
Modi’s Cash Crackdown Failed, Indian Bank Data Shows - walterbell
https://www.nytimes.com/2018/08/30/world/asia/modi-india-rupee-cash.html
======
willwinger
Demonetization as a black money magic wand is a public face. The following is
the other side of the coin, the following as narrated by a banker friend

1\. Banks were at a historical low in availability of currency in the system
due to bad money hoarding and non performing assets. Dangerously near
collapse. Demo as the report points out has brought so much money back into
the banking system and successfully overturned this.

2\. Prior to demo. the capital in the stock market was dominated by FII
(foreign institutional investors) almost 70%. This resulted in volatility and
the Indian economy being vulnerable to external influence. Now the table has
turned, the capital in the market is predominantly from the Indian banking
system leading to greater stability.

3\. Now that money is inside the system,anyone who has tried to take money out
in cash beyond 5000 USD knows how difficult to near impossible it is now. This
is the real effect on bad money, generation is now so damn difficult!

4\. Anyone honest who has tried to buy a home from big realty developers in
India recently would be pleasantly surprised that now you have to purchase it
with good money and also pay proper GST tax for it. Before demo this was one
major area of bad money generation. It is as good as dead now. Recent reports
on the huge huge increase in GST tax revenue increase is a proof.

5\. Good and bad currency sweeping back into the system (Gov allowed
conversion also) has effectively nullified the funding of militancy and the
fact that from demo the country has not seen any terrorist actions is a
possible indicator.

6\. Whether you like it or not one more area which encouraged bad money
circulation was evangelism (convert to christianity for money) and that is one
more area that also been severely impacted.

Most US media outlets want to feed the stereotyped view of India and jump at
any chance to do that.

Most people who cry against demo are those who do it, just because they
dislike Modi as a person (not a very charismatic personality). They would not
be able to substantiate how they were personally impacted.

~~~
intended
Experts and anyone who understands this disagree.

If demo was any good you would see such exercises all over the world on a
regular basis.

IndianBanks are in bad shape because of loans they have made and have to
continue to make to politically connected individuals.

This affects state banks mind you - private banks never has that problem.

As Raghuram Rajan pointed out, the reason banks can’t make loans is because
many firms have terrible credit. That’s what makes loans unaffordable to them.

And as current reports show - All of that money is back in circulation - so
the banks are back to square one.

2 - if someone is telling you this, then they are confusing matters and are
misunderstanding trade.

1) Volatility will always exist

2) foreign investments are something we want because trade and more resources
makes our economy grow much faster

Additionally: black money is a misnomer - it’s money on which tax has not been
paid.

A large portion of India’s economy is informal, and entirely cash based AND
also below the taxable slabs - this is OK.

It’s a transition point for an economy as it goes from 1970 to 2030.

What people are upset about are corrupt people who cheat the system and then
launder that money.

All black money is therefore not corruption.

But demo has not stopped corruption, and even during demo the corrupt found
out ways to launder their money.

Not to mention none of this was free and necessitated a shut down of the
entire economy - for nothing.

This move cost us billions in opportunity cost.

The mint wasn’t ready or warned, highlighting how unplanned this entire move
was.

 _People died_

And in the end nothing happened

All of those goals could be achieved correctly and more effectively.

~~~
sbmthakur
> And in the end nothing happened

That's nonsense. Demonetization was a contributing factor in the following:

* Increase in tax-payers

* Increase in E-filling

* Removal of fake currency

* Crushing of Real-estate black market

* Removal of shell companies

* Decrease in funding of Naxalites and Kashmiri separatists

Demo _failed_ because the government didn't have a clear objective in the
first place. Later they started shifting goal-posts to prove it as a success.
However, saying that it acheived _nothing_ is ignorance at best.

> People died

This is again nonsense. People are still dying in India due to the negligence
of hospitals, civic officials etc. Blaming this on Demonetization doesn't make
sense.

Demonetization deserves to be criticized but the criticism should be objective
and not just a mere reflection of opposition propaganda.

Sources:

[https://www.livemint.com/Opinion/sH5FSnXPkuAhknhzuPgH3M/Demo...](https://www.livemint.com/Opinion/sH5FSnXPkuAhknhzuPgH3M/Demonetisation-
and-the-fight-against-black-money.html)

[https://www.quora.com/99-3-demonetised-notes-came-back-
conce...](https://www.quora.com/99-3-demonetised-notes-came-back-concedes-
Reserve-Bank-of-India-Does-this-mean-that-Modis-demonetisation-did-nothing-
for-India)

~~~
kamaal
>>Crushing of Real-estate black market

What goes on in peoples minds to believe in these things?

Paint, Steel, Cement, Bathroom fittings, Tiles heck every single company that
connects the RE market is on the stock exchange.

You can't register a hut in the property registration office since a decade
without a PAN number. And builders haven't been taking cash since more than a
decade now.

Where is this non-existent black money in the Real Estate market?

Looks like people build fictional theories in their minds and then go enact
rogue policies which ruin many other things as side effect.

