
India demonetisation fails to purge black money - happy-go-lucky
https://www.ft.com/content/7dbe0e14-8d8a-11e7-a352-e46f43c5825d
======
vthallam
>Arun Jaitley, finance minister, on Thursday defended the demonetisation at a
conference in New Delhi. He admitted that black money had come back into the
banking system, but said that tax officials were combing through people’s
accounts to identify and tax it. >He said: “The fact that money has got into
the banking system does not mean that it is all now legitimate . . . The money
got identified with the owner whom henceforth had been fixed with the
liability of explaining that money and facing taxation on it.

This is the important part, money coming back to the system doesn't mean
people can get away with it. An elaborate exercise is going on and I read
multiple stories where the tax dept is sending notices to people with dubious
deposits.

Also, This is always going to be a polarised debate. Digital payments
certainly went up, people started using bank accounts. Yes, it's not
significant, but change is really slow

~~~
nkskalyan
Question is, was it worth it? Weren't there easier ways to increase Digital
payments? Better ways to make people put money into banks?

Was it worth killing people?
[http://www.huffingtonpost.in/2016/11/17/day-9-demonetisation...](http://www.huffingtonpost.in/2016/11/17/day-9-demonetisation-
death-toll-rises-to-55_a_21608769/)

~~~
dman
Was it worth extending the status quo where around 1 percent of the population
pays any tax at all because of the rampant black market economy? (12.5 million
people paid any tax at all on a population of 1.23 billion, source -
[https://www.cnbc.com/2016/05/03/guess-how-many-people-pay-
ta...](https://www.cnbc.com/2016/05/03/guess-how-many-people-pay-taxes-in-
india.html)).

------
gauravhp
All Positive comments here are made by those who don't live in india and are
influenced by massive propaganda machinery that ruling parting of india is
running.

As someone who actually lives in india, I am vouch that Demonetisation was a
disaster of all sorts. Ruling party kept justifying this failure by shifting
the goal posts again and again.

Here is a piece which describes in detail, this monumental failure of indian
government failure

[http://www.dailyo.in/business/note-ban-demonetisation-rbi-
na...](http://www.dailyo.in/business/note-ban-demonetisation-rbi-narendra-
modi-arun-jaitley-black-money/story/1/19265.html)

See how shamelessly the ruling party shifted the goal posts trying to justify
their pathetic failure

[http://indianexpress.com/article/india/demonetisation-rbi-
an...](http://indianexpress.com/article/india/demonetisation-rbi-annual-
report-arun-jaitley-pm-narendra-modi-as-money-flowed-back-in-how-goalposts-
were-shifted-4821566/)

~~~
splintercell
In November I predicted this to my Indian friends (who were quite excited by
the new changes) that a rational Indian person shouldn't throw away their old
black money, because this money would make a come back in a few years, when
the new money starts to lose value due to inflation (Indian Rupee is inflated
by the govt at a crazy rate, because that's how the govt funds itself in lieu
of taxes).

This would eventually reach to a point when new currency would die out in the
hands of the old currency. Why? Because what Indian govt has done is not
'demonetization' rather they have announced that they would stop printing more
old currency and start printing a new currency. But it's like USG issuing
Bitcoin like currency (without the electronicy parts, but with the fixed
supply, and anonymity of cash).

In other words, the old Indian currency is the perfect black market currency
created, and it will just keep gaining value over time as new currency keeps
losing value.

My prediction was for at least 4-5 years, but pleasantly surprised to have it
come true in only a few years.

~~~
alok-g
>> Indian Rupee is inflated by the govt at a crazy rate, because that's how
the govt funds itself in lieu of taxes

Very interesting. I was looking for an answer to how the Indian government
even funds itself with only 1% of the population paying taxes (which also
suffers from tax evasion). Could you please explain more how inflation is used
in lieu of taxes?

Thanks.

~~~
splintercell
You print[1] more money and spend it.

1\. Create more money should be the accurate term here. They can create more
money by printing or, using debt.

~~~
alok-g
That makes sense. Thanks!

Is there somewhere I can read more about this? :-)

------
ramshanker
No scheme can eliminate the evils 100%. However, overall it had pretty strong
positive impact on economy. Many of the roadside merchants who used to be
exclusively cash only, have started accepting dizital payments. All those on-
record transactions are now part of formal banking system, instead of earlier
don't-bother-about-tax approach.

