India rupee ban: Currency move is 'bad economics'

[PlugnPlay]

Firstly, let me point out a very simple piece of logic - that whenever such a wildly disruptive move is made, it is for the government to win the confidence of the public by explaining the entire roadmap, and not just expect people to take these claims of "wiping out" black money at face value. An extraordinarily high number of Bhakts prowl PDF - they are yet to explain how the menace of black money will be curbed going forward. Just that Modiji has said so it must be true.

FAIL.

Only the jesus freaks and islamists in pdf is confused about how those with black money will be unable to spend their black money. Rest of us do not need any explanation since we there is no confusion.

Since they won't do the needful, let me try and address it as well as I can. Keep in mind that a rollback is not the point - just that it could have been handled a lot better.

As far as possible aims go -

1. Revenue collection - The amnesty scheme that was announced in July netted the government about Rs.29,362 cr on declaration of Rs.65,250 cr. Which is not a bad amount. But currently we are talking about a conservative estimate of Rs.2,25,000 cr out of the Rs.14,00,000 cr that has been taken out of circulation to be black money. It would have made better sense to time the amnesty scheme along with demonetization, as an alternative to those with money to declare. Faced with penalty and prosecution, much of this money is unlikely to be deposited in banks now. Elaborated in point no. 4 below

EPIC FAIL.

The money that is taken out of circulation will AUTOMATICALLY Refinance the Banks and RBI. This is FAR better than amnesty which would have rewarded those with black money.

If you knew basic economics this would have been apparent to you. lol.

2. Terror financing through counterfeiting and illicit activities - Definitely stop it in the short term. As for medium/long term, my guess is as good as anyone else's. Who can state with certainty that these new notes will not be counterfeited by our Western Neighbour as easily as they did in the past? Again - because Modiji said so?

Now you are pretending to predict the future ? ..... THAT is your argument ? a clear LOGICAL FALLACY.

That in the future there will be Rape, Theft, crime so we should not have police and jails ?

3. Campaign financing - Only to the extent of the money currently being taken out and replaced. All other factors remain the same as before. The cycle will re-start as soon as enough notes are in circulation.

FAIL. That is why its called a CYCLE. Only the black money will be SUCKED out of the system by this move and REFINANCE the black money market is going to take a decade by which time there could be another round of demonetisation or better still, higher level of tracking due to GST and Aadhar and linking of all accounts with transactions.

4. Corruption and tax evasion - Connected to point no. 1. The government had already made PAN mandatory for all transactions above a certain amount. Cash deposits above Rs.50,000 are also to be mentioned with PAN. Also, PAN-based reporting was mandatory for any purchase of property above Rs.50 lakh. Additionally, cumulative Bank deposits above 10 lakhs, purchase of gold etc, annual mutual funds purchase above Rs. 2 lakhs in one FMC, annual credit card bill of Rs.2 lakhs on one card, and so on. Some of the figures and entries are not updated so feel free to do so. Furthermore, any investment reflected in Form 26AS, if it is above a certain threshold, is to be reported.

And all this is a good thing.

The IT Department gathers all the date collected through this reporting process. This data is then sieved through the CAS (computer assisted scrutiny) system which automatically flags transactions and assessees if they cross these thresholds. Show Cause notices are supposed to be generated and sent to the concerned assessee. Except for certain things like non-filing of returns when investments and deposits are over Rs.2.5 lakhs, which happes automatically, show cause notices are issued on a pick-and-choose (or ad-hoc) basis. Now before anyone jumps to the conclusion that this seems only fair, let me explain further.

You can only try and fail.

A show cause notice is typically issued in the last month before limitation expires (six months from end of Financial Year). A typical show cause notice takes anywhere between 1-2 years to be disposed off. Ever since the present government came to power, these notices are usually re-issued every year, and the final order is passed only right before the two year limit. This is then subject to further appeals, especially in case evasion is alleged, and the matter is usually settled for a far lesser amount than the initial claim, just like any fish market.

True. That is how the system works for now.

The reason is that the IT Department simply does not have the requisite manpower to fully pursue all the cases that come up before it. In this scenario, where they cannot even deal with the backlog generated in the current system, where is the scope for adding a 10-fold glut of new information of evasion and do justice to it? simply declaring that evaders will be prosecuted will achieve little, as the resource crunch means that the authorities will chose cases on an arbitrary basis, and selectively target some persons while being forced to let others go scot free. Where is the justice in that?

WRONG. This will create a record of all possible illegal transactions and there is not TIME limit of when they can be prosecuted. It can be 10 years from now.

The Very basis of our law is that criminals can go free even if it means one innocent man is not jailed. SO you FAIL again.

Capacity can be ramped up, systems can be improved. But there is not remedy for lack of information. This move will create a paper trail which can be followed.

