[Sawyer]

Originally Posted by vibbs

Essentially for a person who pays 50 Lakhs in cash (after withdrawing it from his white sources), it means that after the resale of his flat he has a bigger portion that he needs to now necessrily invest in a single property itself to save tax.

Had he not undervalued the property while buying, he would have had more money at his disposal to invest in other avenues (or invest in multiple properties) after selling his property later on.

Not quite! Having more taxed money left in hand is ALWAYS a good thing. And if he wants to invest later in a bigger flat, nothing needs to be necessarily done. To the extent he doesn't invest all the proceeds, he just has to pay tax on the higher gains; he is still ahead with the remaining amount.
I am writing this distracted by the sound of English wickets falling, but I don't think that has destroyed my logic; correct me if it has.

PS: @jpcoolguy: seriously?! Tell me you are joking please. In the private sector we have been treated like this, and right so, forever! What is really needed is VRS of 50% of total government employees to start things rolling.

[Samurai]

Originally Posted by Sawyer

1. There is of course an implicit converse in the perfectly legal statement the GOI has made on the subject. But that is grammar and language logic; the converse has no legal support, as I have explained many many times here in previous posts. And of course, neither I, nor anyone else I have quoted as good civic minded citizens of robust common sense, are saying what you say we are saying: We will merrily accept old notes without having to maintain records. Of course we will maintain records; perhaps even more carefully than before because of the knowledge of stated to be guaranteed scrutiny by GOI.

Sorry, I am asking you to explain the gazette notification to non-lawyers here. The new regulation clearly says that 1000/500 is legal tender only for certain exempted businesses, until a certain date in November (not Dec 31), and they have to maintain record of every transaction. What does that mean for all the non-exempted businesses? How did you conclude that all businesses can accept it until Dec 31st?

Originally Posted by Sawyer

2. The full consequences of demonetisation are not fully understood by the best of economists anywhere in the world; it is like tinkering around with weather systems isn't fully understood because it is so complex.

Consequences of any economic policy is hard to predict for best of economists. Economists do analysis and planning, predicting consequences is very hard. I have mentioned it long back in our economics thread. Yes, some of us have been discussing economics much before demonetization, when it was not fashionable. When Raghuram Rajan predicted the 2008 sub-prime crisis back in 2005, most of the economists didn't agree with him.

What the government has done is a calculated plan for a certain outcome. But there is no guarantee it will work. That is an occupational hazard for economists.

Originally Posted by Sawyer

3. I absolutely agree with what you have said about sanctity of contracts. And of the consequences of breaking them. Does GOI? In the time since 1947, has it earned the moral right to break it? As it has both with the dishonest use of taxes collected, and by this demonetisation?

This is a common error I have seen in economics thread discussion. People confuse the economic theory with principal agent problem.

Originally Posted by Sawyer

4. I have not read anywhere that demonetisation has been done to make sure that the ability of RBI to drive monetary policy has been weakened by black money. RBI CAN reduce the money supply even now because the black and white money are indivisibly merged into the flowing river of cash, that RBI can still effective influence.

Why do you have to read it somewhere? Anybody who understands macro economics and finance can easily deduce it. Ask any friend who understands macro economics and finance. Show them my post.

Originally Posted by Sawyer

This is my assessment, I could be wrong. But, as I have said, the only person I have heard argue this issue as a reason for demonetisation - for inflation control essentially - is you. It would have been interesting to hear Raghuram Rajan's views; but he will keep his mouth shut now, he is a principled man.

This is like asking Einstein to weigh in on a math problem. Why would you need eminent economist to explain simple concepts that is covered in college level macro economics course? Alright, let me give an example of how central bank tries to control money supply.

In general, housing prices are one of the prime indicators of inflation. If the central bank (RBI) wants to bring down the inflation, they can do it in multiple ways. Let's consider couple of them.

a) Increase the discount rate, this is the interest rate for banks to borrow from central bank. This forces banks to increase their lending rates to all borrowers. So the EMIs will go up. This forces most home loan candidates to delay their purchase or drop their plan altogether. The falling demand forces the builders to drop prices.

b) Increase the cash reserve requirements. This is the deposit amount that the banks need to hold in order to lend. Banks with loads of NPAs or outstanding loans will be forced to simply stop lending until they recover the loans or increase the deposits. This again makes home loans difficult, dropping the demand for new houses. The falling demand again forces the builders to drop prices.

