Demonetisation in India-News and updates

[INDIAPOSITIVE]

NEW DELHI: With so little cash, you can’t even have a decent dinner, forget running regular diplomatic business, the Russian ambassador to India told New Delhi in a strongly worded letter as the country, a major global player and a key defence supplier for India, officially critiqued demonetisation-induced cash shortage for its diplomatic staff.

Diplomatic missions of Ukraine, Kazakhstan, Ethiopia and Sudan have also sent protest letters on cash withdrawal restrictions.

ET reported on December 3 ( Demonetisation Dollar Spat Between India, Pak ) that the Pakistan High Commission staff had refused to take salaries protesting new rules on withdrawing dollars.

Russian ambassador Alexander Kadakin, an old India hand, wrote to the ministry of external affairs (MEA) on December 2: “Please just imagine if we in Moscow mirror this order of SBI (State Bank of India) when 50,000 roubles will not be enough to pay for a decent dinner in a restaurant, not to mention functioning of such a big embassy as ours in New Delhi or India’s in Moscow.”

“SBI informed the Embassy that the cash withdrawal limit available to the Embassy is now Rs 50,000 per week under the government of India directives with no exceptions unless otherwise advised by the RBI,” he wrote. “Such an amount is totally inadequate as regards the embassy’s salary and operational expenditure requirements.”

Officials in the Russian embassy, who spoke off record, told ET that its New Delhi mission has a staff strength of 200 (excluding family members) and with the new withdrawal limit the cash at hand for one person comes to Rs 250 a week.

Kadakin in his letter urged MEA to intervene so that the withdrawal restrictions for diplomatic staff is lifted.

A senior diplomat in Delhi told ET that a number of missions have taken their case to MEA and many more may follow.

Some diplomats said Indian diplomats abroad may have to face similar restrictions if the situation does not improve.

They also said the restrictions may be against the spirit of the Vienna convention.

Kazakhstan celebrated its National Day recently amid “some difficulty” due to limits on cash withdrawal, diplomats told ET. Some other embassies are apprehensive that organising big diplomatic events may become problematic.

A task force of Ministry of External Affairs and finance ministry was set up after demonetisation was announced on November 8.

Some bank branches have been kept aside for transactions by diplomats so that mission staff can avoid long queues.

But foreign diplomats in India say there has to be a solution to the fundamental problem – ceiling on cash withdrawal.

Ministry of External Affairs has said it is working to find solution to the problem.



http://economictimes.indiatimes.com...dinner-russian-envoy/articleshow/55823340.cms

 

[endyashainin]

http://www.economist.com/news/leade...igate-damage-his-rupee-reform-has-done-indias

India’s currency reform was botched in execution
Narendra Modi needs to take measures to mitigate the damage his rupee reform has done
Dec 3rd 2016

INDIA is not the first country to introduce abrupt, drastic reform of its currency. But the precedents—including Burma in 1987, the former Soviet Union in 1991 and North Korea in 2009—are not encouraging. Burma erupted in revolt, the Soviet Union disintegrated and North Koreans went hungry. All the more reason for Narendra Modi, India’s prime minister, to prepare the ground before the surprise announcement on November 8th that he would withdraw the two highest-denomination banknotes (the 500-rupee and 1,000-rupee, worth about $7.30 and $14.60). Yet he did not and the result is a bungle that, even if it does achieve its stated aims, will cause unnecessary harm.

Shops stopped accepting the old notes at once. Holders have until the end of the year to deposit them in banks or swap them, either for smaller-denomination notes or for new 500- and 2,000-rupee ones. That 86.4% by value of the cash in circulation is suddenly no longer legal tender has already caused predictable and needless hardship. It is too late—and politically unthinkable—to start again (ses article), but Mr Modi should do more to limit the damage; and he should abandon the flawed leadership style that caused the mess.

Not the way to do it

The plan has laudable aims. Its initial popularity was based on the idea that the greedy rich, with their ill-gotten “black money” stored in stacks of banknotes, will get their comeuppance. Those who cannot justify the sources of their wealth will face punitive taxes. It also accords with Mr Modi’s manifesto pledge to normalise India’s black economy, estimated by the World Bank in 2010 to be worth about one-fifth of official GDP. The idea is that India will become more efficient, as more people and more money enter the banking system; counterfeit currency will become worthless; India’s woefully low tax base will expand; and government coffers will enjoy a windfall of cash expropriated from the corrupt.

It is a pity, then, that Mr Modi’s scheme to achieve these aims is so flawed. Banknotes are not just a way for the rich to store their wealth; they are also how the unbanked survive. As so often, the burden of this reform has fallen most heavily on the poor (see article). Over four-fifths of India’s workers are in the “informal” sector, paid in cash. Untold numbers have been laid off because their employers cannot pay them. Tens of millions have queued for hours at cash machines and bank branches, to get rid of the useless notes and get hold of some spending money. A new business has sprung up in laundering cash for a fee for those without the time or inclination to queue, or with more notes than they can account for.