~~~
vishnugupta
> What goes on in peoples minds to believe in these things?

Anecdotally, RE is by far one of the largest destinations of black money. A
friend is _still_ unable to sell his flat 'coz he doesn't want to accept cash.
Another has had to bring down the price from ~2Cr to ~1.7Cr, still no takers
for the same reason.

Sure, all those measures (PAN etc.,) exist but so do enough loop holes. One
common practice is to register the property at a super low (almost nominal)
price compared to actual transaction amount. This is what _I_ as a common
person know. I'm sure those involved in daily RE dealings have more tricks up
their sleeves.

So yeah, it's clearly not fictional.

~~~
kamaal
The problems you describe aren't black money problems. These are problems
related to overall demand and supply situations of the RE market, and in
general the every day economic situation in India. They won't go away anytime
soon because, urbanization trends have just started and almost everyone wants
to come to cities for jobs.

Also don't forget bulk of India is poor with high birth rates, so you will
have these problems for several decades may be even till the end of this
century.

Bangalore alone gets hundreds if not thousands of people coming in every day.
With that sort of demand, you can't run a housing market and supply homes at a
cheap price. Nor will you be able to run a pure bank/electronic transaction
based market. The reason for that is that the base infrastructure for such an
economic ecosystem isn't ready. Even in Bangalore you have several hour long
power cuts. And that is Bangalore. The rural centers have it way worse.

In all this your every day people, every one from street vegetable suppliers
to cement and paint vendors for RE have to work seamlessly. That means 'cash'
will be exchanged. Also merely cash being exchanged doesn't make it black.

Ultimately if you are buying cement, paint, steel, bath fittings etc. You are
paying white money only, because it goes to registered and tax accounted
compaies. Plus you can't buy a flat in any city from a medium and above
builder in cash. No one accepts it. And yes, if you are buying a flat for 2
crores, you need to go in for a loan, which comes from a bank, so there is
accountability at another layer. And registrations requires PAN, there you
have door for audit open.

Another hard thing to come to terms with regards to Indian RE market is people
invest in lands decades in Advance, These are not necessarily rich people,
these are your ordinary businessmen, shop keepers, salaried masses. In
Bangalore, outskirts lands are bought out like >20 years in advance for
chicken feed prices, when the demand grows and people come to settle they are
faced with impossible prices because investors have long bought the lands. Or
they have to rent at exorbitant rates. Real estate is another of things where
people with long term vision and enterprise to spend time physically, have a
disproportionate edge over those who don't.

I have seen even top managers with top salaries end up with extremely bitter
feelings and deep resentment towards common folks on the streets because the
latter had the sense to buy lands some 20 years in advance and are now worth
20x more than the manager, despite the managers having 1000x a better career
than them.

These problems are not going to go anytime soon.

And lastly even in the middle of DeMo prices didn't move in Bangalore. People
who tossed around opportunities to buy flats at 50L-60L in 2008-2010 thinking
they will buy in the crash period, were in for a big shock that prices are
1.2Cr-1.5Cr and the market didn't crash either.

The only way to win the RE game is to enter early and play. Come late or don't
play you lose by default.

~~~
vishnugupta
I appreciate you taking time to describe and I'm in 100% agreement. But none
of those arguments substantiate your assertion that black money is non-
existent in RE.

The fact is owners (not builders) of _built_ houses are unable to sell them
even 2years post DeMo because they don't want to accept cash. This has got
literally nothing to do with paying for labourers, bathroom fittings as that
payment has already happened.

I was responding to your dismissal of the GP's claim that RE is driven by and
large by black-money. Specifically;

>>Crushing of Real-estate black market

> What goes on in peoples minds to believe in these things?

> Where is this non-existent black money in the Real Estate market?

The above statement just doesn't line up with the ground reality. Ask just
about anyone who deals in RE on a daily basis. The real-estate-agent-shops are
dime a dozen in Bangalore streets. They will straight up tell you that they
expect you to pay a certain amount in cash (i.e., unaccounted) because the
buyer doesn't want to show that money to tax authorities. This is how vast
majority of RE dealings are done in India, the builders (i.e., RMZ etc.,)
share of the pie is minuscule compared to untracked dealings.

> Ultimately if you are buying cement, paint, steel, bath fittings etc

A wise man once said RE is all about 3 key aspects;'location', 'location', and
'location'. But for location housing/building prices would be same across the
country as cement etc., cost the same everywhere. So no, I'm actually not
paying much for cement etc., as much as I'm for the location.

Just last week I visited a sub-registrar office in Mysore. Only couple of
hours of observing activities there is sufficient to dispel the myth that
black-money is non existent in RE. The number and amount of cash dealings
going on there was mind blowing, PAN notwithstanding.

BTW this is just one aspect of RE. Then there's about farmland dealings. Just
about every politician and govt employee of high ranking hide their cash in
hundreds of acres of farm land by buying them in cash. This is not only black-
money but also illegal too. You see the details in news all the time, when ED
authorities raid a politician or public servant to unearth ownership documents
of huge tracts of land.

tl;dr Indian RE is _awash_ with black and illegal money. You either have to be
blind or far away from ground action to deny that.