What if the housing prices are heavily influenced by black money? People who are buying using black money to purchase homes are unaffected by RBI's actions. When interest rates are high, the black money people can keep the prices still high. This is the reason why Indian RE prices are very in-elastic during the slump.

[vibbs]

Originally Posted by Sawyer

Not quite! Having more taxed money left in hand is ALWAYS a good thing. And if he wants to invest later in a bigger flat, nothing needs to be necessarily done.

The point is, had he not undervalued his purchase in the first instance, this money need not be taxed. Since he undervalued, he has on paper a higher capital gain that either needs to be taxed now after resale, or be invested again in a single property.

Had he not undervalued, and declared the correct amount while buying, he would have with him a smaller amount as capital gains but more liquid money in white on which he does not need to legally pay tax. This he may choose to invest again in a property or other avenues for investment.

[Sawyer]

Originally Posted by Samurai

Sorry, I am asking you to explain the gazette notification to non-lawyers here. The new regulation clearly says that 1000/500 is legal tender only for certain exempted businesses, until a certain date in November (not Dec 31), and they have to maintain record of every transaction. What does that mean for all the non-exempted businesses? How did you conclude that all businesses can accept it until Dec 31st?

I have done just this explaining many times in this thread when you were away; it may need some scrolling back if you or anyone really wants to understand.
I am afraid I would rather now put my feet up and watch the cricket where we are winning in preference to going over things that are obvious to me at any rate.

Originally Posted by vibbs

The point is

that one of us is completely confused and it may well be me, so we will let it rest!

[Samurai]

Originally Posted by Sawyer

I have done just this explaining many times in this thread when you were away; it may need some scrolling back if you or anyone really wants to understand.

I read the last few days of posts specifically from you before replying to you. I don't recall you answering that. Please provide a link to where you explained how all the non-exempted businesses can happily accept old cash until Dec 31st, when exempted businesses can accept only until certain date in November, while keeping record of all such transactions.

[RGK]

@All

Please do spend 30 minutes to listen to the interview by Gurumoorthy (Economist), truly neutral and answers most of the queries. He says India should move to a Cash Less (controlled cash) economy and not Cashless economy. A must watch video.

https://www.youtube.com/watch?v=0eaCr21PB6I

My recent experiences:

-Stood at the Indian Bank ATM queue, Prakasam Road, to take 2000 (new bill). 15 people were there in the line.

- Bought groceries in a shop located in a very ordinary locality using old notes. The shop owner said, " All my transactions are accounted in the bank. I will deposit the money, sir." Just he insisted to round-off the purchase to 500/- or multiples thereof. I bought for 2500/-.

- Drove to Kumbakonam for a single day pilgrimage trip and did not face any major issues. Able to transact with 100/- rupee notes to buy fruits, veggies, snacks, parking tickets without any problem. Spoke to few vendors (daily wages), "sir business is less, but not as portrayed in TV channels".

- Fuel station accepted old notes without any problem.

- I spoke to my friend who is running a BP petrol pump at Tirupur, he said "Daily sales report is to be submitted with the cash details deposited to the bank". (So no extra cash can be paid to the respective account of the fuel station). Oil corporations have advised petrol pump owners to have the CCTV setup in perfect condition and may request any footage especially after 8th Nov.

[asingh1977]

Some replies, from my perspective, observing society:

Originally Posted by Sawyer

why does almost every Indian that has the chance to do so, do what he is doing?

Indians are dishonest on an average. We have to understand that. The parallel (read: black) is the actual economy (at an operational level) running India. Tax and its legalities, thereon are just book keeping for most, which they adhere to once a year. Kind of like brushing your teeth every morning. That is why, when Modi stuck an iron rod in the machinery it came to a halt within four hours. I actually feel: even the government was really not sure what would happen, in reality. People just did not know what to do. The Real Estate example, which you replied to is normal. Most parties do this, and it is extremely difficult to find a "full white" deal from buyer/seller prerogative these days -- at least in the NCR. I closed a 1C+ deal (me being the buyer) on a property in January this year. It was quite difficult to find a seller willing to not take any portion in black.