Cash is used for 98% by volume of all consumer transactions in India. With factories idle, small shops struggling and a shortage of cash to pay farmers for their produce, the economy is stuttering. There are reports that sales of farm staples have fallen by half and those of consumer durables by 70%. Guesses at the effect on national output vary wildly, but the rupee withdrawal could shave two percentage points off annual GDP growth (running at 7.1% in the three months to September).

With a bit of forethought, much of the mayhem could have been avoided. It turns out that the new notes are smaller and require all the country’s ATMs to be reconfigured, which takes 45 days. Some 22bn notes are affected, but printing capacity is said by the previous finance minister to amount to only 3bn a month. So even if fewer notes are needed, because more money will be in banks, printing them will take some time. The banks were ill-prepared to handle about 8.5trn rupees in new deposits in the three weeks after demonetisation. After they used the deposits to buy bonds, lowering interest rates, the central bank had to order them to park the new money with it, in zero-interest accounts.

If Mr Modi’s plea for patience for a 50-day period until the end of the year looks optimistic, so does the promise of “the India of your dreams”, purged of the corrupt and their loot. In India’s black economy of undeclared, untaxed income, all sorts of transactions, from medical bills to house purchases, are sometimes settled with suitcase-loads of banknotes. Yet even if the hoarders will be wary of another confiscation in the future, they will be tempted to make use of the new 2,000-rupee note just as they used the old 1,000-rupee one.

Moreover, Mr Modi was wrong when he said that the rich now need sleeping pills, while the poor sleep peacefully. In past seizures of illegal wealth, only between 3.75% and 7.3% was found to be kept in cash. The sleepless are those who need cash to get by; the truly rich are laughing all the way to their flats in London. The punitive taxes levied on black money that is deposited will feel like flea-bites. As for the counterfeiters, most estimates of the value of fake rupees are in the tens of millions of dollars, out of $250bn in circulation.

Both for the sake of Indians and for his premiership, Mr Modi needs to mitigate some of the harm he has caused. He should find ways of printing the new money more quickly. More important, he should also lengthen the period over which notes may be exchanged or deposited and allow the old notes to remain valid as payments for a range of goods and services (tax payments, say, would seem logical).

Somewhat too sensational

Much in India needs reform—abolishing restrictive labour rules, for example. In the past such reform has often been stymied by a system that favours government by committee. Mr Modi has lurched to the other extreme. The perceived need for secrecy (to take cash-hoarders by surprise) fed into the innate sense he has of his own infallibility and his misplaced faith in his technocratic skills. By designing a scheme that was needlessly callous and which is becoming increasingly unpopular, he has squandered political capital. In future he needs to consult more widely, centralise less decision-making in his own hands and acknowledge that not all criticism is partisan or special pleading from the corrupt rich. India, fortunately, is not North Korea, and is aware that leaders are fallible. Its federal, democratic system will give voters plenty of chances to let it be known how badly Mr Modi has messed up his rupee rescue.

 

[Spring Onion]

ask majority of emotional Indian members on this forum and they have no idea but a single popular answer that the move has blocked all black money and fake notes.

They do not deliberate upon the fact that how much time it will take to print required notes and above the question if this move had really brought the desired benefits ?

 

[SrNair]

ask majority of emotional Indian members on this forum and they have no idea but a single popular answer that the move has blocked all black money and fake notes.

They do not deliberate upon the fact that how much time it will take to print required notes and above the question if this move had really brought the desired benefits ?

Sorry.
I have been exchanged the old notes and one of our sister in family was engaged after this demontisation declaration of GoI.
We didnt face any issue ,only difference was that all purchasing including gold was done through check.

ask majority of emotional Indian members on this forum and they have no idea but a single popular answer that the move has blocked all black money and fake notes.

They do not deliberate upon the fact that how much time it will take to print required notes and above the question if this move had really brought the desired benefits ?

Yup.
Time will be taken .
Of Course ,FICN is done once and for all.
But was not that effective blackmoney

 

[Joe Shearer]

Sorry.
I have been exchanged the old notes and one of our sister in family was engaged after this demontisation declaration of GoI.
We didnt face any issue ,only difference was that all purchasing including gold was done through check.



Yup.
Time will be taken .
Of Course ,FICN is done once and for all.
But was not that effective blackmoney

Then you are among the privileged few. If you cannot see the disastrous consequences all around you, it is either deliberate or delusional. Further, it is not the monied and the prosperous, those who already lived in a plastic economy, who are worst affected; it is those who are among the most vulnerable.

The consequences of this megalomania will haunt us for decades.

 

[Hareeb]

Poor guys dont even have food to eat.Our sympathies are with you russian brothers.

 

[Spring Onion]

Sorry.
I have been exchanged the old notes and one of our sister in family was engaged after this demontisation declaration of GoI.
We didnt face any issue ,only difference was that all purchasing including gold was done through check.



