India without cash — Modi has lost his bet

[Khanate]

India without cash — Modi has lost his bet
Katja Keppner / 02.12.2016

India wants to go digital and cash becomes outdated overnight. Prime minister Modi certainly wants to do the right thing. But with the demonetization move his calculation just doesn't add up, writes Katja Keppner.

Why does a head of government declare 86 percent of the cash on hand in his country to be invalid in a shock-and-awe move? Without any prior warning. Did he really believe that such a monetary shock therapy would free India from its black money? That 98 percent of the Indian population who do not pay any taxes, will do so in the future? That the national economy of a country, where 90 percent of transactions are carried out in cash, can slide into a "cashless future" - virtually overnight? There is evidence that he really thought so!

The end does not justify the means

India's Prime Minister Narendra Modi has the reputation of being a real workhorse. A lone fighter, whose ambitious goal is to lead India into a new future. To lift the country's miserable out of poverty. To attract investors. India is to grow, shall turn digital and has to be transformed into a cash-free economy. On Twitter, Modi proclaimed that by invalidating the 500 and 1,000 rupee bills he had turned every single citizen into a soldier in his fight against corruption and black money. His objective is right - but the end does not justifiy the means.

For more than three weeks, people have been standing in long lines to get cash from ATMs. With their hands full of useless rupee bills, cheques or ATM cards. But many are left out in the cold, empty-handed. In some cases, the daily cash limit has been reached, in other cases the ATM simply quits working. The banks are completely swamped. In rural areas the situation is even more dramatic: There are villages where no cash has been in circulation for days. People barter and pay in kind. Can this be the future?

After initial appaluse and cheers that people hiding black money had been caught with their pants down, the sentiment in India is about to change. New rules are being issued on a daily basis, an indication that the Modi administration had been poorly prepared to deal with the aftermath of the announcement. Exemptions are being declared and revoked on a regular basis. Counterfeit bills of the newly issued 500 and 2,000 rupee notes are already in circulation.

Trust: the real value of a currency

Modi's demonetization gambles with the confidence of more than a billion Indians. It seems as if Modi has underestimated the value of this political currency. Because an economy can only grow if there is trust in a country's currency. Some economists have already called Modi's currency policy as "blind" and "dumb," since Modi has apparently ignored that more than half of the Indian population still doesn't have proper access to banking services.

Many of those 600 million people have to walk for a whole day or travel on a pick-up truck to the next town to go to a bank. Most of them don't even understand what they see on the display of an ATM – not to talk of comprehending the significance of a PIN code.

Exactly these people are the ones who are suffering right now. They don't have easy access to their banking account via a mobile app on their smart phone. They cannot order goods and services online while sitting on their couch, like many millions of middle-class Indians do every day. Coolies and other day laborers complain that their children don't have enough to eat. Street hawkers complain that they are not able to sell their vegetables, let alone buy new merchandize. Farmers complain that they don't have cash to buy new seeds. The ones who have cash, are hoarding it instead of spending it. The economy is under shock. And nobody believes in Modi's promise anymore that this shock will be overcome by the end of the year. Neither that the new rupee bills will banish India's black money. The prime minister has simply lost his bet.

Source: Deutsche Welle

 

[Hakikat ve Hikmet]

Now, the Indian currency has got isolated. What goes around comes around. Don't the Indian folks know their history - how the Marwari businessmen sold her to the East India Company??

 

[Azadkashmir]

sold to the rothschilds east india company yet indians leaders sit down and eat with these evil banker gangsters.

 

[C130]

time to dolarize

 

[Shotgunner51]

time to dolarize

Now that demonetization has begun, India has to quickly build up a nation-wide digital platform which comprises of Grid (power, data), Terminals (ATM, mobile devices) and Fintech. Perhaps US (any others) involvement might be limited, but several Chinese investment funds, Fintech firms and hardware manufacturing corps have already responded to the situation.

https://defence.pk/threads/how-modi’s-currency-ban-is-helping-chinese-fintech-investors-in-india.463614/
https://defence.pk/threads/demoneti...he-way-to-help-banks-get-atms-running.461667/
https://defence.pk/threads/worlds-leading-fintech-innovators-2016-fintech-100.457658/

 

[Kaniska]

Now that demonetization has begun, India has to quickly build up a nation-wide digital platform which comprises of grid (power, data), terminals (e.g. ATM) and Fintech. Chinese firms can, and some are already, get involved.

https://defence.pk/threads/how-modi’s-currency-ban-is-helping-chinese-fintech-investors-in-india.463614/
https://defence.pk/threads/demoneti...he-way-to-help-banks-get-atms-running.461667/
https://defence.pk/threads/worlds-leading-fintech-innovators-2016-fintech-100.457658/

For a moment, just forget about typical political rants. India and its public in general support this move. This article is a cherry picking from the many thoughts that happens in India. Our media always publishes both aspects of every incident. That is good sign of our democratic thought process.

