[sachinpk]

Originally Posted by msdivy

Is it? Cash crunch doesn't differentiate between legal & illegal activities. Illegal economic activity has stopped. Imagine the impact on legal economic activity.

How much legal economic activity has collapsed? Do we have any numbers. I remember reading that auto sales have come down. But the report clearly did NOT mention whether that was because of the old habit of certain customers to pay up ready cash have got exhausted. But loan options were still open. Any seemingly legal activity (eg: real estate) which indirectly depended upon black money has taken a hit. Any state's economy which also depended upon unaccounted wealth (but that getting floated in the state) may also take a big hit soon.

But they neither consulted the experts nor analyzed the impact.

What guarantee is that these experts do not leak the news?? During this DeMo excercise I have heard about a lot of "experts" (including Amartya Sen). Nobody had any liking towards the current ruling dispensation. Fat chance, that they would have be of any good help.

Originally Posted by mayankk

What about the real slim shady who proposed it in the first place?

Have the government of India formally announced/agreed that this De.Mo excercise was started explicitly after getting this proposal? If that is not the case, why should we assume that the government got a plan (from this NGO) but then changed the plan mid-way? For all we know their plan may not have been even considered. Arth Kranti's proposal is a mega project by itself (which includes even a grand plan of abolishing Income tax). To be frank I feel Arth Kranti's contribution in this excercise is over-hyped.

They were unforgiving in 2014. Who knows what they will do in the coming few "events".

There I agree with you. If they find an alternative to the present government they would naturally vote in those lines. And it is well within their rights to do so.

Originally Posted by joslicx

So if the objective was to get all the 500/1000 notes back and to demonetize then, then they could just have announced the same giving a longer window, say 1 year or 2 years after which these notes would be invalid.

Your assumption of the objective (underlined) is incorrect, in my humble opinion. What was the problem with 500/1000 notes? Nothing. They did not have any printing errors or got the people confused etc. Only problem was of counterfeit currency. The objective of demonetisation was not just pulling back some notes, and reissuing new notes (with say better security features). If that was the objective, what you suggested can be done.

The government also had realised that there is lots of unaccounted wealth (stored as cash) in the country, and they are predominantly stored in Rs.500 & Rs.1000 notes (most readily available, and most easy to carry). How can this unaccounted wealth be accounted? Not by conducting raids, nor by checking every one's tax return filings. If that was the case, we could have done these things for the last 50 years. The only way was to force the people who had unaccounted money to come up with that. That was done by making Rs.500 & Rs.1000 illegal tender. The only way for the people who had unaccounted money to get it swapped was through the banks. And any money which goes to the bank gets accounted. Big Data analysis etc. can be used much more easily as 99% of PSU banks are all computerised by now.

Once the money hits the bank accounts it is easy to assess a person's income etc. and then take the next steps (prosecution). Their income declarations would also become the base line for the next year's assessment. Once a person files an IT return, he has to do the same in subsequent years (even if he shows zero tax payable). Digitization is just an off-shoot of the whole scheme. From what I could make out if Rs.500 & Rs.1000 (of the old series) occupied 85% of India's floating currency, the new Rs. 500 & Rs.2000 notes would never be circulated at the same level. Which means at least for high value transactions banking/digital channels would have to be used.

[greenhorn]

Originally Posted by sachinpk

How much legal economic activity has collapsed? Do we have any numbers.

International Monetary Fund (IMF) lowering India’s growth forecast for the year by a full percentage point to 6.6% because of disruption caused by the government’s move to invalidate high-value currencies.

http://www.livemint.com/Politics/RNF...ast-to-66.html

What guarantee is that these experts do not leak the news??

So the current initiative where the initiative was planned within a closed group of yes men (outside the RBI or parliament) and Dumped unceremoniously on an unsuspecting public the best way to go?
At least the outgoing RBI gov seemed to have an inklink of these, and he seemed to have kept his mouth shut. Is paranoia a healthy foundation for governing a democratic state?

Your assumption of the objective (underlined) is incorrect,

In my opinion, all our assumptions are merely speculation, and any one is as good as the other - unfortunately, the horse here, which is the government or the rbi, keeps pointing fingers at each other, and keep giving inconsistent answers.