Yup.
Time will be taken .
Of Course ,FICN is done once and for all.
But was not that effective blackmoney

The question is not if common man is facing difficulties or not the question is if the exercise is bringing or will bring the desired results in the long run? it is unlikely.

I am not an expert in matters related to economy hence I throw simple questions like village folks so another simple question is how much it will cost India to print new notes and how many millions in how much time span? Further who will pay the cost of printing ? Indian taxpayer?

 

[SrNair]

Then you are among the privileged few. If you cannot see the disastrous consequences all around you, it is either deliberate or delusional. Further, it is not the monied and the prosperous, those who already lived in a plastic economy, who are worst affected; it is those who are among the most vulnerable.

The consequences of this megalomania will haunt us for decades.

You are right.
But I am not that privileged sir.
I have a doubt about this ,only problem that the people have been faced for some weeks was due to note exchanging.
80% of our population dont need 2000 rs a day or 24000rs a week.
So how will they affect due this?

 

[Tom M]

ask majority of emotional Indian members on this forum and they have no idea but a single popular answer that the move has blocked all black money and fake notes.

They do not deliberate upon the fact that how much time it will take to print required notes and above the question if this move had really brought the desired benefits ?

But no one might have pointed out the fact that who much liquidity it brought to Indian economy where almost 11 lac crore rupees are received in our banks. I totally agree that as far as black money is concerned it's just a futile exercise. But again it helped to kill all the counterfeit currency and I would say troubled the tier 3, 4 and 5 black money hoarders a bit.

Moreover it had greatly helped to bring down the inflation, the example of which from my personal experience is while I was buying provisions worth Rs. 800/900 per week earlier, the same things I can buy now for around Rs. 600/650 range.

That said, I not sure how long this low prices would last though.

 

[SrNair]

The question is not if common man is facing difficulties or not the question is if the exercise is bringing or will bring the desired results in the long run? it is unlikely.

I am not an expert in matters related to economy hence I throw simple questions like village folks so another simple question is how much it will cost India to print new notes and how many millions in how much time span? Further who will pay the cost of printing ? Indian taxpayer?

Do you know how much money we are losing due bad taxation and counterfeit?

 

[Tom M]

Then you are among the privileged few. If you cannot see the disastrous consequences all around you, it is either deliberate or delusional. Further, it is not the monied and the prosperous, those who already lived in a plastic economy, who are worst affected; it is those who are among the most vulnerable.

The consequences of this megalomania will haunt us for decades.

I seriously doubt it was nothing but and exercise to deprive all political parties from utilizing there unaccounted money in UP elections except BJP. That is the one big agenda behind all this I suppose. What do you think ??

 

[Götterdämmerung]

50000 rupees per week for an embassy? That's around 680€ or less than 100€ per day. That must be a joke, right?

 

[Deadpool]

Then you are among the privileged few. If you cannot see the disastrous consequences all around you, it is either deliberate or delusional. Further, it is not the monied and the prosperous, those who already lived in a plastic economy, who are worst affected; it is those who are among the most vulnerable.

The consequences of this megalomania will haunt us for decades.

http://indianexpress.com/article/op...sation-black-money-india-economy-gdp-4412283/

http://indianexpress.com/article/op...sation-black-money-india-economy-gdp-4412283/


Go through both the articles.

 

[ShoutB]

but it did hurt many

29 Billion dollars were declared last week that's a good amount, equivalent to 65% of CPEC

 

[Spring Onion]

But no one might have pointed out the fact that who much liquidity it brought to Indian economy where almost 11 lac crore rupees are received in our banks. I totally agree that as far as black money is concerned it's just a futile exercise. But again it helped to kill all the counterfeit currency and I would say troubled the tier 3, 4 and 5 black money hoarders a bit.

))))))))))) and for how long these 11 lack crore would stay in Banks and the owners will continue to pay relevant taxes before they wind a way to invest or utilize a tax-free mode ?

Moreover it had greatly helped to bring down the inflation, the example of which from my personal experience is while I was buying provisions worth Rs. 800/900 per week earlier, the same things I can buy now for around Rs. 600/650 range.

That said, I not sure how long this low prices would last though.

I was about to ask the same but thank God you yourself raised the question in black.

Do you know how much money we are losing due bad taxation and counterfeit?

In Indian case the counterfeit money in circulation was peanuts and interestingly the new one will also find her twin sooner or later.

As far as taxation is concerned well wait for a year if not longer to see it would continue to be the same.

All in all this exercise might milk the middle class in India as far as getting taxes but that too not for a long since people middle class or poor cannot afford to keep the new notes in Banks for too long to pay taxes.

but it did hurt many

29 Billion dollars were declared last week that's a good amount, equivalent to 65% of CPEC

Very good India should now get own CPEC with that money or complete Chahbahar earlier than the stipulated time period.