This is the system which the government has put in place for monitoring consumption within the economy. The indirect tax regime is functioning in a much more low tech manner, and if anyone wishes to know I will gladly explain as to why it fails to generate the revenues the government wants and causes pain to businesses, with or without GST. Clearly, they are not happy with the results, so they think they can flush it out at one go. Except that someone please explain that if the current system is inadequate because they simply don't have the manpower to implement it, then how will the avalanche generated by demonetization be handled?

FAIlL due to a Logical Fallacy. You are again pretending to predicting the FUTURE. lol.

As far as benami property transactions and cash payment for sale/purchase of property is concerned, it is handled as above, meaning automatic flagging of any property purchase above Rs.50 lakhs, and scrutiny if not matching with known source of income. That system is already quite efficient, as one cannot quote a lower rate for transaction than the circle value for stamp duty calculation, which are being rationalized at a decent pace. So this demonetization drive hardly adds anything new to the picture in that sense.

WRONG. It has flushed out the BLACK MONEY from the market.

So ANY new transactions will reflect the TRUE value of the property and will result in further Rationalisation of stamp duty.

5. Inflation and control over macroeconomics: Arvind Panagariya, head of Niti Ayog, argues that demonetization will curb inflation. Before anyone asks me as to how I can challenge the great wisdom of Arvind Panagariya, please ask him as to which country has carried out demonetization with the ancillary aim of macroeconomic planning. Inflation in the Indian economy is reasonably under control, and any ill-effects are felt by the lower-middle class and poor on price of essentials like food, rent, healthcare, transportation, etc. Black money affects none of them. It only affects the price of real estate (a lot), gold (a bit), silk sarees and other things hoarded by those who speculate using this black money. They do not hoard onions, rice and Brufen.

Inflation is a Red herring. Removal of excess cash from market is compensated by Banks being flushed with funds which will be released into the market. Possible with lower interest rates. It will balace out each other.

This move will suck out so much money from the economy that even the short term effects will have lasting impacts. Governments/central banks try to balance money availability by change in rates, increasing pay, etc. So decreasing money availability in the economy entails increasing the lending rate, increasing CRR, etc. Can the present move work? Well, it might. Except that no one has ever tried attaching a giant hose to all the money in the system and sucked out 86% in the short term and at least 10-15% in the medium term.

WRONG as proved in post above. Black money being sucked out is replaced by refinance of banks and possible lowering of interest rates.

Ever since this government has come to power, they have been at the job of diverting money from various avenues into government instruments. Even the Bhakts might have noticed that rules have been changed to ensure that investment either moves into equity or government instruments such as bonds, NSC, PPF etc. This move, if nothing else, will at least ensure more of that. What does the government want all this money for? For a vaguely defined goal called development.

LOL..... Govt. road map for "development" is quite clear.

The account for development will be published by the Modi govt. without fail before the next election. So choke on that

In the next part I would like to discuss as to why demonetization will not make a dent on the existing avenues and motivations for generating black money in the system, and the immediate impact on the daily wage labour and poor of the country.

I know that several knowledgeable members will disagree with certain parts, and I fully respect their views and would like to know about the specifics of what they think. Mindless Bhakts can stay away for all I care.

DO try, I will be there to rubbish your fake arguments.

You can try to desperately label people but in the end Logic will beat your hate ....... and that is the best revenge.

There are two points which I will not cover in my replies so let me address those. As for your point of revenue neutrality - assuming your figures of 20% are correct. When I spoke of negligible revenue impact, I was referring to taxing the black money in the system right now. What you are talking about is taxing money going forward. Two very different things. Considering the costs involved in the demonetization move - logistical costs, replacement costs, economic chaos in the short term - the revenue benefits would be maximized if those with the black money had any incentive to declare. Right now the choice is between the money turning worthless and facing penalty and prosecution. Most of those with substantial hoarding will chose the former - not smart for raising money.

WRONG.

Logistical costs, replacements costs etch is operational costs. THey will continue to exist even WITHOUT demonetisation

Replacement of OLD currency is a regular operational expense.

Those who choose to make their black money worthless will actually be contributing to REFINANCE the RBI and hence the BANKS. What kind of a moron cannot even understand this simple fact ? A compulsive liar, that's who.

Another point I would like to ask of you is are you a businessman in India? Do you deal with revenue/regulatory authorities on a regular basis? If not, then you should consider the option of not making sweeping statements which are irrelevant moral sermons. As to the point of inadvertent black money generation, I will address it in another post so feel free to read it.

SO your desperate argument is that you will be forced to deal with tax authorities due to the Modi govt ?

Too bad ........ get used to it, that is your future.

Lastly, bare-minimum analysis which is more of the nature of personal opinion is rather tedious for the person who is trying to back up his arguments with whatever knowledge he has. You may not agree with everything I have to say, but surely you will understand that it is much easier to point holes in someone's carefully constructed arguments with a mixture of "you are wrong because I say so" and universal moral homilies learnt in the 5th standard.

