tag:blogger.com,1999:blog-19649274.post5950760105094616375..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: Trumping black moneyAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-19649274.post-30896739525289900502016-11-27T22:04:33.104+05:302016-11-27T22:04:33.104+05:30What are the other ways Government could have achi...What are the other ways Government could have achieved the same demonitisation objectives without cause public pain.<br />1. What if government had declared 6 month period by which all 500 and 1000 rupee notes would be replace by its new variants without declaring that it would not be legal the same night.<br />2. what if government had banned all cash related transactions with other asset classes(real estate,gold, bonds,forex) such transcation with cash as invalid.<br />3.What if government stamps, property registry to closed for the period.<br />4.Banks are open for depositing as well as withdrawing cash without affecting economy.<br />5.And all purchase above say above 25000 in old currency need to thro bank transaction.<br /><br />How would such an arrangement work.<br /><br />Currency changing rush would not be there.<br />Currency change would happen smoothly<br />exchange of old currency with other assets would be blocked<br />exchange of old currency with raw material and goods above a certain amount would be thro bank account.<br />Poor would not suffer.<br />Large queues would not be there.<br />And the objective of black money and as well as currency replacement would be achievedRKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-42794052564732156892016-11-25T11:21:01.572+05:302016-11-25T11:21:01.572+05:30This exercise is like someone going on a severe fa...This exercise is like someone going on a severe fast (that includes going without water) for a month (with its attendant short term discomfort, short term health risks and longer term health problems) to solve severe health problems of over-weight, high cholestrol levels, high sugar levels, etc. Hoping that some sacrifice like this should somehow make the body healthier. <br /><br />The tough decision, resolve required to see the fast through, sense of sacrifice, a hope of resolving health problems are all feelings that give a temp high. The first few days of fasting also makes the body feel lighter and better. And then the real test of resolve and if the resolve is there then the test of the physical and mental body kicks in. <br /><br />The only way to get healthier is to have the 'will power' and 'resolve' to make longer term corrections in lifestyle, diet and exercise routine. One day, one week and one month fasts and diets might help if done right, might harm if done wrong, might kill if done stupidly but definitely do not leave any longer term benefits.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-20485198903795126462016-11-21T14:59:35.246+05:302016-11-21T14:59:35.246+05:30I appreciate your response.
I think few clarifica...I appreciate your response.<br /><br />I think few clarifications may be in order.<br /><br />If you look at the income distribution in the country, not everyone either earns less than 2.5 lac or more than 1 (or say even 5) crores. There is a vast number of people earning between 2.5 lac and 1 (or 5) crores, who are non-salaried and a greedy enough to evade taxes (these are folks owing a small store etc). Since this number is so large, the cumulative losses in tax collection from this segment is probably much LARGER than that from the smaller group of people earning 10s or 100s of crores.<br /><br />It's only 'economical' for the IT staff to investigate the folks possessing 10s or 100s of crores of black money (simply because it has better hit rate and better recovery to effort ratio). Demonetization is an effective tool to extinguish the black money possessed by the small/medium sized crooks.<br /><br />Coming to the notion of 6% as cash component in all of black money: It is firstly important to understand where this number comes from. This is the percentage as cash recovered in the raids that IT had previously conducted. As I had already explained above, IT would have primarily targeted the folks with 10s or 100s of crores. It is only logical and logistical (due to available physical space for storage) for someone with that much black money to keep only a small portion in cash. However, the small/medium sized crook would probably hold much higher percentage (20%, 30%, 40% or much more) of his/her black money in cash.<br /><br />There is always a penchant in the country to catch the big fish; important point to remember is that all big fish start out as small!! Most of the small/medium crooks rationalize their own crookedness by saying that there's a bigger crook out there and hence he/she is fully justified in their lawlessness until ALL of the big offenders are caught. People in the country need to be cleansed from this notion!!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-20389250125372857452016-11-19T19:03:54.107+05:302016-11-19T19:03:54.107+05:30I like this Ex-Ante cost benefit analysis.