China and its engagement with Indian economy will continue and rather increase as long as Modi or any progressing Gov will be in power. China will continue to play a big role in our digital infrasturcure, Public infrastructure, Everygy sector as it is doing now.

 

[Shotgunner51]

For a moment, just forget about typical political rants. India and its public in general support this move. This article is a cherry picking from the many thoughts that happens in India. Our media always publishes both aspects of every incident. That is good sign of our democratic thought process.

China and its engagement with Indian economy will continue and rather increase as long as Modi or any progressing Gov will be in power. China will continue to play a big role in our digital infrasturcure, Public infrastructure, Everygy sector as it is doing now.

Agree, the business communities in India and China are no less rational and pragmatic than any counterparts, I believe they will sort things out. I wish China can build India's national financial infra.

 

[C130]

Now that demonetization has begun, India has to quickly build up a nation-wide digital platform which comprises of Grid (power, data), Terminals (ATM, mobile devices) and Fintech. Perhaps US (any others) involvement might be limited, but several Chinese investment funds, Fintech firms and hardware manufacturing corps have already responded to the situation.

https://defence.pk/threads/how-modi’s-currency-ban-is-helping-chinese-fintech-investors-in-india.463614/
https://defence.pk/threads/demoneti...he-way-to-help-banks-get-atms-running.461667/
https://defence.pk/threads/worlds-leading-fintech-innovators-2016-fintech-100.457658/

I wonder how hard it will be getting people to go digital. I think India people like tangible things you know like gold and paper currency. you would need a lot of faith in the government to give that up.

 

[Götterdämmerung]

sold to the rothschilds east india company yet indians leaders sit down and eat with these evil banker gangsters.

Not only that, Indians love the Zionazis as just a ew weeks ago, India even said that it would protect the existence of Israel at any cost.

BTW, the Rothschild would love the digitalisation of money, as that would give them complete control, not only of the whole economy but individually as well.

 

[Shotgunner51]

I wonder how hard it will be getting people to go digital. I think India people like tangible things you know like gold and paper currency. you would need a lot of faith in the government to give that up.

On gold perhaps you are right, savers will still keep physical gold as long-term reserves. But currency is another story, digital or not, its value always determined by the government (central bank to be exact), so it does not make a difference.

The difficulties for mass public to go digital is primarily habit, accessibility (convenience), affordability (cost of usage/maintenance). There is one more concern for the elites - cyberspace security - it's not all about loosing value, as I have explained values are always determined by central bank, but about privacy, since all digital footprints can be tracked.

Rothschild

That's why I said multiple time here on PDF, in the 21st century, financial and cyberspace are THE two domains we should pay extra attention. Perhaps even it's just one big merged domain.

I know there are two nations that firewall themselves from ROW in these domains - one is North Korea.

Furthermore, in China despite infra & Fintech are already very advanced, a large chunk of private wealth is still kept off the grid, aka underground banking.

 

[Götterdämmerung]

That's why I said multiple time here on PDF, in the 21st century, financial and cyberspace are THE two domains we should pay extra attention. Perhaps even it's just one big merged domain.

I know there are two nations that firewall themselves from ROW in these domains - one is North Korea.

Furthermore, in China despite infra & Fintech are already very advanced, a large chunk of private wealth is still kept off the grid, aka underground banking.

There are people who said that all central banks are controlled by the Wall street/ CoL cabal and only three countries are left after they murdered Gaddafi. these are NK, Cuba and Iran. this also means that even China's central bank is controlled by the cabal. Since you work in the banking industry, how much truth is in this, in your opinion?

 

[Shotgunner51]

There are people who said that all central banks are controlled by the Wall street/ CoL cabal and only three countries are left after they murdered Gaddafi. these are NK, Cuba and Iran. this also means that even China's central bank is controlled by the cabal. Since you work in the banking industry, how much truth is in this, in your opinion?

Central banks of most nations - not all - are directly controlled by politicians/bureaucrats and shadows behind them, so the question should be, are these shadows the same gang? I can't answer for all, but just as such shadow has no place in DPRK, same applies to PRC.