But ...but .... but .... that is your position.

EVERYTHING you have said has been countered multiple times. All you can do is call names. lol.

 

[Great Sachin]

Demonitization proposal was by Anil Bokil a couple of years ago and Modi had been given a presentation by him.

I am telling you official version not social media version

What is the macroeconomic basis for this confidence? Or is the reverse true - that Modi bhakti is making people blind to the obvious?



Dear Bhakt - Modi ka naam lo aur so jao.



Being a bhakt, I am sure that fitness is the last thing on your mind. No doubt while I was running 21k in under two hours, you were gorging on Jalebis and Samosa. Check whether you can see anything below or does your protruding belly block the view?



First read what the logical fallacy of argument from authority is.

As for Raghuram Rajan's proposal, rest assured that he did not propose that a surprise be sprung on the unsuspecting citizenry, economy, banks, ATM operators and cash movers. If you think otherwise, why don't you show the proof that is what he recommended?

i am talking about stopping 1000 note and introducing of 2000 note...where as Rajan proposed 5000 note

 

[Jacob Martin]

The idea is to punish them badly, so they don't do it again, not slightly inconvenience them. If what you say is done, then the rich won't fear demonetization. They will just pay an extra 15%, consider it a loss and life will continue for them.

You have made some thought-provoking points. Let me try and answer them if I can.

Firstly, seeking retribution on defaulters has to take into account the impact on the economy. As for corrupt politicians and bureaucrats, it may be desirable. For business owners, there is a Catch-22. So much of their money is unaccounted, that if you take everything from them, it will knock out the legs from under our economy. It might not register on the sensex in a month, and considering that our GDP growth rate is high despite less than encouraging industrial growth, etc, may not even register on economic performance in the short term. But it will build a cascading effect whereby small/medium businesses will neither have the means nor the intent to invest and hire, thereby compromising an already tight job market. Tax them by all means, but do not seek retribution, as they will then seek theirs.

Secondly, punishing people because most of the economy is un-monitored and informal may be justice served for willful defaulters and those who have accumulated vast cash hoards through corruption. However, there is an overwhelming number of Indians who are not within the formal economy not because they are crafty baniyas who want to hoard black money. These are manual labourers, agriculturists, artisans etc. Their work is not covered under labour legislation, and leads to a situation whereby 86 per cent of our workers work in the unorganized sector while generating 51 percent of GDP. These people are facing the exact same issues as the hoarders and corrupt, except for the threat of penalty and prosecution. In fact their problems are more severe, as they don't work on a 50-60 day cushion as suggested by the government. So this is not just a minor inconvenience faced by them so that the government can play kotwaal.

Then there is the matter of black money generated through property sales, etc., where someone with black money insists that the seller take cash. There is a process for declaring this money by putting it in Capital gains a/c etc. Even if you discount the millions in India who simply do not know it is a crime to not declare the cash, at least understand that thousands of people who intended to follow the proper route now potentially face penalty and prosecution. I will explain this in my post on why black money generation won't stop given the current scenario.

No, but the process will be slow. And in Modi's second term, he will demonetize everything above 100. And cash transactions will be scrapped below 2 lakhs. The country will go cashless. It's part of their Vision 2025.

An economy cannot become cashless because New Delhi issues an edict. We seem to be in the age where slogans like Vision 2025, Skill India, Make in India, Digital India, Swatchch Bharat, etc. etc. etc. seem to have replaced the soviet style five year plans. Digital integration is an organic and holistic process, whereby the building blocks such as totally secure online banking and payment, direct transfer of salaries and payments, mandatory data-capture of all transactions are first put in place. What the government has done here is tried to jump steps.

Now I cannot say that it will be a disaster - I myself have wanted these things long before the Saffron brigade became aware of these terms. But my frustration all these years has been because UPA-I and UPA-II did no work in putting the building blocks in place. This government has done some good work - like Jan dhan jojna and direct cash transfer. But adoption rates have to be kept in mind. Also, PMO did a good thing by insisting that banks open online banking accounts and present monthly/quarterly reports to PMO on their progress in doing so. These are undoubtedly good measures.

Gradual incentives such as doing away with online transaction fees, giving rebates on online transactions etc. work better. Ingenious disincentives such as a 5% surcharge on cash wthdrawals and deposits will immediately shift people onto cashless platform. I can provide you with a dozen things that work better than electrocuting the common man.

For many people, the effect has been as bad as 60-70%, maybe more, of their purchasing power. It will take them years to recoup, particularly the politicians.

What is sauce for the goose is sauce for the gander. If it has that effect on politicians and bureaucrats, will it have a different effect on poor people (petty traders, daily wage earners, manual labourers) who have dealt in cash all their lives?

