
In Its Third Month, India’s Cash Shortage Begins to Bite - JumpCrisscross
https://www.nytimes.com/2017/01/24/world/asia/in-its-third-month-indias-cash-shortage-begins-to-bite.html?em_pos=small&emc=edit_dk_20170125&nl=dealbook&nl_art=15&nlid=65508833&ref=headline&te=1
======
suprgeek
The BJP govt. has cannily crafted a message where anyone who opposes this move
is branded a traitor and conversely anyone who supports it must be a patriot -
this is largely responsible for the "positive" feelings many people have
around this move. That and the fact that the internet savvy already used
Credit cards so they were largely shielded from this. The Demonetization on
the whole was a failure:

1) The strongest reason for pushing it was as an attack on "Black Money"
(undeclared wealth outside the taxation net). More than 90 -95% of the
demonetized currency is back in the coffers. This magical "back money" is
nowhere to be found.

2) The growth rate fell by at least 1% - whatever the other impact this by
itself means a massive loss.

3) A large number of "cash only" small-scale businesses have been badly hit -
these people are not internet savvy and do not have a voice but they do exist

4) The so called "leap" to a digital economy is mostly a temporary phenomena -
just wait till the new currency is available in sufficient quantities

So on balance - all the pain and suffering of the people will NOT bear the
reward most of them think it would.

Edit: Source for #1 [http://timesofindia.indiatimes.com/india/90-of-scrapped-
note...](http://timesofindia.indiatimes.com/india/90-of-scrapped-notes-back-
in-system-big-dividend-unlikely/articleshow/56210235.cms) Note that the actual
number will be higher as newer estimates are released.

~~~
brutus1213
I don't understand what happened wrt #1. Was the black money like the mythical
WMDs and unicorns? Or did it just make its way into the new money supply?

~~~
euphoria83
It got converted into white money by getting deposited into banks through
other (mostly poor) people's accounts. Hence, a sum of 5 million rupees was
distributed among 20 people (mostly domestic helps, gardeners, chauffeurs,
etc). Each account's deposit is small enough to not raise suspicion. These
amounts will slowly be withdrawn.

In addition, bank managers also acted in complicity with rich black money
holders by documenting that their currency bills were actually exchanged by
multiple ordinary folk, whose IDs' copies (necessary proof for exchanging)
exist in large numbers at any bank.

~~~
brutus1213
Any media reports on this? Really sad that a great human toll was paid for
naught.

~~~
denzil_correa
80% of the demonetized currency was back into the banks, 20 days before the
final date [0]. Bloomberg reports that the final number could be as high as
97% [1].

Now, the question you should ask is - How much of black money was in cash? The
answer is approx. 6% according to Min. of Finance White paper on Black Money.
So, effectively - 86% of the currency was demonetized to target 6% of
unaccounted income. No matter how you slice/dice this policy, the costs
significantly outweigh the benefits.

[0] [http://timesofindia.indiatimes.com/business/india-
business/8...](http://timesofindia.indiatimes.com/business/india-
business/80-of-old-notes-worth-12-4-lakh-crore-back-in-
banks/articleshow/55970699.cms)

[1] [https://www.bloomberg.com/news/articles/2017-01-04/india-
sai...](https://www.bloomberg.com/news/articles/2017-01-04/india-said-to-
get-97-banned-notes-in-setback-to-graft-crackdown)

------
aub3bhat
This is an unbelievably biased story. Reading the title you might assume as if
there were widespread protests e.g. the term "begins to bite". In fact on the
contrary banks have noticed a decline in use of digital payments due to
remonetized currency notes. It appears that NYTimes really wanted a story
about large scale panic/riots but not having found any it is now left with
bunch of anecdotes while keeping a ridiculously click bait headline.

[https://www.google.com/amp/www.livemint.com/Politics/uJnq2fp...](https://www.google.com/amp/www.livemint.com/Politics/uJnq2fpl9UpMVNCbcfVxcK/Digital-
transactions-decline-in-January-as-cash-crunch-
eases.html%3Ffacet%3Damp%26utm_source%3Dgoogleamp%26utm_medium%3Dreferral%26utm_campaign%3Dgoogleamp?client=ms-
android-att-us)

Edit: Also the image used clearly shows Indian Congress party supporters
(identified by numerous flags with the hand symbol) yet they are termed as
generic "activists" rather than supporters of a specific political party.

~~~
dvcc
I think you read a bit too much into that title, it's just saying that the
cash shortage is having an impact. It quite often mentions that it's nothing
crazy within it, but uses the anecdotes to humanize a story; otherwise, it
pretty clearly mentions that 'the pain is hidden for the most part' and
underlines that the projected growth only dropped around ~1%.