------
paragraft
Planet Money had a great two part episode[1] on this and how it came about,
and the guru who advocated it. Particularly fascinating was the gigantic
PowerPoint presentation they embedded that formed the pitch deck for the
proposal. It's one of my go-to examples now for why sometimes engineering-
style systems thinking can be disastrous upon meeting reality, particularly in
something as people-driven as an economy.

1:
[https://www.npr.org/sections/money/2017/05/10/527803742/epis...](https://www.npr.org/sections/money/2017/05/10/527803742/episode-770-when-
indias-cash-disappeared-part-one)

~~~
breitling
I think I listed to this when it came out over a year ago.

The most unbelievable part of it for me was when the host asks about the
difficulties endured by a poor farmer unable to exchange his dead wife's life
savings (approx $50), the person just dismisses it saying, "he's a poor guy,
he is used to difficulties" (paraphrasing here).

India is taking advice from those sort of people who have no care whatsoever
for the poor. Just unbelievable! Can't imagine how difficult life must have
been for these people.

------
WheelsAtLarge
I would say that it's too early to tell. I think a better gage is the increase
in tax compliance over the next few years. If the treasury gets an increase in
money then I would think it was worth it for the government and society.
People hate to pay taxes but if you go to a country where people avoid taxes
you'll see an infrastructure that's just awful. I rather live in a country
where people are willing to pay their share.

I would also look at the increase of money other than cash. People love cash
but a good banking system is vital to start small businesses to help people
out of poverty.

~~~
eklavya
In my opinion deMo succeeded in all but the claimed main objective, which was
removal of black money.

~~~
thevardanian
Most people who had "black money" deposited their cash with albeit with a
heavy penalty.

The government allowed people to deposit their cash, but taxed it something
like 50-70% if it had NO accounting at all.

~~~
kranner
This is false. According to the Income Tax department's own admission, it
could only get ~1100 people to pay such a penalty between April and November
2017. I've cited a source for this in another reply to you above.

Most people with black money exchanged their currency notes at a 10% to 20%
cost via services that laundered via corrupt employees at banks or routing
through newly opened accounts of poor people.

------
billfruit
What angered me the most was the suddenness of the announcement, I thought it
was authoritarian to have the executive capable of issueing such orders with
immediate effect. There wasn't time for courts or citizens or even legilature
to look into the legality of such a move before it was effected, and
constitutionally challenge it.

Such measures should have been pursued through legislative means rather than
executive. The way it was done indicated the Indian Governments lack of faith
in democracy.

~~~
saagarjha
I think that was the point: if done quickly, it makes it impossible to find
places to launder your illegally acquired income. Whether that was actually
achieved was debatable.

~~~
billfruit
But implementating such arbitrary measures with immediate effect is tenable in
a democracy or not is my question. I think not, because ends do not justify
means.

------
deepGem
Perhaps, but on the bright side, I see an increase in digital transactions,
particularly wallets. Almost every nook and corner shop in India now accepts
payment by Paytm or an equivalent wallet. It'll be interesting to see the
uptick in digital payments since the crackdown on cash.

I don't necessarily think wallets are a better way to pay but they are a hell
lot convenient than carrying petty cash and having to hit the ATM every now
and then.

~~~
riantogo
Do you feel govt intervention was needed at such massive scale, causing
widespread inconvenience to the people that didn't ask for it, so that
everyone could move to digital wallets? Or is it that convince of digital
wallets is simply not that great that people would have moved to it anyway?

~~~
deepGem
I absolutely detest government intervention in any aspect of the society. In
fact, I suffered personally like a billion others because of this crap that
the government unleashed on us. I am just seeing the brighter side of things.

I can't comment on the convenience of digital wallets for all sections of the
society. For the urban middle class I can say with conviction, that digital
wallets trump cash. The biggest obstacle for digital wallet adoption were the
mom and pop shops. Now even a juice vendor accepts PayTM. I don't think the
wallets are as harsh as the credit card guys on the merchants. So I see the
adoption as a win-win, at least for the urban middle class.

All of this doesn't negate the endless suffering ulneashed by the cash
crackdown though.

~~~
intended
This is the half narrative that needs to be made completed for us Indians to
have an actual discussion.

How about this scenario - the govt one days makes every Indian pay a fine for
holding cash, instead of using one of the many private e-cash wallets out
there.

This would be a massive state subsidy given to digital players- but would it
be fair or correct workings of the market economy?

Instead if the market was left to itsel the wallets would have invested in
ways to convince people and improve services, all the while paying taxes and
adding to govt coffers.

One model is wealth creation and the other is regulatory waste paid by us at
astronomical costs (1% gdp growth for better metro city use of e wallets??)

No one who talks about this seems to mention the opportunity cost and massive
wastage for effectively a one off payment to advertise private entities.

------
godelmachine
Well, I’ll playing the devils advocate here. In case you are thinking it was a
complete failure, I would like to cite one example where one unscrupulous
builder went out of business. His name is DS Kulkarni and he ran a shadow bank
of his own. Collected money from people promising huge returns on FD’s. Post
demonetization, he couldn’t return their money, and now, he and his entire
family is in prison.