Combine this with the recent roll out of GST, we are on a very progressive
path and with good momentum.

~~~
rm2889
I'm not sure. Historically, Indian governments have been most undeserving of
our taxes simply because they've misspent it and/or misdirected it to achieve
their own means (corruption, buying votes etc). Saying "yes but this
government is different" also doesn't hold water when you look at the massive
farm loan waivers that were just granted, and more waivers are on their way.
How do you think the waivers were funded? Through our hard-earned tax money.
Who do you think the debtors will now vote for in the next election cycle? The
current ruling political party ofcourse.

Finally, there are a lot of disadvantages for being on a completely
centralized digital payment platform from an individual liberty point of view.
Imagine that a significant portion of your net worth is just a number stored
in a "secure database" which falls under the jurisdiction of some government.
Now image that you vocally disagree with the government's policies enough for
the government to start taking notice. It becomes very very easy for the
government to shut you up - all they have to do is strongarm the bank to
freeze that number. Its not as hypothetical as it sounds as the Indian
government has done this before.

A large portion of black money was deemed to be held up by the bureaucracy -
bribes paid by private individuals and corporations to government employees
and politicians. Had demonetization been done along with a hiring freeze (and
subsequent trimming down) of the bureaucracy, I'd have been more certain that
the motives behind demonetization were to root out corruption. However, the
bureaucracy is now larger and more powerful than ever under this government.
Thus, the incentives to seek bribes still exits because of this power
imbalance between the powerful bureaucrats and relatively week individuals.

~~~
Retric
Governments have so much leverage they don't need to be efficient to be a huge
net benefit.

Consider the cost to build and maintain a road network vs. the benefits it
brings.

PS: Further, it's not a question of collecting more money from everyone it's a
question of collecting the same money from everyone which is a benefit even if
you end up burning the extra money.

~~~
splintercell
> Governments have so much leverage they don't need to be efficient to be a
> huge net benefit.

But aren't you just saying that when you have $1 Billion then paying $500k
more to a contractor doesn't seem that bad based on the net benefit it would
bring to have a dream home.

But imagine if this was a charity (something which govt is, if we look at it a
certain way), that inefficiency means more people could have benefited out of
it.

~~~
Retric
Efficiency gain's are clearly beneficial. My point is governments can be
effective in providing roads and common defense etc without being efficient.

India is a case in point, they have enough infrastructure to allow for rapid
growth even with a highly corrupt government. While they could do a better
job, the increasing standard of living allows for ever improving government
services even without increasing efficiency. Further, as standers keep rising
the pressure and ability to reduce corruption increases both because
governments can directly pay more and because better options show up outside
of government.

PS: In the US and I suspect most other countries you can reduce your tax
burden by donating just fine. So, taxes are effectively a non issue in terms
of charitable donations. Thus tax evasion is simply money people are keeping
for personal use.

------
Retric
As far as I can tell this is simply what success looks like.

Depositing the money is just phase 1 and worked as expected. Phase 2 is
tracking back large or unusual deposits to find criminals. Phase 3 is to
discourage other from trying to doge taxes in the first place.

Even if they only catch say 5% of people and don't directly gain money from
this exercise, the indirect effect of scaring that many people is huge.

------
billturner
There were a couple of interesting Planet Money podcast episodes on this from
earlier this year:

* part 1: [http://www.npr.org/sections/money/2017/05/10/527803742/episo...](http://www.npr.org/sections/money/2017/05/10/527803742/episode-770-when-indias-cash-disappeared-part-one) * part 2: [http://www.npr.org/sections/money/2017/05/12/528181998/episo...](http://www.npr.org/sections/money/2017/05/12/528181998/episode-771-when-indias-cash-disappeared-part-two)

------
tryingagainbro
EU is about to make their 500 EUR illegal
[http://www.bbc.co.uk/news/business-36208146](http://www.bbc.co.uk/news/business-36208146)
in a sense. If you're a drug dealer or a politician (no need to add the
corrupt label in certain countries) I can help you with a few of them ;)

Yeah, making your cash illegal--it is unless you're willing to explain in year
2032 how you ended up with a 50 gallon drum full of 500 euro notes--will help.
But in many countries where the government is corrupt and cannot provide the
basic needs, IMO, they need to let the people try to make a living. Social
contract: we cannot give you much, but we will not impede you as you try to
feed your kids.

~~~
qcoh
From the article you linked: "The ECB says the €500 banknote remains legal
tender and will always retain its value."