 

[scionoftheindus]

Now, the Indian currency has got isolated. What goes around comes around. Don't the Indian folks know their history - how the Marwari businessmen sold her to the East India Company??

Entire India is still backing modi ...don't believe everything you read or watch on media who are anti modi and sold out..there are no riots any where ..that itself shows how much people are backing modi..cry as much as you want..but modi is going to be our pm for at least another 20 years

 

[abc123xyx]

people outside more worried then people inside.

 

[Jarmen kell]

Burn Haters Burn!

First let us understand the meaning of BLACKMONEY, blackmoney is the money which is in circulation in the economy on which taxes are not paid. Blackmoney includes money from illegal sources like drugs, arms trade, terrorism, extortion, kidnapping ransom etc. as these incomes cannot be taxed right away without money laundering. Blackmoney also includes income from legal sources like sale of gold or property in cash without any trail so as to evade tax. So any income on which taxes are evaded and not paid as per the laws of the land can be technically called BLACKMONEY.

Ok so everyone is wondering how DEMONETIZATION will help India, let me give you some deep economic impacts of the scheme.

Primarily, lets understand the Indian Tax Statistics,

1. Among 120 crore Indians, only about 4% (5.1 crore) filed Income Tax returns in 2015-16. An even smaller number, only 1.3 crore individuals in 2014-15, paid income tax.

2. Just two states, Maharashtra (39.9%) and Delhi (13.1%) pay 53% of India's total income tax.

3. There are just over 10 lakh income tax assesses in India declaring income in excess of Rs 10 lakh a year.

Now, after knowing the above three statistics, we come to a conclusion that the contributors of tax revenue are a very small number of people out of the entire Indian Population. Imagine a scenario where there is a huge family of lets say 125 people, some are children, some are well earning women, some are well earning men. Now, out of these members, lets say 60% of them are into agriculture, i.e. 76 people, and because these 76 people are responsible for growing of food for the family, they dont have to contribute to the grocery bill as they are actually the recipients of grocery bill and they are already contributing their fair share by growing food for family. Lets say we have 24 children in this family who need not take the burden of paying the grocery bill, hence all we are left with are 25 members to contribute to the grocery bill of the entire family. Now, in this family, there are few members lets say 15 members who are into a special industry called real-estate, bribe/corruption and jewelry. Somehow due to their shrewdness, these members are very smart in hiding their income so that they don’t have to contribute and thereby give some part of income as a share of grocery bill to the family. Hence out of 25 members, we are now left with only 10 people to pay for the grocery bill for the entire family of 125, this 10 people represent the salaried class, the service sector and the manufacturing sector. Now, these 15 members who are into a special industry, earn an income which is same as about the 76 people in the agricultural sector combined, this creates income disparity where 15 people in real estate and jewelry are earning about same as 76 in agriculture, however even when they are earning much higher in the individual capacity, they are not giving proper share in the grocery bill because they are hiding their earnings and they are experts in doing so. Now, this scenario continues for 60 years and those few members of the family who are in those special industries flourish like anything in this given time period, they make big homes, farmhouses, bunglows, jets, yachts, BMW’s, Audi’s, Merc’s etc. Now till 60 years, those 10 innocent people kept on paying the entire grocery bill for all members and hence, took a huge burden of grocery bill which made them shell out a huge portion of their income into paying of the grocery bill. Thus due to the shrewdness of 15 people of special industry, the remaining 110 people remained where they were or grew very little in terms of economic wealth. Those shrewd people were able to hide their income in the from of BLACKMONEY and spend the same. This created a parallel economy called shadow economy or BLACKMONEY economy, where in the funds hidden by those shrewd people was circulated in the economy. Now, because these fund was nearly equal to the entire agriculture income, hence this grew to be a huge fund circulating in the economy.

Now, our PM, who is by the way the head of this family right now came to know about the unethical shrewdness of these few people of the family. He contemplated to confront those members but realized that such a step would make those people buy the remaining members with their monetary strength and overthrow the PM from the position as a head of the family. So, suddenly, the PM got an idea and executed that all the big currency owned by any member of the family would be useless from tomorrow unless they bring the same to PM’s banks and take new notes in replacement. This idea resulted in a compulsory presentation of a substantial portion which was hidden by those people as not doing so would make the accumulated wealth useless for them. So, all members one by one came and replaced their old notes which were few, finally, these 15 members who hid their money, came and asked for replacement of their notes. Now PM has got a proof, that though these members did not contribute in the grocery bill for 60 years, they earned substantially and if they would have contributed honestly, our country would have reached great heights by 2016, but that is spilled milk, now what the PM does is he asks those 15 shrewd people to pay their fair share of contribution of past 60 years along with interest (i.e. penalty 200%) in our case. And because those members were shrewd in evading their share to the bill, PM makes new laws to compel/force them to be a contributor to the grocery bill from now on. This leads to a reduction in the burden of existing honest contributors as now because there are 25 people contributing to the grocery bill, the burden of total bill on individual is divided to 25 members instead of the original 10 members.