Indian's advise each other on graft and how to make a fast buck. It is our innate culture and way of thought. It will not change overnight. Ripping off a service seeker, shorting on post delivery, lying / conniving about the real deal is perfectly fine and acceptable. I have heard auto drivers say: "if we do not earn off you, then who will we earn off"; when quoting a tariff 50%-60% higher than normal. Non-declared income is also seen as "hard-earned money", people have being saying this, while bemoaning the new rules placed on November 8th, 2016! How is it: that most populace > lower middle class, know about Hawala / Angadi set ups, which charge 1-2% on commission anywhere in the world. So many carry the numbers in their phone books, or know someone who knows someone who knows: with this type of contact operand? The average Indian is dishonest, sorry to say. Throw a brick at me! Most of India was caught with their pants down!

Originally Posted by Sawyer

There is nothing great about being honest because you did not have the opportunity of being dishonest.

Everyone has the opportunity to be honest, do they exercise it...? It is not that they will be put in jail for being honest..? When it is actually diametrically polar in nature. But do all Indian's follow this, NO. Plain and simple. It is really easy to justify ones dark side by saying/hearing/advising the following:

1. The money anyways goes to corrupt politicians. (Erroneous justification)
2. Everyone does it. (Herd instinct)
3. I will "save more". (Self empathy)
4. It is my money, and I can do what I want. (Flexible actualization)
5. Just this one time in my 90 year lifespan. (Exception fitment)

Originally Posted by Sawyer

Is it that Indian citizens are unique in this world of being dishonest and cheats? Something in our genetic make up?

At an average atomic level, yes. My first paragraph exemplifies it quite clearly.

Originally Posted by Sawyer

And are salaried Indians that pay tax via TDS, all honest tax payers by willing choice?

No. They are forced, so they adhere. They squirm in the swarm by:

1. Fake medical bills.
2. Fake broadband + telephone bills.
3. Fake salary slips.
4. Paying rent to "parents" for HRA leeway.
5. Accepting rent in cash / paying in cash / -- over equating.

Self employed professional (example: doctors/lawyers) troll the gravy train.

Originally Posted by Sawyer

And that governments aided by the bureaucracy that have ruled India since independence have earned the moral right to punish them for things like this person has done?

Yes, they have. It has always been their job. Now they are swinging a wider net which will probe in deeper, that is all. Are they being two-faced, since they are just as corrupt. Yes, maybe no. We have no moral right to question them, and their personal accounting books. If we always question the hand that cleanses, the world will truly be a garbage dump - well India anyways is. Just because of this. One sinner creates another and then you can, cube it. To get a chain reaction. See it this way: India's corruption was like a nuclear reactor. On November 8th, some Boron rods were lowered in, to slow down the reaction. At the same time they are trying to remove some of the radioactive fuel, of course some will get a couple of gigs of radiation. Ooops!

Originally Posted by Sawyer

Trust breeds Trust and Honesty breeds Honesty, while Dishonesty breeds Dishonesty. Cast the stones at where the breeding has been done.

That would be akin to standing in front of a mirror and hurtling a stone at it! Dishonesty is within our society and has to be purged out from the center outwards.

NOTE FROM T-BHP SUPPORT: Editing post for better readability. Please avoid typing...like...this... Kindly read the Announcements carefully before proceeding. Thanks.

[sandeepmohan]

Originally Posted by sgiitk

I have heard of people going with a 1000 rupee note to a chemist, and buying a strip of Crocin.

Not surprised.

I should have been more clear. I went to the bank to break Rs. 2000 for a smaller denomination. It was not possible. This was ICICI bank and I have an account with them. The Teller said it is possible to do so only after 11/24.

[sachinayak]

I have been a big fan of this decision, but having experienced it over the last week or so, I can definitely say that the implementation has been far from flawless.

1. First there was a scramble to get money, which was just not available. This could have been managed better, if the new note sizes were kept similar.

