black money would have come back into the banking system, and whatever didn't come would be in assets like gold or real estate - which could be tracked in future when one tries to transact with them. And a final twist - after Dec 30, withdraw the newly introduced 2000 as well, so whoever tried to hoard with that would be in a fix and regular common people would be unaffected.
If he gives people with black money time they can easily use the money for various purposes till December 30th. There would be no way to ban them on large transaction as it is not on government record at all. Not sure how one would be able to do it.

What this has done is, it has suddenly rendered a lot of illegal earnings as void and no one (read most) is willing to take the money out of the hands of the people with black money. Given time they could have easily managed the situation in 2 months and would have been left with the same net wealth as they were before 8th November. Currently a lot of them have suffered dents upto 50% or more.

Also this move is aimed at being a big point against fake currencies and the fake currencies used by various organizations which have created issues for the country. Doubt the government could give them time to rearrange their finances or buy everything till then.

I was of the same thinking that some time period should have been given, but when I heard the reasons I realized that for it to work, it had to be done at one go.
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Old 13th November 2016, 16:34   #596
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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If he gives people with black money time they can easily use the money for various purposes till December 30th. There would be no way to ban them on large transaction as it is not on government record at all. Not sure how one would be able to do it.
After the announcement that the money loses its legal status on Dec 31, and no bank will accept it for deposit or exchange after that, would people not immediately be very careful about accepting these notes anyway? I can't see how people with black money would have been able to easily use it, as you say. It would be like a passing the parcel game - I would be scared of holding the parcel when the time runs out!

I don't know the counterfeit currency + terrorism + havala angle well enough to see if that warrants an overnight demonetisation though - perhaps it does. And if so, a good enough reason to do things the way they have been done.
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Old 13th November 2016, 16:36   #597
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There is some gateway/interchange fee the merchants have to pay. I am not sure if it's a flat fee or some percentage of transaction value or may be a combination of both. From my limited understanding, this fee is basically to cover the associated risk and cost due to fraudulent transactions and charge backs.
The fee is mostly between 1-2% of the transaction value (merchants who command large volume of transactions can negotiate lower fees). It is generally to cover the facilitation cost - cost of fraud and chargebacks is borne by the merchant often (and sometimes the instrument holder; but rarely the banks involved). Merchants are expected to compare this cost against the cost of handling cash - pilferage, theft, security & transportation cost (from merchant location to nearest bank, say).
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Old 13th November 2016, 16:47   #598
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One needs to eliminate the reasons why people have black money .....
.....I may have missed some root causes,
Actually, you missed the main one. The absence of an effective deterrent. We have traffic lights, and we have traffic cops. As long as the traffic cops are effective, and penalise you (such that the amount or time spent in paying or future peace -driving licence) you would hesitate to break the rules. Happens in every society, except probably with the Prussians in North Germany.
What is needed is an active and effective deterrent, and educating our young on civic and ethical values. The old are corrupted beyond redemption- only the danda to make them walk the straight and narrow.
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Old 13th November 2016, 17:00   #599
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The absence of an effective deterrent. We have traffic lights, and we have traffic cops. As long as the traffic cops are effective, and penalise you (such that the amount or time spent in paying or future peace -driving licence) you would hesitate to break the rules.
India is a country with the largest number of rules and regulations and with the lowest level of enforcement relative to the rules it has in place. Why the latter - because of bribery, a reason I did include in my list. No effective deterrent can happen as long as bribery is rampant.
Take just the simple case of traffic and the chaos on Indian roads. All citizens of India including members of this forum contribute to this situation, and it is no use blaming just the older generation for this because the young are visibly the leaders in flouting traffic rules. Including vehicles proclaiming Live to Drive.
But I agree that education about civic sense is the key. I am however pessimistic about when it will happen because I am not seeing it the generation of young these day in any noticeably larger way than the one prior. Better luck next time?!
I fear I have digressed from the topic...
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Old 13th November 2016, 17:10   #600
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Originally Posted by Sawyer View Post
After the announcement that the money loses its legal status on Dec 31, and no bank will accept it for deposit or exchange after that, would people not immediately be very careful about accepting these notes anyway?
I read these currency will be accepted in select branches beyond Dec 30. Legal status is still not there. Govt is facilitating taking it back. It may continue beyond Dec 30 till a date which may be decided later. After that Banks also will not take it. It's already 'non legal tender'.
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