~~~
luoji_
It's an anecdotal silver lining thats far outweighed by the negatives.

------
jepler
I happened to take my first (and, so far, only) trip to India in January 2017.
The aftereffects of this stunt were still being felt; as a tourist, I
sometimes had trouble getting ahold of banknotes (you would still go from ATM
to ATM hoping one would dispense some cash), and people were reluctant to take
the "large" 2000 rupee notes, because they couldn't make change! It must have
been even worse for locals, and when the process had started months earlier.

------
ahamedirshad123
BJP leaders actually bought land worth crores, just a week before
demonetization. They knew it beforehand.

[http://www.financialexpress.com/india-news/demonetisation-
bj...](http://www.financialexpress.com/india-news/demonetisation-bjp-bought-
land-worth-crores-of-rupees-a-week-before-note-ban/455728/lite/)

------
farhanhubble
Although demonetization might have spurred digital transactions, it wasn't
able to get rid of black money for the simple reason that black money owners
weren't foolish enough to store large sums of cash. The average corrupt Joe
who has a few millions in black money, invests in businesses, real estate,
gold, sending kids abroad and so on.

~~~
eklavya
Not entirely true, but I am amazed at just how creative people can get when it
comes to money. “Everybody” got their whole lot in, one way or another. The
biggest failure was the complete absence of any kind of centralised checks in
the banks for any deposits. Although many poor have gotten rich as they are
refusing to give back what was transferred in their account :)

------
hirsin
I find it between puzzling and concerning that the mention of cash being used
in real estate deals doesn't mention why. They mention that a table will be
sold for a cash price, but miss the bigger picture - 2 million dollar homes
were being sold the same way, with only the banked fraction being reported.

Saying that demonetization is disrupting black money real estate deals is...
Not evidence of pain or failure.

~~~
AnthonyMouse
> I find it between puzzling and concerning that the mention of cash being
> used in real estate deals doesn't mention why.

Can you not imagine legitimate reasons for doing this?

A small business owner makes a deal with a property owner to operate the
business out of the property on a payment plan where the profits from the
business buy out the property owner over time. The customers of the business
pay cash so the business pays cash.

The buyer or seller doesn't trust the local banking system (e.g. because they
have seen recent evidence of not being able to withdraw their money from it).

The banks charge some fees that can be avoided by cutting them out of the
transaction. Even small percentage-based fees add up to a lot of money on real
estate sized transactions.

The seller is also the buyer of a different property and they or the other
seller wants to transact in cash for one of the above reasons, so they would
prefer to have cash from this transaction to use for the other one.

In theory the transaction could be made to involve the banks by everyone doing
extra work for no reason, but at the margin that scuttles the transaction and
even when it doesn't it still generates overhead that dampens the local
economy makes peoples lives harder unnecessarily.

~~~
hirsin
My point was not that there's no reason for cash in real estate. You being up
a real scenario, but my point is that the scenario I describe is so common and
well known that anyone with some contact with the system would know to bring
it up. That the journalist didn't brings the rest of the article into
question.

Imagine someone writing that anti-virus brings pain with it, because it has a
negative side effect on programs that need to shim and redirect system calls.
Yes, it does, because the vast majority of the time that use case is a virus.
If that's all they wrote on that front you'd wonder if they really understood
computers.

~~~
AnthonyMouse
But that's always the argument people who want to ban things present. Bad
people are using it. It's implied by the context.

The article's point is that good people are using it too and getting rid of it
hurts them as well -- or hurts them worse, because criminals have alternatives
that are only available if you break the law (or have the margins that come
from black market trading).

And people _do_ make that argument against antivirus. It detects things that
aren't viruses and not things that are. Half the non-tech people with Windows
PCs have antivirus and twelve pieces of malware installed at the same time. So
if it has high cost and low effectiveness then why have it?

------
ramshanker
I believe otherwise for following aftereffects. 1\. Literally Every nook &
corner shop now accepts digital payments. 2\. I have seen cash-distribution by
candidates during elections to influence votes! They were mostly absent in the
immediate subsequent state elections. 3\. Many "Poor" people made extra money
by queuing in the line for "Rick" people. The commission went as high as 20%
at some places. 4\. Terrorist activity immediately stopped all over the place
because they are mostly cash sponsored. 5\. Situation normalized within 3
month. 6\. Many of counterfeit presses in neighboring countries stopped
working for some time at least.

I also stood in line 4 or 5 times, but than every "Line" in India is average
10m long for any kind of services. We are used to it !!!!

~~~
iamshs
Every single point that you have said has been debunked many times over. DeMo
was a stupid thing to even try accomplishing what you are trying to say it
accomplished.

For the want of killing crocodiles, we drained the whole pond and only ended
up killing the fish instead. Crocodiles were back after a month.