~~~
tryingagainbro
Yeah BUT you can bet your last dollar or euro that they will ask questions if
you show up at a local bank with a few 500 euro notes, 20 years from now. Lots
of questions and reports to the police will follow.

And they will not be accepted as "legal tender" to settle drug /illegal deals,
so they are out, in a way.

~~~
jandrese
Wouldn't you be asked some pointed questions if you walked into a bank with a
stack of 500s? I know in the US there are people who run cash based businesses
(construction/landscaping for example) that end up having to make special
arrangements with their bank to avoid getting the third degree every time they
bring in a deposit.

------
sifar
It doesn't cease to amaze me how the finance minister can say these things
with a straight face. Ofcourse this was the original plan all along, but since
one cannot say that upfront to the people, one has to resort to all kinds of
propoganda and hence the shifting of the goalposts from corruption/black
money, fake currency to ultimately a cash-less society.

The major sources of black money in cash(which is a very small % of the total
black money) are from 1) capitalist - industry owners, builders 2)
politicians/bureaucracy 3) SME - small & medium enterprises, doctors 4)
Informal sector - smaller shops, daily labour

By definition, 1) & 2) are not affected by this. Those that get mentioned in
the news are mostly anecdata/propoganda. It is the 3) & 4) that are mostly hit
by this which, alongwith the government, is one of the biggest employment
generator. The wealthy among them get away by variety of means. 4) are the
worst affected even though most of them don't earn enough to be taxed.

All the talk of fighting corruption is doublespeak when, in the finance bill,
they allowed for unlimited _anonymous_ corporate donation to political parties

The cost of printing & distribution of new notes was 80 Billion Rupees [0], up
from 34 Billion Rupees the previous year. The amount of fake currency detected
from _all_ the notes which were returned was .... wait a minute ... 400
Million Rupees [0]. Though this was a statistical detection mechanism and even
if you double the estimates, it is barely 1% of _just_ the cost of printing
new notes. To speak nothing of the economic destruction it caused.

[0]
[https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx...](https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?year=2017)

------
noddy1
[https://webcache.googleusercontent.com/search?q=cache:1xf7GB...](https://webcache.googleusercontent.com/search?q=cache:1xf7GBcSCjMJ:https://www.ft.com/content/7dbe0e14-8d8a-11e7-a352-e46f43c5825d+)

utterly terrible idea. I was in india in Dec/Jan and the amount of chaos
resulting from demonetisation was immense. The outcome was obvious - noone was
ever going to let a high value bank note become obsolete. Worst case is you
sell it for close to face value and some poor person stands in line for 6
hours to be able to deposit it.

It really speaks to the masochistic nature of the indian people that despite
the whole exercise being pointless and stupid, they still supported Modi here
because his heart was in the right place. Sorry but when people were literally
dying as a result of the chaos, having good intentions does not cut it.

------
brudgers
I would not be surprised if one of the unstated goals was the removal of
counterfeit high denomination notes from circulation. High denomination notes
are the most attractive to counterfeit and such counterfeiting is often done
by state level actors with budgets sufficient to produce high quality notes.
The actual number of notes taken out of circulation is 1% of legitimate notes
plus the number of counterfeit notes in circulation because the number of
notes in circulation prior to the transition included counterfeit notes.

~~~
codeN
It was actually one of the stated secondary goals, with an appeal involving
such currency being used by terrorists. However

1\. While a higher than usual fake currency was detected the total fake
currency detected was roughly 1 in 100,000. So there wasn't a fake note
problem in general circulation. 2\. The new notes launched do NOT have any
additional security features, and hence while there will be a latency in
getting the fakes right, it will continue to be a problem(albeit a small one).

------
thisisit
For people who can't access the link:
[https://archive.fo/ynouY](https://archive.fo/ynouY)

I am confused with the article though. What would have been a successful
result? That the all canceled currencies wouldn't have been exchanged or
deposited?