The only way was to force the people who had unaccounted money to come up with that. That was done by making Rs.500 & Rs.1000 illegal tender. The only way for the people who had unaccounted money to get it swapped was through the banks. And any money which goes to the bank gets accounted. Big Data analysis etc. can be used much more easily as 99% of PSU banks are all computerised by now.

Big Data and analytics could have been used to identify this activity even if an extended window was given as usual. Plus a lot of people have managed to swap their money as evidenced by those caught by good old fashioned raids - which could have been done even without all these shock & awe tactics

[ashokrajagopal]

More time given for exchange would only provide a better window for the hoarders to plan for an exchange; that would completely beat the purpose of demonetisation before it even starts. This, especially because we know the system is corrupt from within.

A lot of this will depend on how future pans out, but now

a) there is a digital trail for a responsible govt to trace
b) there is a renewed knowledge and availability of digital payments for a responsible citizen to follow
c) there is a really good shock provided to establishment backed systems outside banking( like cooperative banks) to maintain their books spotless
d) there is a warning for sectors like Real Estate where most of the black money used to flow to

This exercise has provided the first step to a better economics in the country. Obviously most people will oppose it -- how many people even pay tax ? Experts like Amartya Sen, who bats from the other side now, have mentioned many times previously about the uselessness of the macro economic growth numbers when people's condition does not improve. If the govt can follow thru to actually collect more tax, bring more businesses in the books, and use the revenue acquired productively the future should be better in the long run.
Obviously its a big IF. But its not yet time to lose all hope about this.

[deerhunter]

How a Kerala woman woke up to find all her hard-earned money lost to demonetisation,

What demonetisation?

Sathi, who retired 20 years ago from the state veterinary department, lives alone in a small house, without a television or a phone. She doesn’t subscribe to any newspapers and leaves her house only to stock up on her rations. The recluse, who went to buy groceries, came to know about the prime minister’s move, after a shopkeeper informed her that old currency notes of 500 and 1000 denominations are no longer legal tender.

Her neighbours don’t interact with her and she lives a rather guarded life. She lives in constant paranoia of other trying to trick her and rob her of money. While the Varapuzha Panchayat committee did try to help her get in touch with the Reserve Bank of India, a thoroughly paranoid Sathi outright refused it. Her paranoia stems from incidents in the past, where she has been swindled. Her house was raided on Tuesday evening by the police and panchanyat members and Rs 4 lakh in old currency notes were retrieved.

I am sure there are many more such people in India. Atleast this lady got to know about it now. Many will never know and will lose all their money. Irrespective of who is in power, it is the poor and helpless that is always at the receiving end.

[Samurai]

From society, to her neighbours and relatives, and even the government – everyone is complicit in Sathi’s situation.

So.... everybody is responsible for this incidence, except her. Nice journalism.

Alright, can somebody suggest a practical alternative to demonetization which would have achieved the same goals (whatever you think it is) without hurting a single individual in the process?

[deerhunter]

Originally Posted by Samurai

So.... everybody is responsible for this incidence, except her. Nice journalism.

Daily O is politically biased. Leave aside that and look at that lady. It is in Kerala, where civil society is strong and mobile/broadband is present in every corner. Compare this to some other village in India, where even electricity is only available for few hours every day, with no way of knowing what is happening in the outside world. I am sure there are many more such helpless people .

Originally Posted by Samurai

Alright, can somebody suggest a practical alternative to demonetization which would have achieved the same goals (whatever you think it is) without hurting a single individual in the process?

Tax authorities and law enforcement can easily straighten out India's black money issue. But for that to work, political will is needed. Political will is the only thing that is lacking in India. (Applicable to all parties, including current and past ruling parties)

Originally Posted by greenhorn

the govt (and a lot of demonetization advocates ) keeps saying the goal was X, and when credible alternatives to achieve X are presented, the goal Suddenly shifts to Y, to which again when credible alternatives are presented or the rationale questioned, another goal comes up. And finally, it is claimed that Demonetization was not done with a view to achieve any one of these, but that these are its benefits, and the govt has "not played all its cards yet"

True

[greenhorn]

Originally Posted by Samurai

Alright, can somebody suggest a practical alternative

Plenty of people have posted the same thing multiple times before -
A phased demonetization like everybody else does + Traceability + Analytics for identifying exceptions + incentives and phased introduction of mandatory cashless alternatives for purchases + building of a cashless payment model without any additional costs to people. Poll Finance reform. When different people have suggested so many different alternatives, not sure why you keep asking for more

which would have achieved the same goals (whatever you think it is)

