That said, there were some benefits 1) people would think twice before hoarding onto cash and keep it hidden from the govt 2) more people would use banking facilities as the govt basically forced a lot of people to create bank accounts and deposit cash there for easy tracking. Also, there are long term tax benefits for the govt too given now it has a snapshot of who exchanged how much black money (in old notes) with the new notes. As such, the answer isn't black or white here.
Didn't they report that almost all the cash came back - proving that there was basically no black money returned and the only people they inconvenienced was ordinary citizens with their hard-earned cash reserves?
-- 2$-3$ billion worth of old currency IT department last year.
-- The total tax base is increased. Evidence of this is that PAN card applications have increased 3x (Daily Issuance of PAN Nearly Triples Post Demonetisation), number of people filing tax has grown a lot [Income tax base expands by 9.1 mn people after note ban) and net tax collections is also significantly up. This is good for a lot of reasons. It makes the taxation fair and also can help government increased budgetary allocations.
-- Economy is able to run normally with 20% lower currency levels.Which makes it harder for households to hoard money. When money is not hoarded, it makes for greater efficiency in the economy.
-- Bank deposits have grown significantly
-- Digital banking became a way of life atleast in the urban India.
It is to get the people making the decision reelected. It is to give the government party control of the spending of other political parties that might replace them [1].
This decision had a very specific aim, and achieved exactly that aim. In very predictable fashion it did a ridiculous amount of economic damage to the country in the process, but that shows nothing more than what the priorities of Mr. Modi are.
It was very well received (judging by voting afterwards) and further cemented the current party into power. That was the purpose. That aim was achieved. Why was the timing what it was ? It was election time ... [2]
Immediately before this "make or break" (dixit BBC) election BJP suddenly made itself the only party capable of doling out cash and other direct political favors in that state. Coincidence ?
No.
[1] https://www.forbes.com/sites/timworstall/2016/12/17/this-is-...
I so wish GRR Martin had put this in GoT. Then most Indians would have been aware of it. I'll repeat it here once again.
Not all black money is in cash. Not all cash is black money.
A major portion is in real estate, gold, businesses and other financial assets. Cash is just ~8-10% of the economy.
Most people with unaccounted cash had access to networks which would launder it for them. Even if you have a digital trail, the justice system is not digital. Sure some would have to pay up, but a majority would have enough accountants/lawyers to avoid the taxes.
People complaining about black money in India, forget that the relatively low consumer prices that they enjoy is partly due to black money. If one wants the SMEs to pay their taxes, the consumer should be ready to pay more in price. People want low prices, low taxes and no black money/corruption. Well, pick any two.
>> 1) people would think twice before hoarding onto cash and keep it hidden from the govt
Or they could change the govt :).
And I would abstain from using absolute stance like you are using. I think this move definitely falls into the grey territory.
heres an example dramatisation of what happened to terrorist funders too: https://www.facebook.com/KasheerHinduzFront/videos/123509249...
Edit: Ppl celebrating demonetisation doesn't refer to HN but a broader group in India.
Heres some actual data, which is very worrisome and is not getting the attention it deserves
Microfinance data -
>As shown in the table, PAR > 30 days has spiked drastically across most of the states. Compared to the figures for March 31, 2016, Uttar Pradesh and Maharashtra registered an incredible increase of nearly 100 times as on 31st March, 2017. States such as Rajasthan, Tamil Nadu, West Bengal, Gujarat, Punjab, Madhya Pradesh and Karnataka experienced increases between 11% and 22% compared to the much lower pre-demonetisation levels. By 31 December, PAR>30 days had increased from a meagre 0.5% in the previous quarters to around 8%.
http://www.livemint.com/Opinion/jVE367mp7AamTbHD5dG0lK/Demon...
This means that money lenders are quite likely going to get stronger, because this suggests very large distress at the bottom of the pyramid.
And This data never shows up in GDP, by definition the unstructured part of the economy is not part of GDP figures.
This has a knock on effect on demand, and therefore on economic growth.
And recent news suggests that MNREGA funds have not been released by many states because they haven;t gotten them from the center.
