India rupee ban: Currency move is 'bad economics'

[AyanRay]

- Not well thought out.
- Lot of confusion.
- Businesses are suffering.
- Will pull down growth.

All valid and obvious concerns. But don't worry, Bhakts will set everything right. They will pray and it will all go away.

All valid and oblivious concerns which have been acknowledged by the govt itself, but while the entire nation is confidant about the long term gains, few idiots will oppose it only because it was done by Modi.

 

[PlugnPlay]

Hint - not real name.

Our country may survive people like you with their brain dead hero-worship, but our democracy is unlikely to.

Hint - No one gives a fcuk what your real name is.

My country will not only survive but THRIVE while christian supremacist bigots like you will choke on your own hate and live a life if misery. Not that I am complaining. I would enjoy every minute of your misery.

Not only that, but Indian democracy will thrive and vote Modi to power again. Now choke on that too jesus freak.

I think this is not well thought out. there is lot of confusion and many businesses are suffering. this will pulldowngrowth

I do however pray it will succeed

Your are free to your opinion, however wrong or prejudiced they are.

Your prayers are not needed. they will succeed because it is a great policy decision. But if you have to pray, then pray that the hindutva haters will coke on their hate and Modi will get a second term.

 

[SrNair]

Of Course .It will affect the economy but that is just not that serious .
Deflation would be one the we are going to face initially .Govt can counter that using good interest rate.

 

[Great Sachin]

- Not well thought out.
- Lot of confusion.
- Businesses are suffering.
- Will pull down growth.

All valid and obvious concerns. But don't worry, Bhakts will set everything right. They will pray and it will all go away.

Demonetization proposal came to govt from RBI governor Raghuram Rajan year back....do you say that you are more qualified than him?

 

[CorporateAffairs]

Why are neighbors worried about whats is happening in India?

 

[PlugnPlay]

I am going for my evening run. Will respond to your post after that.

Looks like Jecobite has Run away after his 'evening run' ........ where are you ?

 

[Bitter Melon]

Demonetization proposal came to govt from RBI governor Raghuram Rajan year back....do you say that you are more qualified than him?

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

 

[randomradio]

There are various aspects to this debate that I can think of :

1. The revenue implication will be negligible. If government wanted to tax the black money, it ought to have launched an amnesty scheme simultaneously. It is highly doubtful that many people will risk 200% penalty and possibly further prosecution, so the real cash hoards will not emerge in the banking system.

2. One way of looking at it is that Hawala and corrupt bank officials provide enough of a loophole for laundering the money. Hawala operators' daily lives consist of inserting money into the economy/banking system without detection - this is nothing new to them, just at a different level. As for bankers, they have access to millions of inactive and AADHAR-linked bank accounts which may come in handy for laundering black money.

3. Regardless of whether or not the government/IT authorities are able to detect the hoarded money through the information mechanism that they have put in place, the fact is that such information was already being generated in bulk by the PAN-based financial reporting system introduced a while back. Any major purchase made in India above a certain value is reported to the IT authorities. They have not been able to pursue all situations where scrutiny and assessment proceedings could be initiated. Where these have happened, they take 2-3 years to complete assessment and then settle the matter for some token amount. In other words, the IT department does not have the resources required to follow up on the avalanche of information that the government is expected to gather.

4. Whatever else demonetisation achieves, it will not make a dent on the real reasons for the generation of black money - overall corruption and culture of evasion, poor regulatory awareness, tedious laws and a venal and corrupt revenue department. The revenue proceedings here are adversarial and the assessee bristles at the indignation of humiliation at the hands of revenue officials who are unsympathetic, incompetent and corrupt. Much of the black money is generated by inadvertent evasion as laws are not clear or poorly implemented.

5. As an example, the government launched an amnesty scheme recently, wherein those declaring money were assured that no further proceeding will be initiated against them. However, at least two instances of information about declarations having being leaked has happened - and in one those cases it resulted in Vigilance proceedings eventually leading to suicide by an ex-government official. If the government does not play by the rules, it cannot expect its citizens to play by the same.

6. As things stand now, an overwhelming majority of transactions in the economy are cash-based. Demonetization has worked like throwing the baby out with the bathwater. Markets are empty, and traders have neither cash nor goods. Those who think that the pain is temporary must understand that these people live hand-to-mouth - they don't eat if they don't earn. They can't wait for 50 days for things to improve. Many will be on the streets begging before that. Expect a wave of violence and suicides.

7. The tremendous pain and harassment being faced by the poor as a result of this decision will not be felt by most people who can simply swipe a credit/debit card to make payments. In an effort at secrecy, the government decided to inform none of the stake-holders in advance - the banks, ATM operators, cash transport companies. As a result, this chaos was inevitable. Poor people are expected to bear the brunt of this move so that they can have a corruption-free country, and yet this move does not address the basic issue of further generation and detection of black money at all.

They will make a few rules to prevent hoarding again.

For example-
2000 INR notes will be printed in limited quantities.
Cash transactions above 3L or even 15L will be banned.
Property ownership will be limited.

Many such things planned.

- Not well thought out.
- Lot of confusion.
- Businesses are suffering.
- Will pull down growth.