Which is one of the other isues here - the govt (and a lot of demonetization advocates ) keeps saying the goal was X, and when credible alternatives to achieve X are presented, the goal Suddenly shifts to Y, to which again when credible alternatives are presented or the rationale questioned, another goal comes up. And finally, it is claimed that Demonetization was not done with a view to achieve any one of these, but that these are its benefits, and the govt has "not played all its cards yet"

[Nav-i-gator]

Originally Posted by deerhunter

Daily O is politically biased. Leave aside that and look at that lady. It is in Kerala, where civil society is strong and mobile/broadband is present in every corner. Compare this to some other village in India, where even electricity is only available for few hours every day, with no way of knowing what is happening in the outside world. I am sure there are many more such helpless people .



Tax authorities and law enforcement can easily straighten out India's black money issue. But for that to work, political will is needed. Political will is the only thing that is lacking in India. (Applicable to all parties, including current and past ruling parties)

1. It is highly improbable to not getting to know of this remonetization exercise in today's world. Even in far-flung himalayan villages (where I belong to), there is mobile phone access in most of the villages (however patchy, it is there). at least one house in every village has a TV (with DTH, as terrestrial signals are too weak). And if nothing works, news (and rumors) reach every nook and corner faster than wild fire in India (rememer the Ganesha drinking milk episode - rumor reached across India within hours!). No way one would not get to know of such announcements in 50 days, unless one deliberately want to concoct a story.

2. It is true, but futile nonetheless, to blame political will to every problem in India. First we need to admit, we are corrupt. All of us. I am a salaried person, and am forced to pay taxes through TDS, so I can boast and take a moral high ground. Those who run businesses, I am yet to find someone who have not hid their real income, or honestly paid income tax every year. And the salaried class have obliged, paying in cash to get additional discounts.

Given a chance, no one, I repeat - no one would pay any tax. And there is no incentive for honesty. By bringing in fear of law, this govt have tried to introduce that incentive to pay taxes (at the cost of political support and possible loss of vote bank). Hope they are clear in their plans and implementation of further actions and follow up policies. If anything, it is only the fear of law catching up which can reduce corruption in India.

[greenhorn]

Originally Posted by Nav-i-gator

\
Given a chance, no one, I repeat - no one would pay any tax. And there is no incentive for honesty. By bringing in fear of law, this govt have tried to introduce that incentive to pay taxes (at the cost of political support and possible loss of vote bank). Hope they are clear in their plans and implementation of further actions and follow up policies. If anything, it is only the fear of law catching up which can reduce corruption in India.

I guess I am in the minority here - I paid taxes in full for the first three years of my employment after MBA ( and I was in the highest bracket, mind you) Did not attempt any sort of tax reduction via declaring house rent, investments etc. I really wanted to contribute to nation building, despite the leakages and the corruption etc.

Then i went abroad and came back, and I legitimately deserved a tax refund due to the period i was abroad, but the income tax authorities decided to make my life difficult and created a demand saying I have not paid (even though my employer takes care of TDS) and have made my life harder.

Guess who goes out of his way to reduce his taxes? I wanted to do the right thing, but once bitten, twice shy I guess.

[Samurai]

Originally Posted by deerhunter

Tax authorities and law enforcement can easily straighten out India's black money issue. But for that to work, political will is needed. Political will is the only thing that is lacking in India.

I specifically said practical alternatives. That doesn't involve expecting politicians suddenly (or gradually) becoming honest.

Originally Posted by greenhorn

Plenty of people have posted the same thing multiple times before - A phased demonetization like everybody else does + Traceability + Analytics for identifying exceptions + incentives and phased introduction of mandatory cashless alternatives for purchases + building of a cashless payment model without any additional costs to people.

And will it be problem free and nobody will be hurt? Until we go down a certain path, it is impossible to predict every possible problem. And there is no problem free solution in this scale of operation.

[deerhunter]

Originally Posted by Nav-i-gator

1. It is highly improbable to not getting to know of this remonetization exercise in today's world. Even in far-flung himalayan villages (where I belong to), there is mobile phone access in most of the villages (however patchy, it is there). at least one house in every village has a TV (with DTH, as terrestrial signals are too weak).

