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Demonetization – the Elephant is through, its tail seems stuck though !



Disclaimer – Krishnan and I are unaffected by the demonetization move since we were using less cash earlier and now use even lesser cash. We have done most of our transactions online. Some of my views may therefore be coloured due to this :),

There was 15,5 Lakh crore worth of 500 and 1000 rupee notes in the market and in a month after the demonetization, 14 lakh crore has been deposited in the banks. Some of it has been exchanged and some of it has been left in the bank. Some belong to the account holder and some are holding it for their masters or friends. So the elephant has actually gotten through…

Suddenly the government seems to be launching new rules and schemes that seem ludicrous or smart depending on which side you view it from. The first initiative that irritated me was the “lucky draw” scheme. I felt the timing was off. It should have been launched much later after things got normal. Maybe it is interesting to the small vendors and shop keepers. The jury is still out in my mind on that one.

One of my friends who supports the demonetization move is pissed off because of the new rule that you need to give a reason when you go to deposit the demonetised currency in the bank between now and the 31st. Why should any genuine tax payer have to give an explanation for their own money ? You got all the explanation you want when he or she paid their tax. I want to view this move slightly differently. There are three possibilities – One, the government is being smart and feinting left and right to keep the thief guessing and finally catching him. The real hoarders of cash would not have deposited in the initial days of the demonetization. They would have waited in the hope that this would be pulled back somehow and life will go back to being normal. Now when they realise that the deadline is approaching, they may try and deposit their hoardings in different accounts. The Rs. 5000/- limit is actually inconveniencing a whole lot of regular tax payers who were just waiting for the queues to end before depositing their money. It is a deterrent to the tax-evading hoarder and thats the only good thing.

Second, I have always doubted our finance minister’s intentions. Call it intuition or some dumb/smart interpretation of events – I don’t think Mr. Arun Jaitley would let the PM succeed fully. He has too many friends across all the political parties and this move has hurt many of them, severely in some cases. While he could not stop this step from being taken and am sure, the PM would have said something to keep him from spilling the beans before Nov 8th, but many of the moves are to ensure the demonetization is not spectacularly successful. The latest move of giving reasons if you deposit over Rs. 5000/- is clearly to derail and get normal people agitated about demonetization. I do wish my speculation is just that, but lets see how things pan out.

Third, the move could have been taken due to “fatigue”. The demonetization move is huge and it has tested the PM, the government and the banks severely. With political opponents trying to shout down the move and every media house attributing every death to the demonetization move, it must have been an enormous  strain to keep going. Whatever people might say, there was no other way to do this without the surprise announcement which also meant that the preparation was minimal and things had to solved on the fly. Things have been solved well so far … and the decisions that are coming at the fag end of this mammoth change could well be due to the decision and fire-fighting fatigue. This can be resolved quickly if the educated citizens cooperate and help rather than just pushing back.

Just on an aside, during the early days of the demonetization move, some banks made arbitrary rules of asking for declaration etc when people went to deposit or exchange the old notes. Now is their chance to redeem themselves and implement this new idea in a better way by not making life difficult for the normal tax payers. But all said and done – the bank officials do deserve a round of applause, even the Axis bank officials (those who didn’t participate in the fraud) for their super hard work in the past one month. Hats off to them.

I had sent in some suggestions to the PM when the poll was done a couple of weeks back and here they are, as the elephant leaves the room :):)


1. Make tax rates attractive, so people don’t avoid taxes. Start publishing reports on how the tax money is spent by the Govt. Comment – Remove taxes altogether. Just collect the transaction fee as some pundits have suggested.  

2. Schools and colleges are big black money generators. They take cash for seats in medical colleges and regular colleges give a lower receipt and collect 30% to 40% money in cash. Please get all colleges and schools to publish audited balance sheets. In fact school fees and college fees should be paid by NEFT or credit card or cheque only. Comment – this has been implemented in the government schools but needs to apply to private institutions.