~~~
intopieces
Reducing growth by 1% is huge. The projected growth rate was 7.6% but was
revised to 6.6%. That 1% is a percentage of the economy, not a percentage of
overall growth.

~~~
dvcc
My mistake, I didn't mean to marginalize the 1% decrease, but I don't think
even its biggest proponents expected demonetization to help short-term.

------
seshagiric
As an Indian, I feel this article is overtly negative and fails to capture the
real public opinion. For example, everyone in my friends + relatives circle
(mix of salaried and small business owners) have been impacted, we have borne
the grunt of standing in lines for 2-3 hours just to get cash, but each and
everyone welcomes the change. We in fact want the govt. now to focus on the
other big source of black money - real estate.

The NY times also deliberately ignores the positive outcomes e.g. housing
loans are now coming to a six year low, online transactions are increasing
(which increases tax inflow to the govt. by bringing previously unreported
transactions to tax bracket).

~~~
3pt14159
Why didn't the government print the replacement notes in advance and just say
they were modernizing the cash with new anti-counterfeiting technology?

~~~
rajeshp1986
Because black money boarders would get to know and figure out ways to exchange
their money. The government officials are big time corrupt and once they get
to know they would have figured out ways to sabotage the demonetization plans.
The Government & Prime Minister Modi did an excellent job in keeping this as a
secret till last minute. Otherwise, this scheme would have been a failure.
Unlike the opinion expressed in the article, most Indians are happy about the
demonetization step took by the gov.

Most daily wage labours and farmers did not face any issues as pointed in this
article. They were able to buy food items and necessary stuff and pay the
vendor later. India runs on this kind of mutual credit system.

~~~
denzil_correa
> Otherwise, this scheme would have been a failure.

How is this scheme a success? The amount of unaccounted income in cash is 6%,
the amount of currency demonetized was 86%. The benefits are minuscule
compared to the costs.

~~~
Broken_Hippo
I would think the main benefit from this point would be in the future.

If folks have a lot of money stashed away in their house, tax free - and they
dont' turn it in, that money is lost. Moving forward, it will be more
difficult to do the same sort of thing (in theory) because of the sheer
inconvenience of storing up all of those small bills. And if the people do, in
fact, wind up being more upfront about their monies, it'll mean more tax
revenue for the government - you know, for all the stuff governments want to
do. Roads and security and improvements and such.

Basically, this is a push for a better future, with some inconveniences and
unfortunate stories in the present. There is some _hope_. _Hope_ is pretty
important.

I'm not sure the benefits are so minuscule compared to the costs.

~~~
ararar
The people with black money will never again use the rupee as a storage
medium. They will convert it into gold or US dollars or euros or <insert
fungible thing>. It might lead to a "dollarization" of the black economy. It
seems to me, in my opinion, that all this is Modi and the BJP posturing before
their base. They are "doing something".

------
the_watcher
Black money is clearly a problem in India, and figuring out how to address it
is almost certainly critical to the well-being of the nation. That said,
simply cancelling 86% of the currency seems like an absolutely terrible
solution, and possibly one of the most regressive monetary policies I've ever
seen. Does anyone have more insight into what the government thought would
happen? Did they expect the cash crunch? Did they simply not care that it
would be those who are most likely to depend on regular work for basic
necessities (the poor) would be hit hardest? Or was there some kind of plan
here that wasn't rolled out well?

~~~
jcranmer
The Economist reported that ~15T of the 15.4T affected bills were redeemed.
That would suggest that only ~$5-6 billion of black money was trapped. So as a
way to kill black money, it seems woefully ineffective.

Source: [http://www.economist.com/news/finance-and-
economics/21713842...](http://www.economist.com/news/finance-and-
economics/21713842-benefits-withdrawing-86-rupees-circulation-remain-elusive)