55,000 Indian Villages Don't Have Mobile Coverage.
Some parts of India is still unbelievably under-developed. India's poor, especially rural elderly poor, has less access to everything. If one is old and destitute, and is living in one of those villages with no one to look after or talk to, it is very much probable that they might not have heard of demonetisation. Add to this the caste and social stigmas, nothing is improbable in India. It is also highly probable that people who have not heard of demonetisation is in the thousands (India's pop is 130 cr, so 1000s is still very small).

Originally Posted by Nav-i-gator

2. It is true, but futile nonetheless, to blame political will to every problem in India. First we need to admit, we are corrupt.

All the more reason for a stronger political will. Since it is human nature to avoid taxes, if the govt has will, it can catch any evader.

But our politicians are more interested in keeping power and winning the next election. So political will is unheard of in India.

Originally Posted by Samurai

I specifically said practical alternatives. That doesn't involve expecting politicians suddenly (or gradually) becoming honest.

Then honestly, I dont know. Even demonetisation was not practical until they announced it. This black money issue is not going to be resolved until a radical shift occurs in India. Things are almost back to normal wrt black money. How many more demonetisations will be needed to actually weed out all the evaders?

[Nav-i-gator]

Originally Posted by deerhunter

55,000 Indian Villages Don't Have Mobile Coverage.
Some parts of India is still unbelievably under-developed. India's poor, especially rural elderly poor, has less access to everything. If one is old and destitute, and is living in one of those villages with no one to look after or talk to, it is very much probable that they might not have heard of demonetisation. It is also highly probable that people who have not heard of demonetisation is in the thousands (India's pop is 130 cr, so 1000s is still very small).



All the more reason for a stronger political will. Since it is human nature to avoid taxes, if the govt has will, it can catch any evader.

But our politicians are more interested in keeping power and winning the next election. So political will is unheard of in India.



Then honestly, I dont know. Even demonetisation was not practical until they announced it. This black money issue is not going to be resolved until a radical shift occurs in India. Things are almost back to normal wrt black money. How many more demonetisations will be needed to actually weed out all the evaders?

Remonetization is an example of political will, isn't it? (same is GST). In all probability, it will not be able to deter people from being shamelessly corrupt and starting their tax evasion/hoarding again. Govt is supposed to have the data now to round up big evaders as all the money (85% of total cash in circulation) has now been routed through banking system. Even if they can catch a few, that will not deter others to fall in line.

Plus the govt will most likely lose political capital too if it tries hard measures to every extent possible. Common people suffered in this remonetization exercise and will suffer in any follow up plan as well. We need to be open in our minds and accept that it's us, the people of India who are at fault to cultivate such culture of rampant corruption, even if we don't do it, we have got used to of it being a necessary evil. No amount of political will can change it, unless each and everyone of us change ourselves. What a Govt can do (and this govt is doing) is to take some steps hitherto uncharted to try and force people to reboot their way of doing business and transactions.

Regarding probability of not knowing in 50 days about the policy, well if someone is managing to live in complete oblivion, cut out from the everyday life, he/she probably don't need (or don't have) 500/1000 rupee notes with them. Else, RBI still accepting old currency.

[perty]

Originally Posted by Samurai

And there is no problem free solution in this scale of operation.

Certainly, but what's the scale of the problem that will be caused ? A few people dead or deprived of livelihood. How many such people is an 'acceptable' number ? 10 ? 100 ? 10000 ? (even if 10,000 lose their lives or livelihood it's just 0.001 % of the population, so maybe its not such a big deal after all ?)

If the laws are lax or poorly implemented or ineffective for whatever reason, then that's the problem which requires fixing. Making every citizen pay at the least or suffer (die?) at the worst for this historic ineffectiveness of law enforcement is pathetic. Right now, it looks like the house has been set on fire to solve the persistent problem of rats.

The intentions behind this might have been laudable, but the implementation has been downright horrendous. The govt seems to expect that we should swallow this in the name of patriotism or forgive all implementation shortcomings under the garb of necessary secrecy.

Wouldn't true patriotism mean that we care for and work towards the welfare of every fellow citizen of this country and ensure that even the weakest of them is not left behind, instead of standing up to forgive and forget everything that the rulers do.

