Oh really? I wonder what might have gone into such strenuous effort considering the mess that was unleashed. They did not print replacement notes, did not calibrate even a single ATM machine for the resized notes, there were design issues with new notes, there was no clarity of rules and so on..... What exactly did they do for 10 months?
How come they did not see it in their 10 month long preparation? Did they forget to do basic middle school math?
Most likely the need for secrecy prevented them from making the system better.
Destruction of "presumed" hidden stashes of black money was the #1 reason of this exercise. Modi's speech on 8th Nov made it very clear. They had to change the narrative after black money failed to show up in a big scale and hence the dramatic surge in digital money PR.
Don't go by just speeches to determine all the moves the govt has planned.
Black money isn't just cash, you are talking about black cash. The fight against black money is yet to start. Demonetization is only to flush black cash out of the system. Let's see how the Benami Property law is first.
I am quite positive that if you subtract the cost of this whole operation, at best it will be no gain no loss situation, monetarily. And that's without considering this 2 month long (maybe even more) human suffering.
Banks can increase the value of deposits considerably because of lending policies.
Even if no black money is found, the banks now have the kind of cash necessary to kick start the economy.
And it absolutely does matter how much old currency comes back. If there is no substantial black money to show for after all this then the primary objective would have failed. You can not restrict people from taking out their cash indefinitely. otherwise people's basic faith in the baking system would diminish (it would be illegal too I think). So when there is enough cash in the banks in the next 3-6 months, people would take out their money, and go back to their usual selves. As I said before, the govt has to show by example by tackling political corruption first and clean up the political contribution and campaign financing system. That is a vital linking point in the supply-demand chain of black money. Without that I don't see any substantial change.
Black cash, not black money.
From what I've heard, Modi is going to have the entire population register their properties with the central govt. And the people will have to prove that their income matches the property value at the time of purchase. Any property outside means of income will see penalties, maybe even a jail term for tax evasion. Any property not registered will be confiscated.
Just join the dots. Rajan was RBI's head till early September. I think it is safe to say that he wasn't in favor of this (which also debunks the 10 month long preparation theory), otherwise he would have gotten an extension and would have overseen this operation. With that information in hand, do you seriously think that RBI would independently come up with this mammoth decision in less than 2 months and that too knowing the kind of chaos it would ensue? Have they even done any studies on it? Only political leaders take such whimsical decisions, bankers don't.
I'm pretty sure Rajan was involved when it was proposed. And that he quit when he didn't want to go through with it.
So how has that worked out for Kenya? Last time I checked they are still one of the most corrupt countries in the world (far worse than India).
Kenya is still a third world African country with less capable institutions. If it were not for the payment banking system, Kenya's people would have been worse off. So imagine how much good this system can do in India when it is properly monitored.
You have to remember there are mainly two types of black money in circulation. 1) tax evasion on genuine earnings (like doctors, lawyers etc), 2) illegitimate earnings (bribe etc). No matter how much you advertise digital transactions, these two things would still go on as it is as soon as there is enough cash in the market. You may be able to marginally increase tax revenues from digital transactions but the big players would still be out of the loop.
I pointed out that there may be cash transaction restrictions imposed. What's the point of hoarding cash if you can't buy gold, vehicles or real estate with it? At best you can keep them as show pieces.
Most people who work in the formal sectors of the economy and are on proper payrolls get their salary deposited in the their accounts even now and even if someone gets cash, it is accounted for. However nearly 80% of the work force in the country work in the informal sector where there is no record, no written contract. When you don't have a record of their employment you can't force anything. For example, how would you force me to pay my maid digitally if I don't want to?
The maid can complain.
It works like this...
1. If you are giving her minimum wage as prescribed by the govt, she won't complain.
2. If you are not, she will.
As for you, you can either decide to keep it off the books and evade taxes or not, ie, if there are no whistleblowers or complainers. But the point of this exercise is, you need to pay your workers at least minimum wage and not cheat them. It's a pro-poor, anti-exploitation move, not a pro-govt move. And this move is for employers who employ a lot of people, not just one or two maids and such.
As for restricting higher cash transactions, it was already in the news (over 3 lakh) before demonitization. It would be a good step imo.
This plays a pretty important role. The formal sector will be forced to follow it. And it will prevent the creation of black cash.
Isn't that what I have been saying? That was not their objective and rightly so.
The point is I disagreed with your assertion saying Modi's speech was a face-saving measure. The fact is he was honest. He even pointed out that cash circulation will not normalize by the 30th and that it will normalize 'slowly, slowly'. Hearing the truth for a change is good.
No. It is getting media exposure because that is all the govt has been talking about since late Nov. All ministers, PIB, Niti ayog and all departments have been instructed to advertise cashless transactions non stop. Of course it would get media exposure. That is what the govt wants, to blur the lines between demonitization and digital transactions in people's mind. Very few actually analyze these issues as closely as some of us do.
I think these two schemes have incidentally happened at the same time. The govt should have implemented the digital payments system early during Rajan's time, so even rural people would have been more aware of alternatives. RBI took too long to deregulate the payments system and telecom companies were too late in its implementation. For example, RBI could have announced a 1L cap for old notes on mobile payment banks, that way people would have had the money for day to day transactions, without causing significant disruptions in economic activities in rural areas.
A major point is people were in too much of a hurry to dispose the old notes. They should have waited for a few weeks, or they should have deposited the notes in installments. I mean, Modi gave them 50 days. What the govt made clear is they will check deposits and match them to their incomes. Those whose businesses were legal or too small should have continued taking the old notes and deposit them in their own accounts, I mean, that's common sense. All these businesses are so small that their deposits would barely register. Any significant increase in their accounts, like the Jan Lokpal accounts could have raised flags and the hoarders can get caught easily.
I don't think anybody disagrees that the move could have been better. But I like Modi's way of facing hurdles. Let's say that the govt has a plan to make major changes after the demonetization, it worked, the public is happy, and the public would forget the demonetization woes after a few months anyway. Any other govt would have ridden out the storm and waited to implement their next step. But Modi came out to reassure the public about the delay in achieving normalcy and talked about alternatives, which damaged his image. We don't have these kinds of leaders in any field, forget politics. In fact, history has rarely seen a leader who would shoot his own foot for the good of his charge.
If he wants more ATM machine parts and electronics, we can ship them on a priority basis. Too much chaos in India is not profitable.