The govt does not have the manpower to scrutinize so many accounts. And tax officials can be bribed too.

So Modi removed the middleman.

Precisely my point. Bandwidth shortage prevents the system of CAS from functioning properly. Overnight miracles won't work, and in fact will generate a data overflow. The system runs on middlemen. Modi/PMO cannot discharge the functions of Ministry of Finance.

It's simple. The hoarders have gone broke. There's nothing more to it.

And the banks will be in the black.

Yes, it will be a one-time boon for bank deposits. But as mentioned above, gradual digitization and transition to cashless would have done it without the pain.

As for hoarders, not all are corrupt politicians and bureaucrats. I am not a hoarder, but I see their utility. Such overnight upheavals have consequences. Employment for agricultural labour, retail markets, whole sellers, small artisans, comes from those who have cash. They may or may not be hoarders. Someone who does not fall within the income tax slabs or is exempt from service duty/excise duty for being below threshold is now clubbed together with hoarders. In fact, there are many more of these than hoarders. Now they will also have to explain as to why they have over Rs.2.5 lakhs in cash. Recipe for chaos. And before you argue that why not, think about the fact that before the decision was made, what they were doing was perfectly legal. Now , everyone is a potential thief.

There is a reason for this. Military-walas are discussing this on other forums. We will know for sure depending on what the strike corps do. There is a potential for war.

Well, this has been in the making since the government came to power. Surely they were not preparing for war from day 1? Initial reaction was that government wants to ramp up public spending on infrastructure etc. In fact that is what the government has done to make up for weak economic indices in the past few quarters. Which is fine for now. But how long can you keep taking people's savings and return it to them as public spending?

 

[randomradio]

You have made some thought-provoking points. Let me try and answer them if I can.

Firstly, seeking retribution on defaulters has to take into account the impact on the economy. As for corrupt politicians and bureaucrats, it may be desirable. For business owners, there is a Catch-22. So much of their money is unaccounted, that if you take everything from them, it will knock out the legs from under our economy. It might not register on the sensex in a month, and considering that our GDP growth rate is high despite less than encouraging industrial growth, etc, may not even register on economic performance in the short term. But it will build a cascading effect whereby small/medium businesses will neither have the means nor the intent to invest and hire, thereby compromising an already tight job market. Tax them by all means, but do not seek retribution, as they will then seek theirs.

The businesses who hoarded will suffer too. As for creating or not creating more jobs will be up to them depending on what they think is best for their business. They will cross this hurdle like anybody else and move on. The next time they will think twice before hoarding money again.

Secondly, punishing people because most of the economy is un-monitored and informal may be justice served for willful defaulters and those who have accumulated vast cash hoards through corruption. However, there is an overwhelming number of Indians who are not within the formal economy not because they are crafty baniyas who want to hoard black money. These are manual labourers, agriculturists, artisans etc. Their work is not covered under labour legislation, and leads to a situation whereby 86 per cent of our workers work in the unorganized sector while generating 51 percent of GDP. These people are facing the exact same issues as the hoarders and corrupt, except for the threat of penalty and prosecution. In fact their problems are more severe, as they don't work on a 50-60 day cushion as suggested by the government. So this is not just a minor inconvenience faced by them so that the government can play kotwaal.

I paid 3 of my servants a week late. I offered to take them to a supermarket and buy them groceries and stuff for part of their wages, they said they didn't want it, they had buffer. I'm talking about two maids and a cook.

My uncle is a farmer in my hometown, his labourers took a day off, went to a bank, stood in line for a few hours and got their money. They have enough money for the next two weeks.

The people who are struggling temporarily are the ones with no bank accounts. In villages, they are getting the help necessary to open new accounts. As small time farmers, their financial requirement is much lower, while they are also more self sufficient with regards to day to day items. If you notice, the crackdown came after harvest, so they have money and the goods. It was well-timed.

Daily wage workers rely on small notes, they don't get paid 500 or 1000 bucks a day. And I have seen them survive weeks at a time without work and wages.

Then there is the matter of black money generated through property sales, etc., where someone with black money insists that the seller take cash. There is a process for declaring this money by putting it in Capital gains a/c etc. Even if you discount the millions in India who simply do not know it is a crime to not declare the cash, at least understand that thousands of people who intended to follow the proper route now potentially face penalty and prosecution. I will explain this in my post on why black money generation won't stop given the current scenario.

The crackdown is targeted at cash for now, not property sales. Those who can afford to buy properties can hold off their transactions. I wouldn't consider it an inconvenience, only a nuisance.

They may even hold off on purchases anticipating a drop in real estate prices as well. I know I would.