~~~
intrasight
But it was effective if people and businesses switched to using banks. That
could happen even if no black money was trapped. Get rid of petty and
unintended corruption, and they you can focus on the truly corrupt whom this
change hasn't affected.

~~~
AstralStorm
Yes, all the farmers got free bank accounts, as well as everyone who buys from
them. /s

------
walterbell
India wants to move to biometric payments,
[http://money.cnn.com/2017/01/19/technology/india-cash-
biomet...](http://money.cnn.com/2017/01/19/technology/india-cash-biometric-
payments-davos/)

 _" Amitabh Kant said that even electronic payment methods may be "totally
redundant" by 2020. Instead, all Indians will need for transactions is their
thumb or eye.

"Each one of us in India will be a walking ATM," Kant said at the World
Economic Forum in Davos. That would represent "the biggest technological
leapfrogging ever in the history of mankind," he added.

... nearly 1.1 billion of India's 1.3 billion people have already registered
their biometric data under the government's unique identification program.

The Indian government is testing a payments app that makes use of that
biometric data, coupled with portable fingerprint scanners that cost about
2,000 rupees ($30) each."_

~~~
shivpat
Oh boy. This definitely won't have massive fraud issues at all. Nope.

~~~
walterbell
Extracting fingerprints from selfies: [http://www.dailydot.com/layer8/peace-
sign-selfies-privacy-ri...](http://www.dailydot.com/layer8/peace-sign-selfies-
privacy-risks)

~~~
crpatino
Why would you care to extract fingerprints form a selfie when you can extract
the finger from the self???

------
nealrs
I did a little video about this last week:
[http://wakey.io/47](http://wakey.io/47) and tl:dr; All this does it punish
the poor for using cash.

It's not so much that demonetization is bad - it's that it's hard to do with
no notice. in a country this big. all at once. with so little time to phase
out old bills. All the proposed benefits: more ecommerce, reduced black market
transactions, better tax accountability could have been accomplished without
going to such extremes. I mean, India isn't even using polymer bills yet -- so
there will be at least one more big demonetization in the next 10 years.

------
adictator
This article seems to be totally biased and not entirely aligned to ground
reality. It's what the general people call as a "hit job" by the (mainstream)
media. Most of the points raised in the article are in line with what the
opposition political party - Congress has said, a party universally known for
corruption & for playing dirty appeasement politics, a party that has kept
India backward & in abject poverty even though it was in power for the last
~70 odd years.

Yes, there were hardships. But Indians can see the benefits in not only black
money reduction, but also in decrease in tax evasion, digitalization of the
economy & also reduction of terrorism & anti-social elements like mao-ism,
naxalism etc.

In any case, I think we should try & maybe fail & learn from this, rather than
let the status quo of affairs go on as it has been since India's independence
in 1947. This is probably the first bold move ever in Indian economic history.

~~~
denzil_correa
> But Indians can see the benefits in not only black money reduction, but also
> in decrease in tax evasion, digitalization of the economy & also reduction
> of terrorism & anti-social elements like mao-ism, naxalism etc.

Except that you did not exactly require demonetization to achieve those
benefits.

~~~
fooker
How do you determine who has been hoarding undeclared income as cash over the
last 20 years? Random raids?

~~~
gozur88
In the US, cash transactions over a certain limit get reported to the
government. Even if you manage to hoard a bunch of cash, it's surprisingly
hard to spend without drawing attention to yourself.

~~~
adictator
> cash transactions over a certain limit get reported to the government.

Who reports it? So let's say I pay a bribe of $1 million for some significant
but slightly illegal favor. Will the 'bribee' report it, or is it the briber?

~~~
gozur88
Where did the money come from? And what will the bribee do with it? Is there a
separate bribe economy, where people bribe each other and never use the money
to buy houses and cars?

------
seshagiric
Out of every 100 notes in circulation, 85 were either a 500 rupee or 1000
rupee denomination. Per Govt. report most non-reported (black) transactions
were done using 500/1000 notes (black money - not reported to escape tax). The
500 also happened to be the most counterfeited one.

By removing the 500/1000s it is now much more difficult to do cash
transactions involving large amounts (imagine the cash one had to carry now
becomes 5-10 times).

But when doing the above, the govt. also affectively removed 85% of cash from
the market - banks did not have enough cash to remit their users. However
since then there is increase in cash printed and things are beginning to come
back to normal.

Decline in commerce is true, but is also expected short term. As others have
posted, things are coming back to normal. The daily cash with drawl is
increased from 4K to 10K. People like me are hopeful about a system with more
transactions happening online and black money being more difficult to hoard.

------
enitihas
This article is really biased. I live in Mau, a small town in Uttar Pradesh.
And this month, things are somewhat back to normal. My neighbour works in the
State Bank of India, and he told me that the line outside the bank has
decreased a lot. Cash is available in many more bank branches. The situation
has gotten a lot better. Things were a bit tough initially, but I have not
seen people in as big a panic mode as the article would have you believe.