~~~
calvinbhai
are you saying that terrorists and their sympathisers were not affected by
demonetization? Would be great to see some sources for your "debunked many
times over" statement.

~~~
axiom92
Terrorist and their sympathizers will be affected if demonetization happens
again, like anyone else who has cash. The bigger question is whether it has
helped in curtailing the menace.

~~~
riantogo
There was a large number of fake new bills in circulation within 3 months. So
the answer is, no, it had almost no impact in curtailing the menace. But hey
look, the fruit vendor is accepting PayTM wallet (a large chunk of which is
owned by China) so it must have been a huge success.

~~~
axiom92
Huge success for PayTM indeed.

------
sbmthakur
A friend of my relative who is a Sales-tax officer had tons of cash(most of it
illegal) in his home. His entire night was spent calling his friends and
requesting them to take a part of his cash for some time.

There are many such cases across India. Personally, I do think Demonetization
was a failure but that's because shifting of goal-posts and not because it
achieved _nothing_.

~~~
TheArcane
So we should believe it wasn't useless because of an anecdote you have?

------
wtmt
Demonetization was a disaster in many ways. The government was not at all
prepared for the change and kept playing it by ear everyday, changing the
policies on cash withdrawals. Those who had a lot of cash used the boon of the
government — Jan Dhan accounts of the poor — to deposit their cash in smaller
sums and got it out later.

Talk about this move's ill effects and you'll find the other side changing the
topic from black money to digital transactions to tax base and so on. None of
those claims have been validated. Cash use is back to how it was before.
Digital transactions saw a temporary increase, but have gone out of favor
among those who didn't really use them often before. Tax increases have other
reasons to credit.

What's even worse is that the government made it easier to hoard large amounts
of cash by invalidating the Rs.1000 note and by introducing a Rs.2000 note.
The main use of the Rs.2000 note could be to hoard cash since it's not
something that's useful on a day-to-day basis for most people (can't easily
get the change when the spend is much smaller).

Tax evasion is primarily done through real estate, gold, etc. Cash bills form
a minuscule percentage. The government could've focused on bigger things than
attempt to flush badly run banks with cash by this move.

Hopefully this or any future government won't dare to try this kind of a
gimmick again.

~~~
ahamedirshad123
We should not call it demonetization, if you ask me.They didn't even
demonetize 500 notes.

------
jakidud
Just my 2 cents: I have an Indian friend whose dad owns a college. When
Demonetization happened, his dad asked all of his students to take cash and
deposit into their account, and afterwards transfer into his account. To
incentivise them he told them they would get a discount on college fees(off
the books, ofc) for each cash deposit. Students were lining up all day for
weeks to make deposits, many even got a lot of family members as well.

Another friend's family opened a luxury car dealership overnight, buying cars
wholesale from legitimate car dealers who could then pass off any income as
legitimate.

I'm very skeptical when anyone says black money was affected significantly by
Demonetization.

~~~
potlee
This sounds suspicious. All these transactions are traceable now and it should
be much easier for the income tax department to find out. No one in hier right
mind would have so many people send money to their bank accounts like this.

~~~
srean
> be much easier for the income tax department

Question is did they.

This entire thing was a stage managed farce to inconvenience political
opponents. Citizens were collateral damage.

------
quantummkv
NYTimes, like most media inside and outside of India, are looking at this from
the wrong angle. The actual intent of Demonetization was not the removal of
Black Money. It was just a cover. Anything else like digital transactions were
side effects.

The real reason for this was political chest thumping. The previous government
was seen as incapable of taking decisions and getting work done. This was
mostly a signal from Modi that he was willing to get work done, take hard
decisions and see them through. That he and his government had the willpower
to work and act, unlike his political opponents.

The results of the UP elections that happened after this validate it. UP is a
state with a lot of farmers and low income people, who were supposedly the
worst hit segments of the population. Yet they voted for him.

Just some food for thought.

~~~
puranjay
Another point to note is that Indian elections are funded by a massive corpus
of cash, and when you suddenly make all existing cash illegal days before the
elections, you cause complete disarray in your own political opponents' camps.

This was as much a poll winning strategy as it was, purportedly, about
demonetization.

To me, regardless of whatever good this government does, it will remain one of
the worst decisions economic decisions taken by any Indian government to date

~~~
quantummkv
> Another point to note is that Indian elections are funded by a massive
> corpus of cash, and when you suddenly make all existing cash illegal days
> before the elections, you cause complete disarray in your own political
> opponents' camps.

As well in your own camp. Your cash is not different from your opponent's
cash. Unless the cash you are using is unaccounted.

~~~
puranjay
That is assuming your camp didn't already know about what was going to happen.