An economy cannot become cashless because New Delhi issues an edict. We seem to be in the age where slogans like Vision 2025, Skill India, Make in India, Digital India, Swatchch Bharat, etc. etc. etc. seem to have replaced the soviet style five year plans. Digital integration is an organic and holistic process, whereby the building blocks such as totally secure online banking and payment, direct transfer of salaries and payments, mandatory data-capture of all transactions are first put in place. What the government has done here is tried to jump steps.

Technology is a great enabler. Technology allows you to skip steps, sometimes even make a revolutionary jump. In India, it is being led by the smartphone revolution.

Otherwise it was unthinkable a few years ago to even consider that a farmer can get subsidies directly into his account rather than through a middleman.

Gradual incentives such as doing away with online transaction fees, giving rebates on online transactions etc. work better. Ingenious disincentives such as a 5% surcharge on cash wthdrawals and deposits will immediately shift people onto cashless platform. I can provide you with a dozen things that work better than electrocuting the common man.

This stuff is coming too. But India is not ready for this sea change. Near 100% bank accounts and mobile banking knowledge is necessary, that's why Modi needs a second term to finish his plan.

BJP wants to apply a 2% banking transaction tax and remove income tax as a whole too.

What is sauce for the goose is sauce for the gander. If it has that effect on politicians and bureaucrats, will it have a different effect on poor people (petty traders, daily wage earners, manual labourers) who have dealt in cash all their lives?

Politicians, bureaucrats and big business will be regulated and monitored. The fear is settling in them.

The petty traders and daily wage earners will go back to living their normal life once this hassle is over and done with.

Precisely my point. Bandwidth shortage prevents the system of CAS from functioning properly. Overnight miracles won't work, and in fact will generate a data overflow. The system runs on middlemen. Modi/PMO cannot discharge the functions of Ministry of Finance.

We are yet to see how Modi will deal with that. So let's give it more time before jumping to conclusions. Let's not forget that this entire thing is a one-man show, different ministries and their bureaucracies won't matter to him.

Yes, it will be a one-time boon for bank deposits. But as mentioned above, gradual digitization and transition to cashless would have done it without the pain.

Too slow, and black money hoarders would have gotten away with their crime as well.

As for hoarders, not all are corrupt politicians and bureaucrats. I am not a hoarder, but I see their utility. Such overnight upheavals have consequences. Employment for agricultural labour, retail markets, whole sellers, small artisans, comes from those who have cash. They may or may not be hoarders. Someone who does not fall within the income tax slabs or is exempt from service duty/excise duty for being below threshold is now clubbed together with hoarders. In fact, there are many more of these than hoarders. Now they will also have to explain as to why they have over Rs.2.5 lakhs in cash. Recipe for chaos. And before you argue that why not, think about the fact that before the decision was made, what they were doing was perfectly legal. Now , everyone is a potential thief.

The 2.5 lakhs scrutiny thing is rhetoric, scaremongering. They will target those who made cumulative totals of 10L plus because they are the ones who have to pay 30% tax. They are not going to go after small amounts.

They don't have the manpower to chase after 1 billion middle class and poor. That vegetable vendor who stashed 6L and then splits his deposit into 3L each between his wife and himself won't be raided, you can be guaranteed that.

They want the real culprits who can do a lot of damage, not small time offenders.

But how long can you keep taking people's savings and return it to them as public spending?

They are not taking people's savings, they are taking black currency. And they are going to couple their spending with new laws on taxation, real estate, gold etc.

 

[Razia Sultana]

Demonetization is not completely a black and white matter and there are grey areas for debate or else every nation would be introducing this at frequent intervals. This sudden move of the government has given a lot of hope that this will do good to the economy and the society and at the same time brought tremendous hardship to the people.

While I would not like to contest the intent of the government, which in my opinion is genuine, it has failed in anticipating the chaos and hardship faced by the people. A daily wager is unable to get his wages despite working or unable to buy goods of his daily needs or medical care. There are deaths due to lack of medical care as right currency is not available. When people die it can not be said that its a little hardship. The government should have printed the new 500 and a lot of 100 rupee bills first instead of 2000 one.

However the good part is that 1. it will impact the black money or tax-less cash economy and 2. it will do away with the fake currency that is massively in circulation. How we will escape from fakes of new bills is not very clear specially when some governments are involved in printing it but their will be certain relief from fakes for the time being.

However tackling the black money is not so simple as its made out to be. Black money is generated by 1. genuine earnings not shown in the books of accounts to avoid taxes, 2. cash bribes (completely black) and 3. non cash bribes/donations usually a system is created like NGO / Benami / fake business deals (mostly white). The 3rd one has the maximum value and impact on the economy and most politicians, top bureaucrats, industrialists stack their unaccounted money through this. This is the money which mostly flies out of India never to return. This does the maximum damage to Indian economy. People of this category are capable of doing a Mallaya anytime. None of the political parties are able to give complete account of their funding. Mayawati gets all her political fundings in cash with each donor giving less than 20k because that is exempted from keeping records of the donors and then she deposits the money and pays taxes and voila it all white. Unfortunately demonetization does not attempt to tackle this.