~~~
thwertyu
Glad to see it reflects the situation down here in the South. Rural Uttarkhand
is quite beautiful (esp near गन्ङा).

------
tokenizer
Central bankers experimenting with people's lives. Bold move for Modi. If
people start starving and losing their way of life, things will change.

------
photonwins
And this happened just yesterday, politician's house raided by income tax
officials.

[http://www.thenewsminute.com/article/while-you-stood-
line-10...](http://www.thenewsminute.com/article/while-you-stood-
line-100s-minister-stashed-away-160-crores-56233)

10 crore = 1.47 million USD

EDIT: Corrected the conversion.

------
yummyfajitas
I'm not sure how current this story is. As of a week ago, in Pune and Delhi,
all the ATMs seemed to have plenty of money. The withdrawal limit has been
raised to the normal 10k/day. I suspect things will go back to normal soon.

One thing I've been pretty shocked by is how people are taking it. In India,
the ATMs don't work, people are losing their jobs, but it's just a topic of
discussion. You can think it's a good or bad idea, all opinions are tolerated.

Compare to the insanity currently happening in the US - riots and political
violence spreading, dissidents afraid to speak [1], virtually everyone is
angry. It's quite a contrast to see up close. (I flew to India shortly after
demonetization, and came back to the US a day ago.)

[1] Just after the election my social calendar was full. All the secret Trump
supporters were desperate to talk to someone and I was the only person they
felt safe speaking to.

~~~
the_watcher
It seems like the issue is more about workers who depended on payments in cash
(thus untaxed and the source of the black money in the first place) no longer
being able to find enough work to pay for basic necessities. The implication
is that their employers are simply not hiring as many people to make up for
the additional taxes they are paying (this is my interpretation, this is
really the first I've read about this, so if I am wrong or misunderstanding,
very interested in learning more)

~~~
yummyfajitas
In India, if you earn < 2.5 lac/year (about $3500), you don't owe any taxes.
The gdp/capita is about 1 lac/year (about $1500). The worker described in the
article is making about $200/month or 1.6 lac/year.

The actual issue right now isn't so much taxes. It's _not having physical
cash._ No matter how many crores you have in your bank account, you can't pay
workers (many of whom have no bank account) if you can't withdraw physical
bank notes. Further, even if you could transfer money to those workers, they
can't buy vegetables unless they can find a vegetable seller who takes PayTM.

In India, most of the economy is cash based. The primary exception is in major
cities where credit cards and PayTM (think Indian version of WeChat payments)
have suddenly become vital. Suddenly many autowales and small restaurants have
PayTM QR codes. Even some vegetable sellers take PayTM!

~~~
the_watcher
Sorry, I didn't think the issue was the poor not paying taxes. Perhaps this is
just me applying US tax paradigms to India, but what seemed to be the issue to
me was employers paying those workers in cash, thus avoiding any taxes the
employer would need to pay. Your point on not being able to pay workers in
cash when actual cash is just not available is a good one though, and
definitely helped me in understanding what is going on a bit more, thanks.

------
marcosdumay
> In the first month alone after the currency ban, micro and small-scale
> service industries cut staff by 35 percent, the All India Manufacturers’
> Organization said, based on a survey.

> The International Monetary Fund this month cut its projected growth rate for
> India by one percentage point for the current fiscal year, to 6.6 percent.

What are those predictions made of?

------
alfiedotwtf
Mao: "Great Leap Forward"

Modi: Hold my beer

------
karthi16
This article is baseless, I am right. Ow can siting india and life is business
as usual. No lines in front of the ATM machines. I am seeing a better India
everyone accepting digital currency!! A welcome move by the government

------
bkmrkr
After reading the comments this sounds almost like fake news.

------
powera
This is still the most likely way World War III could break out in the next
two years. Economic shock leads to food shortages. Food shortages lead to food
riots. Riots lead to unrest. Unrest leads to war.