[https://www.huffingtonpost.in/2018/06/22/amit-shahs-
director...](https://www.huffingtonpost.in/2018/06/22/amit-shahs-directorship-
of-district-bank-with-most-demonetised-notes-raises-ethical-concerns-among-
opposition-leaders_a_23465432/)

~~~
sbmthakur
All parties have to file Income Tax returns which also includes sources of
income. Had BJP been the only party with enormous cash, they would've been
flagged by the IT department.

~~~
kamaal
That's because how cash gets rotated among the Indian masses. Your Pendalwalla
and Micwalla accept cash. Your party workers, campaign workers, alcohol
suppliers, biryani suppliers etc etc .. Take cash.

So please drop this 'Income tax return' bogey. Most of the political donations
and spending is unaccounted. You don't pay taxes on things that don't exist on
your books.

~~~
quantummkv
Everyone knew that no one had cash. Your Pendalwalla and Micwalla had to earn
money. They would have readily accepted checks or other forms of payment. The
real trouble is that a lot of political parties fund their campaigns off the
books. They can pay only in cash because it is untraceable to them. Your
Pendalwalla, alcohol suppliers and Micwalla got cash before so they took cash.
You pay them in checks and they take it.

> You don't pay taxes on things that don't exist on your books.

Its not others fault that you keep your party funding off the books. No one
asked you to. You can keep it on the books, pay the tax, and pay you vendors
legally without issue. The restrictions were on cash, not on any of the other
payment systems.

~~~
khrm
1\. BJP income rose after demonetisation. Parties don't pay taxes but file
return for exemptions, expenses, etc. You don't even have to reveal the
sources. [https://www.dailyo.in/politics/demonetisation-noteban-
party-...](https://www.dailyo.in/politics/demonetisation-noteban-party-
funding-electoral-bonds-bjp-income-congress-income-party-
donation/story/1/23500.html)

2\. If a party already knew that demonetisation is coming, it could have acted
accordingly. [https://www.financialexpress.com/india-
news/demonetisation-b...](https://www.financialexpress.com/india-
news/demonetisation-bjp-bought-land-worth-crores-of-rupees-a-week-before-note-
ban/455728/)

3\. Ruling party had an advantage on getting money, organisational structure,
advertisement, etc, etc. Many vendors don't accept checks but real currency.

------
chauhankiran
Might it failed, but there lots of advantages. All cash, directly or
indirectly is countable now before was considered as Black Money. Transaction
started to grow online. People started to become aware more about the
payments. And people really give second thought when doing big deal with cash

------
superkuh
It failed at the cover story but succeeded in moving a large amount of people
way from cash and so increasing government control and surveillance of
transactions.

~~~
Lazare
It didn't even succeed at that. The same data shows that households are
keeping _more_ of their savings as cash, rather than less.

Much of the impact of demonetization was experienced as an acute cash
shortage, with restrictions on accessing money in bank accounts and difficulty
withdrawing cash from ATMs, whereas actual cash could be exchanged relatively
easily on the black market. The lesson learned was, quite correctly, not "keep
your money in banks where it'll be safe from future demonetization attempts",
but "keep your money _out_ of banks where it'll be safe from future
demonetization attempts".

It was a failure on every level.

~~~
jstanley
I don't know. If people learned that banks are not a safe place to keep money,
I'd say it was a win on at least some levels.

~~~
vinceguidry
You don't want people distrusting banks. Banks provide essential financial
services and access to credit that's extremely expensive and risky to obtain
elsewhere.

A big part of what drives the shady payday loan industry in America is the
poor's lack of access to the regular banking system.

~~~
jstanley
Coincidentally I just woke up today to find that my own bank account has been
locked. The customer service number just hangs up within the first minute.

Tell me again why I should trust banks?

~~~
vinceguidry
I didn't say that you should trust banks. I'm saying it's not good for society
if people don't. You're painting the lack of trust as a win. It's not. It's a
net loss for society.

~~~
jstanley
I don't see how that is internally-consistent.

If (?) you agree that it's a bad idea to trust banks, why do you think it's a
good idea for everyone to trust banks?

If banks are not trustworthy, everyone who distrusts banks is making the right
call. More people making the right call is a net win for society. After all,
all society _is_ is a bunch of people.

~~~
vinceguidry
I don't know how this isn't being communicated. It's not a bad idea for _you_
if you don't trust your bank. It's bad for society if you don't trust your
bank. I don't think you have an obligation to fix banks or trust banks that
shouldn't be trusted. Banks should act in a way that engenders trust from
their customers.

Banks are not ordinary businesses, this is why they're regulated so heavily.
Society needs more bank regulation so that people can trust them more. That is
what I am arguing that is good for society.

~~~
jstanley
Got it, thanks.

------
rm2889
Link to Hacker News post when Demonetization was announced -
[https://news.ycombinator.com/item?id=12900965](https://news.ycombinator.com/item?id=12900965)

~~~
schizoidboy
I find it interesting that the top three highest voted comments, and their top
sibling comments don't mention any potential concerns about unintended
consequences or the effects on the average and poorest people (the NYT article
cites evidence such negative effects happened, including suicide).

The first sibling comment of the third highest voted comment throws out a
worry, and it was downvoted.

I don't know what this means exactly, but I think it's worth the average HNer
to ponder.