I am reading this link: [http://www.financialexpress.com/economy/all-
rs-500-rs-1000-b...](http://www.financialexpress.com/economy/all-
rs-500-rs-1000-banned-notes-back-rbi-annual-report/833916/)

The wording is confusing at best: " nearly 99% of the high-denomination
currency notes of Rs 1,000 and Rs 500 that had been withdrawn on November 9,
2016"

My comprehension says all currencies withdrawn on the date - Nov 9, 2016, when
demonetization was started has been returned.

~~~
pavanred
I guess question is less of was it successful but rather was it necessary and
did the move do any good at all?

One thing I can't understand is, when I look up all the
countries/regimes/dictators in history that have tried demonetization, and
almost always it was done for the same reason - curbing corruption, black
money, counterfeiting etc., and generally it resulted in people losing
confidence in the institutions/governments, no real dent in corruption,
counterfeiting even decades later. Unless I missed something, it just puzzles
me why we would try it now and expect a different result.

~~~
thisisit
What all countries/regimes/dictators have tried this? And what has been their
results? I surely would like some source to back up what you said.

------
Bhilai
General sentiment is that the BJP government did this to purge the black money
held by opposition parties to win the UP (Uttar Pradesh) state elections.
Demonitization exercise did not come as a surprise to most BJP insiders, who
had already made arrangements to stash their black money away.

------
kapilkaisare
An article[0] on Medium, albeit a thought experiment, offers an interesting
take on the demonetization program the Indian government adopted. Here's a
snippet:

"You [NDA/GoI] do two things — One, you neutralize the Congress with the only
way you can neutralize their resources — Black money and Demonetization. Even
if you don’t reduce their resources, you at least succeed in reducing their
liquidity. You take a hit too but if you look at the damage you cause your
biggest rival, this is a a shin graze."

0: [https://medium.com/indian-thoughts/something-interesting-
is-...](https://medium.com/indian-thoughts/something-interesting-is-happening-
in-indian-politics-and-its-not-right-wing-nationalism-1a775dbf6ffe)

------
CryptoPunk
The black and grey market are vital checks against government corruption and
repression. The people arguing that eliminating cash is good because it
prevents people from hiding their financial activity are basically taking the
stance that we'd be better off without privacy and trusting all of our
information to government officials. It's a dangerous delusion.

------
ge96
That was pretty F'd haha "Hey guys! Guess what? Your money is worthless!"

------
int-main
Somebody explain it to me how common is it among people to keep black money in
cash form? Wouldn't they rather have it transferred to an off-shore account or
invest is something, say gold?

------
ijafri
i don't think any real dude having enough money would keep it in a local
currency when he can just buy euro bonds or foreign currency $ or Euro etc ...
it i guess only had effected small fishes to some extent, but at the end of
the day, the question remain did it help at all curb corruption. Corruption
like water will pave its way in terms of monetarily. they will find a way out
... it's not big deal ... such efforts despite looking promising, will be
futile.

So my conclusion 'corruption' is not a monetary issue, it's a system issue,
fix the system.... and in order to have a 'healthy' system just like we see in
the 1st World, everyone makes at least what they deserve or can live good
enough ... if not luxurious.

after you give them reasonable good salary keep a check, and hire 'educated'
people.

This worked here in Pakistan, our traffic police 'was' most corrupt, Govt
raised their salaries 3x .... no more bribe ... they inducted Graduate
Students and trained!!! at least our Traffic police dudes are now at Lahore
City of Pakistan ... corruption free!!

------
lightedman
>Subscribe to read

Can we get an actual readable article?

~~~
belltaco
Click on the 'web' link under the HN title.

------
amrrs
It's one of the most expected outcomes. But still for the government to go
ahead and do this was primarily two reasons:

1\. PR:

The current Indian Govt was suffering from Beefgate and PM Modi was criticised
for not making any comments on it but touring the world. While Modi was seemed
to be an economic reformer, nothing of that sort happened until that. Hence
this Demonetisation came up to showcase "PM Modi has done that no one would
dare to do" headlines. It's also notable that the Prime Minister himself
appeared on Media and announced this, while a right approach would be the man
who signs on the currency: RBI Governor to do. A PR win it was!

2\. Digitisation:

One of the big concerns with Digital Currency (a non-decentralised one) is
that it's really really hard to be private anymore. We'd just end up as
another data point in someone's table and that's exactly what happened. This
was very well explained in the recent SAS Forum happened in Mumbai, India.
Data Scientists of Income Tax dept wanted data for analysis but didn't have
one and got what they wanted with Demonetisation.

So, that's obvious! A win-win for govt!

~~~
amrrs
Down voted for a relevant content!