Similarly demonetization is not a solution for the menace of bribery. cash bribes keep circulating and higher values are converted into jewellery or real estate. Demonetization will give a temporary setback to money hoarding but with new currency it will be back to square one.

Demonetization is affecting those the maximum who are doing genuine business but not paying taxes. While the bigger businessmen and industrialist will not face much problem, the petty businessmen are going to suffer. The cash business has almost stopped and thats a big setback to our economy at least for a quarter. People from this category are panicky with their money using all means to dispose off or simply throw it in ganges. But once the things normalize they will go back to their old ways because demonetization is not a permanent solution for this.

How would you like to compare Mayawati's fundings with no known source and yet govt earns tax and another one is the petty business owners contributing to the growth of our economy but avoid paying taxes. In my personal opinion, I would like Mayawati's fundings being stopped even if we dont get taxes and I would rather not like to have taxes but would want the economy running. (ps. Mayawati is for reference only representing all politicians)

However, the benefits are numerous. Our banking system will get a fillip. More and more people will use credit/debit cards and net banking that will speed up getting into a cashless economy. Only cashless economy will help reduce corruption and black money. Poor people too will be inclined to use banking and thereby both them and the nation will benefit in the long run.

 

[PlugnPlay]

You have made some thought-provoking points. Let me try and answer them if I can.

Firstly, seeking retribution on defaulters has to take into account the impact on the economy. As for corrupt politicians and bureaucrats, it may be desirable. For business owners, there is a Catch-22. So much of their money is unaccounted, that if you take everything from them, it will knock out the legs from under our economy. It might not register on the sensex in a month, and considering that our GDP growth rate is high despite less than encouraging industrial growth, etc, may not even register on economic performance in the short term. But it will build a cascading effect whereby small/medium businesses will neither have the means nor the intent to invest and hire, thereby compromising an already tight job market. Tax them by all means, but do not seek retribution, as they will then seek theirs.

LOL..... so Now you aer Advocating BLACK Money for Business under the pretex is GOOD for the Economy ?

Gee...i wonder why the US or Europe do not have much Black money if it was so "good" for the economy

You are pathetic...or is it despicable ? hard to say.

REFINANCING of the bank will flood the market with credit for business owners, only this time it will be in white. Most black money are invested in LUXURY ITEMS and not to create jobs. lol.

Secondly, punishing people because most of the economy is un-monitored and informal may be justice served for willful defaulters and those who have accumulated vast cash hoards through corruption. However, there is an overwhelming number of Indians who are not within the formal economy not because they are crafty baniyas who want to hoard black money. These are manual labourers, agriculturists, artisans etc. Their work is not covered under labour legislation, and leads to a situation whereby 86 per cent of our workers work in the unorganized sector while generating 51 percent of GDP. These people are facing the exact same issues as the hoarders and corrupt, except for the threat of penalty and prosecution. In fact their problems are more severe, as they don't work on a 50-60 day cushion as suggested by the government. So this is not just a minor inconvenience faced by them so that the government can play kotwaal.

All the MENREGA workers are already getting paid by electronic wire transfer.

The ONLY argument you can make is that the blue collar workers will not have to get educated in using plastic money. True, and that's not a bad thing.

My Maid gets paid by cash, i told her that I don't have cash and will transfer that money to her bank account and she AGREED.

Then there is the matter of black money generated through property sales, etc., where someone with black money insists that the seller take cash. There is a process for declaring this money by putting it in Capital gains a/c etc. Even if you discount the millions in India who simply do not know it is a crime to not declare the cash, at least understand that thousands of people who intended to follow the proper route now potentially face penalty and prosecution. I will explain this in my post on why black money generation won't stop given the current scenario.

if they have "intended" to follow proper route, they WOULD HAVE. They CHOOSE to give Black money and under report the property price so that they do not have to pay FULL stamp duty.

No fake tears for them. What a pathetic argument to allow Black Money.

An economy cannot become cashless because New Delhi issues an edict. We seem to be in the age where slogans like Vision 2025, Skill India, Make in India, Digital India, Swatchch Bharat, etc. etc. etc. seem to have replaced the soviet style five year plans. Digital integration is an organic and holistic process, whereby the building blocks such as totally secure online banking and payment, direct transfer of salaries and payments, mandatory data-capture of all transactions are first put in place. What the government has done here is tried to jump steps.

NECESSITY is the Mother of Invention.

So now if there is a necessity to make cashless, we will become cashless. That is how evolution works.

Jan Dhan Yojana ensured 220 Million new bank accounts were opened. MENREGA workers are getting paid directly into their bank accounts and NO ONE is complaining.