I think this is imperiling the BJPs chances of survival. I expected some loss of seats in the next election (I know that even the BJP top brass didnt expect a full majority during the last election.) but if these canaries in the coal mine are accurate, it suggests large distress which is still to come down the pipe.
http://www.thehindubusinessline.com/money-and-banking/indias...
May be in places like Kormangala, Marathalli or alike, where techies pay 1.5 crores for a 2BHK home, or rent it for 50K a month. And shop at DMart's and BigBazaar.
In rest of the Bangalore, we don't have merchants with card machines going around the corner. In my home we buy vegetables from push cart vendors, and other groceries from the shop around the corner. They don't have card machines. Their profit margin, and people shopping there, have their thin incomes, where they can't afford to pay for the infrastructure or the transaction fees.
Unclear what the right solution is but clearly there was a problem.
Today, in TV there was news about a district in Kerala (Malappuram) having 50000 crores worth of old currency in the hands of various people there. The person whom the reporter interviewed was an agent who sold these old notes to some people for a percentage of the value of the old notes. They didn't say for what purpose the old notes are bought. A friend of mine who knows some Gujrathi cloth merchants in Kochi's main market was told these old notes are bought so that its thread can be taken for counterfeiting new notes.
Theres so many things that raise flags there.
Thats a non trivial percent of the missing cash, whihc is very unlikely to be in one place.
Kerala gets most of its money via remittances, the idea that they would be a store of cash, especially when most of people convert it into gold around India anyway, makes it extremely hard to accept just from the face of it
I agree, its a fairly non-trivial amount of money.
After that failed, they changed their stated goal (after the fact).
I never got to try, but India did.
[1] - http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-...
Of course they could employ more people- they were unfairly competing with the companies that were following the law. I have a hard time sympathizing.
Thats the weirdest example which doesnt describe India.
> Third, in a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause.
Assuming the data is correct, demonetization was flawed from the beginning.
And then there are cryptocurrencies, which are about to teach the world economists all kinds of lessons.
http://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-sa...
The “first cashless village in India” touted during that time has gone back to using cash. [1]
Dreams about digital money alone won’t do. There’s a long, long way to go on telecom/Internet infrastructure improvement, availability of electricity, availability of devices that are easy to use, education and awareness on security, etc.
I believe any future government in India would be downright foolish to consider doing such a thing again. Now all that the government has done by eliminating the Rs.1000 note and introducing the Rs.2000 note is made it easier to hoard and transport large sums of cash.
[1]: https://www.bloombergquint.com/demonetisation-one-year/2017/...
Invalidating 90% of the stock of currency notes to catch 6% of illegal wealth was a clear case of using a hammer to kill a fly.
The rationale of a crackdown on counterfeit notes was also misleading since India's central bank's own estimate was that fewer than 0.02%
India's stock of high-value currency was growing in line with GDP and the share of such currency in India's GDP remained constant at around 9% for half a decade
This was not a government program. It happened naturally and was deemed to be in the best interest of all. At every purchase people can freely choose to use cash or a card/phone.
An advanced economy, low corruption, efficient banking system, top level infrastructure and supreme faith in civilization are not things you can just implement.
It would be interesting to quantify what "part". AFAIK GDP growth has many contributing factors both short term and long term. It would really help readers to better comprehend the affect and also help policy makers to be cautious going forward.
>Lesson One: Choose Your Experts Carefully : Agreed, we must choose our experts carefully. However, author is silent on "how". Instead what author presents is his take on who are experts. I am not questioning the authors credentials but as HBR article, I expected authors to present a methodology instead of what seems a subjective view to me.
>Lesson Two: Don’t Ignore Basic Data : Authors criticism that basic data was ignored seems more of a speculation. No concrete sources that such data was not consulted at all.
>Lesson Four: Beware of Digital Silver Bullets : Here I feel author selectively uses the citation to benefit his narrative. The very citation states the following verbatim. http://www.moneycontrol.com/news/business/economy/digital-pa... >"Still, it is appreciable that the numbers have not come down by a large amount. There are many who have permanently moved on to digital, which is a bigger benefit."
Any attempt to rectify this menace is a welcome step -- hopefully regional countries like Pakistan and Afghanistan can implement similar measures.
The Trump administration would never make a mistake like that, would they?