The short term impacts are as listed by Dear Hariom Singh, however, the long term impacts are as follows:

1. Reduction in the individual income tax rates borne by tax payers.
2. Reduction in the income disparity among individuals.
3. Reduction in indirect tax (GST) on Necessity goods and services.
4. Increase in indirect tax (GST) on Luxury goods and services.
5. Exorbitant Increase in Govt. Revenue due to forcing the real-estate & jewelry sector to get into the tax net, leading to infusion of funds for Infrastructure development, defense sector, irrigation and agriculture development. Once a sector is in the Tax net or RADAR of the Tax infrastructure, it is very hard to get out of the same unless you break laws or close your business, or leave the country. The increase in govt. revenue will not be a one time thing but for all the years to come.

Although there are more benefits that issues, we should as well keep a watch on the issues that we may face due to a pure WHITE ECONOMY. The long term precautions or issues due to a white economy are as follows:

1. It was the Shadow Economy which protected India at the time of the GLOBAL FINANCIAL CRISIS in 2008. Eg. in the existence of a shadow economy, a flat worth 1 Crore is sold at 40 lakh in white (through cheque) and 60 lakh in blackmoney. Now, the Indian banks can only provide loan upto 80 % of white amount i.e. Rs. 32 lakh against a property whose market value is Rs. 1 crore. This provided a huge safety margin because of the property value under mortgage/secured to the banks as even if the borrower would default in repayment of the loan, the bank can sell the house and had a strong margin of 68 lakhs (100–32) over and above the principal amount lent of Rs. 32 lakh, i.e. margin of safety for bank is more than double the amount lent. Under a pure white economy, the property values will fall to say 60 lakh instead of 1 crore and the entire 60 lakh is to be paid through cheque (white), hence bank could provide a loan of Rs. 48 lakh. Now, the margin of safety in the hands of bank would only be of Rs. 12 lakh i.e. 25% of the amount lent. So in a pure white economy, if the property prices fall for more than 20% (property value 60 lakh*20%=12 lakh, 60–12=48 lakh = amount lent), and if the borrower defaults, the bank will have to book losses as they will not be able to recover the amount lent by sale of the property.
2. When you eliminate an entire parallel economy (Black), then you give a lot of Monopolistic powers to the managers (Banks) of the economy (white economy) that you permit/allow to live/survive . Elimination of a parallel black economy will give tremendous powers in the hands of the banks of the country so as to give loans to various sectors, to lobby the government for financial sector changes, banking de-regulations etc. This was also one of the reasons of the 2008 GLOBAL FINANCIAL CRISIS. After deregulation in the banking sector in the USA, the banks became so powerful and misused their powers by making huge short term gains not realizing that it lead to an extremely risky long term scenario, involving and lending to sub-prime borrowers huge sums just to make short terms bond sales fee earnings. Our PM will have to ensure that the Banking sector remains well regulates, and that our RBI does not become a toothless tiger, on the contrary to de-regulation, our PM will have to infuse more regulations so as to ensure that we do not make the same mistakes that the USA made then. E.g. we cannot in any case, deregulate the derivatives industry, and any activity performed by any bank in India can be stopped/questioned by the RBI or the Finance Ministry.
3. Elimination of the shadow economy makes India more susceptible to any economic changes in the global scenario. As I said before, it was because of the shadow economy, that we survived the 2008 GLOBAL FINANCIAL CRISIS, we did that because it did not impact us the way it impacted the world, our bankers did not start having huge salary when the global bankers were flying in jets world over which came crashing later. Hence, due to elimination of a parallel economy, the managers of economy will be only Banks and they will be impacted if there is any major turmoil in global economic scenario. Any crisis in the entire planet will make a relatively bigger impact on our economy, banks and our stock market.

Well of-course, the benefits outweigh the issues, the issues are managable and can be always controlled by a watchful eye of the govt. and the RBI and by proper regulation, and to my belief, this govt. will be like an EAGLE to watch over the banks.

Thanks for reading so long,

Jay Hind