All valid and obvious concerns. But don't worry, Bhakts will set everything right. They will pray and it will all go away.

There's no confusion, just a bit of inconvenience. The poor and illiterate are learning about banks.

 

[Jacob Martin]

ts very well thought.

As in, your bland assertion is enough, right?

There is absolutely no confusion regarding this.

Coming from your vast experience of runnign companies, dealing with regulatory authorities, etc. No doubt.

Business will suffer only temporarily lasting only few days, it will go away as new 500 and 2000 notes comes into mainstream.

Refer to above.

Explain how this will pull down growth and upto what extend.

I had already elaborated in an earlier post on the thread. However, like any good troll, you do not read and demand elaborate explanations. Good for you.

 

[wiseone2]

They will make a few rules to prevent hoarding again.

For example-
2000 INR notes will be printed in limited quantities.
Cash transactions above 3L or even 15L will be banned.
Property ownership will be limited.

Many such things planned.



There's no confusion, just a bit of inconvenience. The poor and illiterate are learning about banks.

The short term impact is negative
In the long term it will be interesting how this plays out

 

[Jacob Martin]

but while the entire nation is confidant about the long term gains

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

Hint - No one gives a fcuk what your real name is.

My country will not only survive but THRIVE while christian supremacist bigots like you will choke on your own hate and live a life if misery. Not that I am complaining. I would enjoy every minute of your misery.

Not only that, but Indian democracy will thrive and vote Modi to power again. Now choke on that too jesus freak.



Your are free to your opinion, however wrong or prejudiced they are.

Your prayers are not needed. they will succeed because it is a great policy decision. But if you have to pray, then pray that the hindutva haters will coke on their hate and Modi will get a second term.

Dear Bhakt - Modi ka naam lo aur so jao.

Looks like Jecobite has Run away after his 'evening run' ........ where are you ?

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?

Demonetization proposal came to govt from RBI governor Raghuram Rajan year back....do you say that you are more qualified than him?

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?

 

[wiseone2]

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?

the devil is in the detail. If poorly executed the demonetization proposal will drive the Indian elite to keep their assets in non-rupee currencies

 

[911]

As in, your bland assertion is enough, right?



Coming from your vast experience of runnign companies, dealing with regulatory authorities, etc. No doubt.



Refer to above.



I had already elaborated in an earlier post on the thread. However, like any good troll, you do not read and demand elaborate explanations. Good for you.

I get it you run a business . As for your post on first page, all your points have been debunked. Except your point 1 and 7, nothing is related to demonetisation, rest is all how all the depts. in India are corrupt. Generating revenue is not the only purpose of this, but also removal of fake curreny. And even if revenue is not generated because someone did not declare his asset is not bad either, that cash is absolutely useless. You should search a little on how it effects economy . And no, replacement of curreny will not force tax evaders to pay tax in future, there will be different steps taken for that. If not then people will decide what to do with the government. And please stop crocodile tears for poor, people like you never even once cared about poor before your money became trash.

the devil is in the detail. If poorly executed the demonetization proposal will drive the Indian elite to keep their assets in non-rupee currencies

Now that they are alerted, hope government takes steps asap to not let them keep their money in forms of property, gold etc. in future.

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?

Don't you think without surprise element demonetisation makes no sense at all because those people who have links with bank employees would been alerted in advance?

 

[wiseone2]

I get it you run a business . As for your post on first page, all your points have been debunked. Except your point 1 and 7, nothing is related to demonetisation, rest is all how all the depts. in India are corrupt. Generating revenue is not the only purpose of this, but also removal of fake curreny. And even if revenue is not generated because someone did not declare his asset is not bad either, that cash is absolutely useless. You should search a little on how it effects economy . And no, replacement of curreny will not force tax evaders to pay tax in future, there will be different steps taken for that. If not then people will decide what to do with the government. And please stop crocodile tears for poor, people like you never even once cared about poor before your money became trash.


Now that they are alerted, hope government takes steps asap to not let them keep their money in forms of property, gold etc. in future.


Don't you think without surprise element demonetisation makes no sense at all because those people who have links with bank employees would been alerted in advance?

if Modi does not allow loopholes folks with lot of black money in 500/1000 rupee denominations have lost their wealth

the next time around when they accumulate corrupt or black money they will convert it into something that Modi cannot snatch away

 

[Jacob Martin]

They will make a few rules to prevent hoarding again.

For example-
2000 INR notes will be printed in limited quantities.
Cash transactions above 3L or even 15L will be banned.
Property ownership will be limited.

Many such things planned.



There's no confusion, just a bit of inconvenience. The poor and illiterate are learning about banks.

the devil is in the detail. If poorly executed the demonetization proposal will drive the Indian elite to keep their assets in non-rupee currencies

- Not well thought out.
Not possible, they were preparing for it since the last 10 months, Jan Dhan account, Amnesty scheme etc

- Lot of confusion.
What confusion?

- Businesses are suffering.
Business is a bit down and will be for a week or so but all are welcoming the move for larger good

- Will pull down growth.
In fact will be a big boost for the economy in the long run

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.

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

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?

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.

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.

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.

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.

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?

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?

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.

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.

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.

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.

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.