NO steps were jumped.

Now I cannot say that it will be a disaster - I myself have wanted these things long before the Saffron brigade became aware of these terms. But my frustration all these years has been because UPA-I and UPA-II did no work in putting the building blocks in place. This government has done some good work - like Jan dhan jojna and direct cash transfer. But adoption rates have to be kept in mind. Also, PMO did a good thing by insisting that banks open online banking accounts and present monthly/quarterly reports to PMO on their progress in doing so. These are undoubtedly good measures.

lol....sure, You are clearly the advocate for white money.

Gradual incentives such as doing away with online transaction fees, giving rebates on online transactions etc. work better. Ingenious disincentives such as a 5% surcharge on cash wthdrawals and deposits will immediately shift people onto cashless platform. I can provide you with a dozen things that work better than electrocuting the common man.

LOL.... so that you can then complain that Evil Modi is now taxing white money unfairly. What a clown.

What is sauce for the goose is sauce for the gander. If it has that effect on politicians and bureaucrats, will it have a different effect on poor people (petty traders, daily wage earners, manual labourers) who have dealt in cash all their lives?

YES. They poor can go about their daily life after exchanging the money.

The corrupt will LOSE ALL their Black Money.

Precisely my point. Bandwidth shortage prevents the system of CAS from functioning properly. Overnight miracles won't work, and in fact will generate a data overflow. The system runs on middlemen. Modi/PMO cannot discharge the functions of Ministry of Finance.

Now the problem is "Data overflow" ?

No problem, MUCH better than "No data" due to black money. Who are these Mysterious "middle men" ?

Yes, it will be a one-time boon for bank deposits. But as mentioned above, gradual digitization and transition to cashless would have done it without the pain.

As for hoarders, not all are corrupt politicians and bureaucrats. I am not a hoarder, but I see their utility. Such overnight upheavals have consequences. Employment for agricultural labour, retail markets, whole sellers, small artisans, comes from those who have cash. They may or may not be hoarders. Someone who does not fall within the income tax slabs or is exempt from service duty/excise duty for being below threshold is now clubbed together with hoarders. In fact, there are many more of these than hoarders. Now they will also have to explain as to why they have over Rs.2.5 lakhs in cash. Recipe for chaos. And before you argue that why not, think about the fact that before the decision was made, what they were doing was perfectly legal. Now , everyone is a potential thief.

WRONG.

Those who are not hoarders can deposit their money in their account. Filing tax returns does not make on a "Thief".

That is the beauty of this system. EVERYBODY is in the same boat. The corrupt AND the Non corrupt. Only the corrupt are whining.

All people have to now FILE their tax returns. ...... you don't like it ? too bad ...... learn to live with it. Its your future.

Well, this has been in the making since the government came to power. Surely they were not preparing for war from day 1? Initial reaction was that government wants to ramp up public spending on infrastructure etc. In fact that is what the government has done to make up for weak economic indices in the past few quarters. Which is fine for now. But how long can you keep taking people's savings and return it to them as public spending?

A New Red Herring.

Modi wants "war" and that is why he is taxing us. lol. The Propaganda never ends.

No one is taking people's "savings" ....... they will continue to remain in the banks.

 

[Bitter Melon]

I am telling you official version not social media version

Actually, it was during RRR's tenure that printing of smaller denomination notes declined. The suggestion by RBI under RRR was to print 5000 and 10,000 rupee notes which was shot down. 2000 and 500 rupee notes have been printed now as intermediate arrangement before almost complete transition to a cashless economy.

Jesus ka naam lo .... aur Modi hai hai karo.



Jesus freaks usually run after choir boys to rape and practice paedophilia. So go easy on running 21 km behind children and then pretend all is well by "confession". Stop fantasising about what lies below my belly.



Give such advice to your lord and master Pappu.

He is a Hindu and on our side. For whatever reason he is not comfortable with demonetization and trying to make an analytical argument.

 

[T-72]

life has been pretty annoying lately with this bs, what a giant pain.

too much collateral for going after the super corrupt, fvck this collective good bs, I cant think like a commie.

 

[PlugnPlay]

He is a Hindu and on our side. For whatever reason he is not comfortable with demonetization and trying to make an analytical argument.

Not my side since I do not support black money or black economy.

What he is doing is repeating the same Lies again and again. Just look at the gist of his argument,

1. Black money is good for the economy
2. People do not like to stand in queue
3. Tax men will do their job and hence 'inconvenience' people.
4. People should continue to deal in cash because that is always how it has been
5. All people should not be in the same boat. Corrupt people should go free because honest guys do not like to stand in queue.

Does any of this argument look analytical ? Sounds like rationalisation by rahul gandhi.

 

[Bitter Melon]

Not my side since I do not support black money or black economy.