Just as the above story shows, the authorities seem to have swooped in happily to take away 4 lakh from some poor lady, while not a single politician has been raided or caught in the past 2 months.
Are we then paranoid in assuming that the politicians are corrupt ? Surely, if more than 2 months of demonetization hasn't caught a single politician, then maybe they didn't have any black money after all ?

[sachinpk]

Originally Posted by greenhorn

Big Data and analytics could have been used to identify this activity even if an extended window was given as usual. Plus a lot of people have managed to swap their money as evidenced by those caught by good old fashioned raids - which could have been done even without all these shock & awe tactics

For Big Data to work, there should be data in the first place. Cash was used to ensure that no formal record of high volume transactions take place. I buy a piece of land and register it showing Rs. 10 as the sale value. Where as I have purchased it using Rs.100, where Rs.90 was unaccounted money. Data only exists for Rs.10. With that what analysis could be done? The person to whom I paid the unaccounted money would also not deposit it in a bank as there is no incentive/force for him to do so. Now every body's real economic worth is pretty much known.

A phased demonetization like everybody else does + Traceability

What do you mean by "phased demonetization"?? Inform every one that Rs.500 & Rs.1000 notes would become invalid six months down the line? Well, I am sure that the black money hoarders in India would be some dumb that they would feel that the government is joking and just sit doing nothing. If such a time window is given these Rs. 500 & Rs. 1000 notes would be issued out to all and sundry (or invested in gold or land) and laundered neatly. No Traceability would exist even then (they will show very less value in all records). Think about it, the black money hoarders had such champions among them, that even with the current hammering they got, they could still source money direct from RBI & Cash chests. Such was their power. And we are talking about giving these people longer time.

Originally Posted by deerhunter

Compare this to some other village in India, where even electricity is only available for few hours every day, with no way of knowing what is happening in the outside world. I am sure there are many more such helpless people .

Yes, "helpless" people but all of them had lacks of rupees in Rs.500 & Rs.1000 notes. And they could not exchange it, because no one told them. In such a village which you mentioned there economy would never be based on high denomination notes. I don't think India has such a backward place where even after 50 days people have not realised that some type of notes are invalid. The Kerala lady's problem was that she was a recluse who just stayed inside her home and only went outside bare minimum. These are exception rather than the norms.

Things are almost back to normal wrt black money.

Only thing which I have noticed is that bribes are still being taken, using new currency notes. Which means "black money" is getting created. But it would take a very long time for these bribe takers to make any meaningful use of the same. The earlier black money champs all made their wealth with 15-20 years of being in service or running a business etc.

[Nav-i-gator]

Originally Posted by perty

Certainly, but what's the scale of the problem that will be caused ? A few people dead or deprived of livelihood. How many such people is an 'acceptable' number ? 10 ? 100 ? 10000 ? (even if 10,000 lose their lives or livelihood it's just 0.001 % of the population, so maybe its not such a big deal after all ?)

If the laws are lax or poorly implemented or ineffective for whatever reason, then that's the problem which requires fixing. Making every citizen pay at the least or suffer (die?) at the worst for this historic ineffectiveness of law enforcement is pathetic. Right now, it looks like the house has been set on fire to solve the persistent problem of rats.

The intentions behind this might have been laudable, but the implementation has been downright horrendous. The govt seems to expect that we should swallow this in the name of patriotism or forgive all implementation shortcomings under the garb of necessary secrecy.

Wouldn't true patriotism mean that we care for and work towards the welfare of every fellow citizen of this country and ensure that even the weakest of them is not left behind, instead of standing up to forgive and forget everything that the rulers do.

Just as the above story shows, the authorities seem to have swooped in happily to take away 4 lakh from some poor lady, while not a single politician has been raided or caught in the past 2 months.
Are we then paranoid in assuming that the politicians are corrupt ? Surely, if more than 2 months of demonetization hasn't caught a single politician, then maybe they didn't have any black money after all ?

Even a single death is sad, so no comments there. I neither want to sensationalize nor want to use the deaths as a point in the debate.

Having said that, the easiest thing for the Govt to do would have been to do nothing. That's what successive Govt's have done. Otherwise, poor dying is an issue, but why poor are still so poor, why 55000 villages are still not having mobile coverage, why millions of people are still without a bank account etc is not an issue?

And I am willing to accept this whole remonetization exercise as a bad move, provided someone tells me ONE GOOD MOVE that should have been taken instead.