~~~
jopsen
I think it's human nature to desire action NOW.

In practice, however, immediate action in complex systems is likely to have
negative side-effects.

We this desire for action in Trump and Brexit too.. Or when a young naive
junior developer sets out to rewrite a system from scratch :)

------
known
Only an insensitive/ignorant clown will go for demonetization where 97% are
poor by global standards [http://idronline.org/addressing-inequality-in-
india/](http://idronline.org/addressing-inequality-in-india/) and 1% own 73%
wealth [https://economictimes.indiatimes.com/news/politics-and-
natio...](https://economictimes.indiatimes.com/news/politics-and-
nation/indias-richest-1-corner-73-of-wealth-generation-
survey/articleshow/62598759.cms)

------
deafcalculus
Politicians hate to accept mistakes / policy errors. It's no surprise that
Modi doesn't want to say out loud that the note ban did not go as he had
hoped; some positives, but not worth all the trouble, and he'd probably have
abandoned the exercise had he known the outcome, but he isn't going to say
that. Perhaps a lot of people expected him to be a better statesman and feel
let down. Anyway, time to move on and clean up the balance sheets of banks
before the next recession that many are predicting hits.

~~~
intended
Modi is India's greatest politician in recent years.

If anyone thinks that he didn't get _exactly_ what he wanted, they are
absolutely incorrect.

For the record, my meager guesses of Modi's moves once he became PM were
correct, so I have faith in my assessment of him.

Modi didn't give a rats ass about the _stated_ reasons for this exercise.

Thats why the target moved so many times. Cashless/Terror/ counterfeit etc.
etc.

Contrast that with ACTUAL projects he works on - those get targets, goals, and
media communication which is spot on.

Modi would _never_ abandon the exercise, because in one move he crippled
opponent political infrastructure.

Every day, Modi fights a scorched earth political battle to destroy the
Congress.

~~~
mayankkaizen
Dissing congress is all he has done with full efficiency and in the most
ugliest manner.

I mean, there was people like Vajpayee, Adavani and many others who have
actually known Nehru/Indira/Rajiv more than Modi and even they didn't fall so
far down to criticize Congress. They criticized but with dignity.

Dignity is foreign word for Modi. And that is why, since his rise, stories
like Nehru was sexually pervert and had STD, Mahatama Gandhi was homosexual,
ancestors of Nehrus were Muslims and so on are on the rise.

------
1024core
> It is also the way he did what he did that ruffled many feathers. He did not
> consult Parliament. He did not solicit advice from many learned advisers. He
> did not give the public any warning.

Anyone who makes such statements is a complete moron. Sorry about the
inflammatory language, but that's the truth.

Can you imagine what would have happened if the Parliament was "consulted" ?
All of the money hoarders would have immediately converted their cash,
negating the move.

When you want to set a trap to catch something, the last thing you want to do
is announce your intentions loudly and put big blinking signs there.

~~~
axiom92
>All of the money hoarders would have immediately converted their cash,
negating the move.

Unless you disagree with the figures RBI has reported, this ( _precisely this_
) has happened anyways; the move has been negated. I am baffled at the number
of people on HN who still believe that this chicanery really made the rich
throw their hoarded cash somewhere.

I mean, come on folks! That's _the whole point_ of the article we are talking
about here! 99.7% of the demonetized currency is back. The rest of it could be
in Bhutan or Nepal, with the NRIs or could be hiding under the pillows of
those who were too poor to get it changed; we don't know.

------
jellicle
Seems like the data shows the cash crackdown was a great success, but there
are some powerful people with a financial interest in presenting it as a
failure so that other countries don't get any bright ideas.

------
sytelus
Any idea how black money hoarders were able to exchange their bills? I have
heard stories like recruiting poor people to exchange cash with max allowed
but still given the amount of such money in India this doesn’t sound scalable.
I also think govt actually had pretty good set of rules to avoid this. Were
there any other loophole they found out?

~~~
Karupan
I wasn't in India when it happened, but from what I've heard, bank employees
were bribed directly (my dad is a retired bank employee). They took a 30%
share for converting illegal money to new currency and kept it off the
records. That's also one of the reasons why the supply of new bills didn't
actually reach the common man.

As always, humans are the weakest link and can be exploited quite easily.

------
RcouF1uZ4gsC
Has there been any studies of Modi’s allies’ cash flows. It would be
interesting to see if there was an uptick in connected people converting
rupees to real estate, foreign currency, right before the cash crackdown was
announced.

~~~
Lazare
It wouldn't be surprising, but since nobody rich seemed to have the slightest
trouble converting cash after the crackdown either, it hardly matters.

Central bank data shows 99.3% of the demonetized notes were exchanged; there
was effectively zero "dirty" money destroyed via demonetization.