What he is doing is repeating the same Lies again and again. Just look at the gist of his argument,

1. Black money is good for the economy
2. People do not like to stand in queue
3. Tax men will do their job and hence 'inconvenience' people.
4. People should continue to deal in cash because that is always how it has been
5. All people should not be in the same boat. Corrupt people should go free because honest guys do not like to stand in queue.

Does any of this argument look analytical ? Sounds like rationalisation by rahul gandhi.

I mean Hindutva wise cause I have seen him defending Hindus throughout his stay here. It may be he is financially less honest or messed up, but that does not make him anti-Hindu or a Christian bigot. So my alerting you was only on that account.

I know his arguments are weak, but it is a view held by the government too that sudden withdrawal of a large portion of cash from the economy is akin to a shock therapy to a patient and can get dangerous. Aftercare measures have to be put in place and things will be delicate for a while.

At one point of time even I held the view that black money is good for the economy. This was during the 90s when there was this argument that black money and even smuggling protected the country from going belly up during the Nehru/Indira Gandhi 100+% taxation eras.

 

[cloud_9]

@Jacob Martin did you loose a huge chunk of cash?

 

[Jacob Martin]

@Jacob Martin did you loose a huge chunk of cash?

No on the other hand I am getting a great deal on a house I wanted to purchase in Bangalore. The guy who was outbidding me on it wanted to pay cash and has now disappeared. So I can get a cool Rs.20 lakh-odd reduced price. I happen to be financially better aware than most people over here, who are mostly monthly wage earners and live from one paycheck to the other.

But my objections have nothing to do with me or my finances. You should stop assuming that anyone who opposes a government move is either an AAPtard, or Congi, or hoarder, or whatever the masters declare you label them for that day.

 

[Tiger Genie]

I am in the middle of a conversation on these issues, so am avoiding multiple replies. Please read and comment on my other replies.

There are two points which I will not cover in my replies so let me address those. As for your point of revenue neutrality - assuming your figures of 20% are correct. When I spoke of negligible revenue impact, I was referring to taxing the black money in the system right now. What you are talking about is taxing money going forward. Two very different things. Considering the costs involved in the demonetization move - logistical costs, replacement costs, economic chaos in the short term - the revenue benefits would be maximized if those with the black money had any incentive to declare. Right now the choice is between the money turning worthless and facing penalty and prosecution. Most of those with substantial hoarding will chose the former - not smart for raising money.

Another point I would like to ask of you is are you a businessman in India? Do you deal with revenue/regulatory authorities on a regular basis? If not, then you should consider the option of not making sweeping statements which are irrelevant moral sermons. As to the point of inadvertent black money generation, I will address it in another post so feel free to read it.

Lastly, bare-minimum analysis which is more of the nature of personal opinion is rather tedious for the person who is trying to back up his arguments with whatever knowledge he has. You may not agree with everything I have to say, but surely you will understand that it is much easier to point holes in someone's carefully constructed arguments with a mixture of "you are wrong because I say so" and universal moral homilies learnt in the 5th standard.

Such 'incentive' as you want was offered till September as I understand. You want another?

No I am not a 'regular' basis dealer with Indian authorities. But what part of what I said strikes you as sweeping or irrelevant? I am not here for a 1 on 1 argument with you, but when I notice you or anyone else making blatantly erroneous claims and allegations I will respond if I can. Isn't that the purpose of a discussion thread? Surely you don't think you are an expert to come espouse your wisdom and everyone else just reads and accept it.

But my objections have nothing to do with me or my finances. You should stop assuming that anyone who opposes a government move is either an AAPtard, or Congi, or hoarder, or whatever the masters declare you label them for that day.

but you assumed anyone who favors this move is a 'bhakt'. May be you didn't mean to.

 

[cloud_9]

No on the other hand I am getting a great deal on a house I wanted to purchase in Bangalore. The guy who was outbidding me on it wanted to pay cash and has now disappeared. So I can get a cool Rs.20 lakh-odd reduced price. I happen to be financially better aware than most people over here, who are mostly monthly wage earners and live from one paycheck to the other.

But my objections have nothing to do with me or my finances. You should stop assuming that anyone who opposes a government move is either an AAPtard, or Congi, or hoarder, or whatever the masters declare you label them for that day.

Good for ya!

We all get that you are a bit better off and the contempt for those poor wage earners clearly reflects in your posts but somehow you are the only one who's a bit sour about the whole decision (with all that rhetoric in every post)

I mean you are in Germany and you ain't poor, so good or bad it doesn't really effect you!

 

[Ajayk]

I have no idea in which universe and or which logic destroying black money, destroying fake money and identifying and prosecuting tax evaders is bad economics.

But then there are Afzal and Yakub fans in India. So, this article and this kind of thinking is not surprising.