3. Cancel the registration of all NGOs that haven’t filed their tax returns and insist on all NGOs accepting donations through Cheque, Credit card or NEFT. Comment – 3000 NGOs are under the scanner … well, there are 3.6 million of them and just 2% that file their returns. 
4. Make a rule that churches, mosques and temples cannot own land. Comment – Land is big money and most religious outfits tend to own acres…
5. ₹25,000/- crores worth of scholarships are given by the state Govt, central Govt and private foundations. Please verify as to what happens to the money that is not spent … Because less than 10% students know about these scholarships.
6. Give tourists a RuPay card on arrival and let them top up the card at the exchanges in return for their currency. All the monuments etc should accept the payment from this card. It can have a limited validity till the duration of their stay in India.
7. Politicians who have undeclared wealth, the money should get returned to the Govt.
8. Make all public transport to accept the RuPay card or create a single ticket like the Metro ticket that can be used on all public transport and tolls etc. Comment – some of the toll booths have started to accept PayTM or debit cards, but it has to be implemented across the country.
9. Well established restaurants refused to accept credit card payments … Please have a way to penalise such establishments. All shops, restaurants, hotels, hospitals should accept credit cards. Please make it mandatory. Comment – well, most restaurants now accept payments through PayTM, credit card, debit card etc.
10. All temples/churches/mosques to accept Hundi donations through NEFT/cheque/credit card. There can be a swipe machine installed in the place of a Hundi. Comment – saw the news item where this idea has been implemented in one temple. Hope others follow suit soon. 


Note – this blog is not for those who hate Modi because they have lost all perspective and refuse to look at things that the government and Mr. Modi have done well. Criticism is always welcome and there are things that Mr. Modi has goofed up on, but overall the country has changed for the good in the past two and half years, whether you like it or not.

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Categories: Daily Reflections, Political PonderingsTags: , , , ,

5 comments

  1. Pardon my directness, but you sound like you work for the government. You don’t say anything about the government’s earning the tax money it extorts. I don’t happen to believe any government or central bank should have a monopoly on the currency, and their efforts to track wealth deserve to be subverted. No wonder the black markets are so profitable.

    The move to control the populace by controlling the currency is doomed to fail, and the sooner the better, according to me. I don’t believe in paying people to boss me around.

    • Hahahaha Katharine, I do sound like I work for the government because am a huge fan of the present Prime Minister and the government he heads. Just to set the record straight, I don’t work for the government :). With regards to your views on governments and central banks, I beg to differ. I view it differently. The government and banks are needed because we are not truly independent individuals – we have to have some form of exchange that lets us procure stuff that we cannot produce for ourselves and the age old bartering system won’t work for every transaction. Also the digital payments is a reality and I do like the idea of some central agency that is able to track what happens to money. I get your point in that using control over currency to control the population doesn’t work well, but once again, the context in India is very different. Our politicians and corrupt business honchos have managed to amass wealth that does not belong to them and all because they were able to do so in cash – the final deposits may have happened in Swiss banks or elsewhere, or in real estate, gold etc but the start was because they could hoard cash without giving any explanation or receipts or pay taxes etc. On the other hand you had the poorest of the poor who lost the little cash they had, because they had no way of saving it safely in a bank under their own account because they weren’t allowed to open accounts and they weren’t savvy about keeping cash safe. This government has ensured that 180 million of the unbanked poor now have a zero balance account and they have got a debit card and some state sponsored insurance. This government has ensured all the subsidies are paid directly into their accounts, thereby removing the scrounge of middlemen who never allowed any welfare scheme to succeed. Huge difference to their lives. Moving to online payments and using credit/debit cards etc is the future. There is no other way that the world will move – we probably need to find the right means of keeping money safe and making governments and banks accountable to the public that voted them to power. That is certainly required.

      We are probably seeing the problem from different progress timelines – your country is far ahead in terms of banking and insurance facilities and is probably now seeing the darker side of that, India is just getting onto that bandwagon and maybe am seeing the rosier side of it since the dark side is yet to happen. 🙂

      • Thanks for your thoughtful reply. I can’t predict where the trend is going, but I have done a lot of research into economics, the history of banking, and many of the money scams that have been perpetrated throughout history, especially European history. There’s nothing new about degrading the value of the currency, usually by debtor governments, which can then pay off debt in less valuable currency, called “fiat” money. That India is following the US’ bad example is scary. I hope that it has the foresight not to get into too much debt, especially to foreigners, as this has been the downfall of multiple governments. Remember that international corporations have no loyalty to any country or government and can use their money (investments or loans) to take control of governments and influence policy any way they want.

  2. Bindu, Someone told me today that many Indians still trade in gold and silver coins. Is that true? If so, it might take some of the sting off the demonetization scheme. I believe the little guy benefits from saving and using coins whenever possible.

    Also, those people who had to account for money over the maximum allowable: Might they have been regular people who hoarded cash in their mattresses rather than banks? I know people who bury cash to keep it safe.

    • Katharine, dont think we trade in gold and silver coins. Indians love gold. So we buy a lot of it and many people pledge the gold to get short term loans. Maybe thats what someone meant by trading. The people who had unaccounted money were the ones who got hit by the demonetization move. If one could account for the source of the money and had paid taxes – they just had to exchange their demonetised currency notes for the new viable notes, so no impact to the honest taxpayer.

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