2. The decision to introduce 2000 Rs notes is a big problem. Yes, it was necessary to ensure liquidity and not cause over-shortage of 100 Rs notes, but honestly no one around me accepts them. I have seen businesses refuse ~1200 Rs worth of sale as they do not have change to return back. The gap between 100 Rs and 2000 Rs is too huge. Instead, there should have been a quicker turnaround time to get new 500 Rs notes in market, or if that was not possible, get smaller denominations e.g. 400 Rs notes (yes, that's not pretty, but a 2000 Rs note will not win beauty contest either).

What is happening is that folks that I know, are clinging on dearly to their 100 Rs notes - which has resulted in killing business of the small vendors and moving the client base to supermarkets. Yes, everyone is resilient, so you see some of the small-time vendors moving to alternatives e.g. PayTM, but they are definitely hit on the wrong side.

Easier to say in hind-sight, but much better planning and execution was definitely needed.

[VKumar]

I would request everyone to once go through what Ruchir has to say.

Populist nationalism cannot paper over economic chaos unleashed by demonetisation drive
http://epaperbeta.timesofindia.com/A...21112016018050

[akhil_007]

Originally Posted by msdivy

That sounds like Faulty generalization

My bad if it was not conveyed properly. It was my experience in my locality. By no means I was extrapolating it to entire country. At least the shops I visited had no change crunch and there were well over 200-300 customers in each shop.

[asingh1977]

Originally Posted by sandeepmohan

Not surprised.

To curb this exploitation many Chemists are:

1. Buy 500 or 1000 worth.
2. Buy greater than 500 (or 1000) and swipe the pending.

They are refusing to return change for 500 / 1000.

[Sawyer]

A note of cheer on a gloomy day; England whipped by 246 runs! I needed that.

Originally Posted by RGK

- Bought groceries in a shop located in a very ordinary locality using old notes. The shop owner said, " All my transactions are accounted in the bank. I will deposit the money, sir."

So, what I am seeing in Pune around me and what has been reported from the erstwhile Shivaji heartland is happening in other parts of the country as well.

Originally Posted by asingh1977

Indians are dishonest on an average. We have to understand that.

Dishonesty is within our society and has to be purged out from the center outwards.

I notice a lot of anger about dishonesty in your post; all I suggest is that it is directed at the wrong target. Indians have been oppressed by Rajas/Nawabs/Zamindars, followed by the British Raj and then, after independence by a succession of Indian governments/bureaucrats that have all dealt dishonestly with them. What Indians are is what Indians have been forced to become, to deal with what has been dealt to them. THAT is what we have to understand. Otherwise, I believe that Indians are only as dishonest as people from any other country in the world - no more than that and in the villages, maybe less.

As to your second sentence, I don't understand; what do you mean by "purged out from the centre outwards"? Are you referring to the centre of the average Indian, or the government at the centre?

Originally Posted by VKumar

I would request everyone to once go through what Ruchir has to say.

For someone with an open mind there is a lot to think about there. As in other articles in TOI today and yesterday; I can only quote that paper because that is the paper I get at home.
The paper also carries articles in support of the move, but to me, they are starting to sound more and more like dogma and not reasoned argument. Many will disagree with that statement.

[sgiitk]

Originally Posted by sandeepmohan

Not surprised.

I should have been more clear. I went to the bank to break Rs. 2000 for a smaller denomination. It was not possible. This was ICICI bank and I have an account with them. The Teller said it is possible to do so only after 11/24.

What is happening is that Banks do not have 500 denomination (I know Kanpur did not get them by Friday evening, except ICICI whose cash chest is in Lucknow, serviced by Lucknow RBI), and banks are short of 100 rupee notes as well. SBI (who supply SCB) was giving out 10 rupee coins to banks in 10,000 rupee lots. StanChart was using these for the over the counter currency exchange chaps.

[Guite]

Yesterday I traveled by Uber. There is a PayTM sticker on the window, so I presumed that I can pay by PayTM. On approaching my destination I asked, just to confirm, whether I xan pay using PayTM? He said no. I asked him why? He said that he has to go stand in queue to cash it, so he will lose time. So he does not accept it at this time. So our hype about going digital has been stopped in its track!