~~~
shabda
There was dirty money created by demonetizion. We have not yet accounted for

1\. Cash in Bhutan and Nepal where indian currency was widely used. 2\. NRIs
who legally held INRs but the cost of exchange was too high 3\. Residents who
have loose cash lying around - under mattresses, long forgotten jeans and
missed the deadline for exchange.

------
TheArcane
There is a surprising amount of government supporters on HN.

~~~
sseth
Presumably that explains why they were elected, and are now the government :-)

Why is that surprising?

~~~
TheArcane
Because the ruling party is riding the anti-intellectual wave. It's about as
surprising as waking up to find HN flooded by Trump supporters or Brexit
Leavers, for example.

------
patrickg_zill
It was certainly a heated discussion at HN, when it happened...

------
ahamedirshad123
RBI: Loan defaults by small businesses double in a year.

Here's another example of stress in the economy.This is what Demonetization
did to small businesses

[https://t.co/PTRqqTgYR8](https://t.co/PTRqqTgYR8)

------
Scoundreller
Will the EU do the same analysis for its withdrawal of the 500 EUR notes?

Sincerely, someone on another continent that has one of these and needs to beg
a friend to go to a central bank while on holiday to “break” this legal
banknote.

------
gawkface
Yaay I told everyone that night how it's a nonsense move for the reason cited,
lol those who mocked me then now don't have a face but I rub it into them
everytime this comes up ^^

------
calvinbhai
I have listened to both the planet money episodes (I love Planet Money
podcasts). I'm from India, living in US for more than 10 yrs. So I kind of
have enough perspective of how Demonetization is seen within India and from
outside India, including based on knowing personally who benefited or got
screwed by demonetization, and who were left unscathed.

Must say, with what I have known about the medium and long term after affects
of demonetization, I found NPR / Planet Money's research / info in the podcast
terribly biased. This bias is sort of ironic since it is from a radio station
that is very pro-democrat from a country that keeps harping about "Trump won
because Russia" even though the process was as democratic as it could be.

Like NPR, NYT is also extremely biased against the current Indian
administration, while simultaneously being subtly (sometimes overtly) anti-
Hindu / anti India.

I sincerely listened to the Planet money episodes hoping to find some genuine
shortcomings of the demonetization process, but was totally disappointed at
the kind of propaganda based content they came up with! Sadly, NYT does the
same with this piece of writeup.

There are many, many +ve effects (short, medium term) that I can talk about.
But the main -ve point of this whole process is that one round of
demonetization is not enough. A few more rounds of demo, and crooks will have
enough fear in even accepting cash for bribes and probably will need to resort
to barter system.

I personally know many who stashed illegal unaccounted money in gunny bags,
and have suffered a blow to their wealth (as I wished) and I know a few who
have had their black money stash replenished partially after a year of demo.

In either case, it was very heartening to see those who slept on mattresses
made of cash suffer and struggle.

~~~
kc10
I don't think the news articles are biased, in fact it properly reflects the
current state in India.

I was a strong supporter of Modi during the elections and through the
demonetization process. But as I see the rich who had tonnes of cash were able
to exchange most of the cash without lot of issues. I am sure there were long
lines, it was inconvenient, it was stressful - but most of the cash got
exchanged. I heard about a lot of people who used the 2 lakh tax-free income
limit to deposit the cash and get it back (basically if I have 1 crore in
black money, all I have to do is find 50 poor people and deposit 2 lakhs each
into their accounts. Once deposited the rich person can get the money back in
new bills and they pay the poor guy some cash for his trouble - trust me it's
not hard to find poor people who are willing to take this trouble). The
government can't question the poor guy because he's within his 2 lakh limit
and need to have to show any proof where it came from. The rich is happy and
the poor guy is also happy.

Now, people lost trust in the banking system, there are limits on withdrawals,
ATMs out of cash, no one wants to deposit the money back - everyone wants to
hold on to their cash. If people don't deposit cash, banks can't lend (btw,
banks are writing off crores of money as NPAs already, that's another problem)
and ultimately the economy will stagnate.

Personally I think this experiment was done with good intention to curb all
black money and move over everyone into banking system - but not thoroughly
thought out and it's a failure.

~~~
calvinbhai
Not denying your or anyone’s right to opine about whether NYT , NPR are biased
or propaganda based not. You are certainly entitled to your opinion about
their biases (so am I). I was just giving more perspective about how I view
the issue and the reporting related to the issue in the international media,
specifically liberal / pro democrats media in the US.

“Most people lost trust in banking after demonetization” seems to be widely
reported, but hardly supported by reliable data. Though I believed such
reports during the initial days of demo, anecdotal evidence (based on friends,
relatives, ex colleagues and contractors I have worked with) seems to be that
the trust seems to be strong enough for those who never evaded taxes or those
who wanted to pay taxes honestly, but never bothered to deposit cash in
account.

If anyone says demo was a success in solving the black money problem I’d say
that’s not true. But demo, combined with GST, RERA and a bunch of other
initiatives have really pushed India towards a less tax evading future, which
can only mean lesser taxes in the near future since the tax net cast is much
wider.