Will t...I like this Ex-Ante cost benefit analysis.<br /><br />Will this exercise alone in isolation (assuming no more steps to plug avenues of tax evasion) bring black money to GDP ratio considerably below 20% permanently? There are different estimates by different analysts. While Govt. is expecting INR 3 Trillion, some analysts are even expecting INR 4-5 Trillions. <br /><br />The immediate benefit claimed is boost in the banking sector especially in public sector banks. But this comes along with assumptions like retention ratio i.e. money that will be held with banks after mass withdrawals, interest rates, spread margins etc.<br /><br />Anyway, as of now, as you said, there are so many known unknowns, and unknown unknowns. So, I would also like to read ex-post evaluation from you, may be after 3 to 4 Quarters.Sudhir https://www.blogger.com/profile/00169609475371236973noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-91073581720433068122016-11-19T13:39:52.921+05:302016-11-19T13:39:52.921+05:30Responding to the following point made by you: &qu...Responding to the following point made by you: "It is a mistake to think that black money always exists in of 100s or 1000s of crores! I am willing to hazard a guess that the vast amount of black money is actually less than 1 crore per instance. Such is the nature of statistics (most natural distributions will fall under a normal curve!). The elite commandos from IT and ED can raid the big fish (or the long tail from the statistical curve metaphor). This would be the 'economical' use of such a department!"<br /><br />Your hypothesis is correct only if you confine the analysis to the CASH component of black money. But the reality is that hard cash forms only about 6% of total unaccounted/untaxed wealth (to use a more formal term). The bulk of it is in the form of real estate (especially land), gold, foreign currency and overseas bank accounts.<br /><br />Once you take this fact into account, your theory of the "long tail" doesn't hold. The average ticket size for these kinds of assets is far higher than 1 crore.<br /><br />The elite commandos from IT and ED have ALWAYS had the option of going after these big fish, but have not done so, especially with the kind of seriousness and focus demonstrated during this demonetisation exercise. This is not a criticism of the BJP, because every single regime in the past also had this option, but deliberately and consciously chose not to exercise it. Why? I don't think I really need to spell it out, do I? Instead, let me just quote an old African proverb that makes it amply clear: "The mosquito that bites the testicles does not get swatted" (pardon the biological reference).<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-74294711102640586112016-11-18T16:40:00.924+05:302016-11-18T16:40:00.924+05:30The point made here is valid. Drops create a ocean...The point made here is valid. Drops create a ocean. Many small trader and big trader and doctors(they have the maximum black money entirely cash) would be impacted. <br />The enormity of the effort required to bring normalcy is large. Similar would be the enormity of effort of Income tax department as a user mentioned about the capacity of the government to process all in finite time. Sure technolgy would help.<br />Would be interesting to observe what announcemnet before UP election would pacify the commoner who have suffered both monetarily because of loss of earning and difficulty due to the project as PM calls it.RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-5262462693425058722016-11-18T16:31:22.206+05:302016-11-18T16:31:22.206+05:30The PM should have had two team Team A a private t...The PM should have had two team Team A a private team comprising of<br />1. His cabinet<br />2.All Bank chiefs and bank officers<br />3.Essential staff related to the ATM operation across the country<br />4. Necessary technical guys<br />5. Necessary logistics guys.<br />6. The suppliers of the recalibration kit<br />7. The PMO officers and his finance secretaries.<br />8. RBI and key personnal from RBI<br />9. The mint and key personnel from it.<br />Take secrecy oath from all of the above. Declare a private date for all of the above to surrender their 500 and 1000 notes. <br />The count of above people would definitely be about greater than few thousands.<br />Then a have team B after announcement which the entire country and bank official and RBI.<br /><br />Even without doing this opposition is finding fault of preference treatment within BJP, what would they say if a Team A was formed.<br />What would have happened to the secrecy if team A was formed.<br />What strategy would the PM adopt to keep this away from the media.<br /><br />It is evident it cannot be preplanned if equality of citizen has to be kept in mind.<br />This exercise is similar to a earthquake when it is time to hits its shakes. <br />A financial quake.<br />RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-46000173026242017552016-11-18T16:13:35.994+05:302016-11-18T16:13:35.994+05:30Interesting to note that you even suggested better...Interesting to note that you even suggested better alternatives to this move for eliminating fake currency. But what about black money sir? I see that that is being tackled to some extent by this move.Sanchit Nayyarhttps://www.blogger.com/profile/06473400536156274389noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-69088869314073341222016-11-18T15:19:47.219+05:302016-11-18T15:19:47.219+05:30I always love a bayesian method to decision making...I always love a bayesian method to decision making (brownie points even for merely attempting). The article is quite comprehensive, albeit not complete :-). Kudos for a good analysis (even if done with certain predilections for the outcome).This article belabors on the purported costs and risks, but seems to overlook a very fundamental benefit!<br />The article seems to suggest that the only benefit of the entire exercise is retribution and nothing else; it calculates the numerical cost for inflicting this retribution - the loss of someone else black money. While I cannot underestimate this benefit of retribution (more on this later), the primary (and 'almost' direct) benefit is the TRANSFERENCE of the (extinguished) black money as funds available to the government for spending. The article debates about the morality of RBI writing off the 'un-deposited' money, but churlishly avoids to talk about the effect of such a write off. That money can be used to increase expenditure on social projects (infrastructure, education etc.) without increasing inflation, deficit or external borrowing!<br />Coming back to retribution (I haven't forgotten about this - isn't that the nature of that beast?). Firstly, the math seems a little wonky; how did a 2% cost (via the author's anecdotal data) that reduces logarithmically become a 10% cost? Am I missing something here? <br />Sometimes the analysts and policy wonks get lost in complicated while overlooking glaring evidences! The author polled a minuscule sample (who have admittedly have large biases) with a hypothetical question and then weighted and extrapolated the incorrect data to come up with another large number. All this when you have so many people directly telling the reporters on TV that they are more than willing to bear the cost (in terms of discomfort etc.). QED!!! Perhaps, the superfluous exercise is required as an ex-ante analysis (which unfortunately has a direct bearing on his conclusion!!).<br />Demonetization is like fumigating the entire country where 'honesty' is the antidote to the poison in the air. The honest person will breathe well and survive, even if inconvenienced for a few hours due by reduced visibility due to the 'mist' in the air; but the dishonest will choke and die in this fumigation!! <br />Some other random observations:<br />- 'Cost to honest taxpayers' is what will exist (in much larger proportions) with author's alternate solution of better 'Investigation and tax administration'. The fundamental problem is that a large number of people in the country, who appear as poor on paper are actually rich in black money. That is the nature of the informal economy. The only way to better 'investigate' is to multiply the size of IT and ED manifold, so they can raid a large sample of people; rip open their mattresses and smash their cupboards/shelves to look for black money. Firstly, it's uneconomical to raid that many folks; secondly, we don't want a Gestapo in the country!!<br />It is a mistake to think that black money always exists in of 100s or 1000s of crores! I am willing to hazard a guess that the vast amount of black money is actually less than 1 crore per instance. Such is the nature of statistics (most natural distributions will fall under a normal curve!). The elite commandos from IT and ED can raid the big fish (or the long tail from the statistical curve metaphor). This would be the 'economical' use of such a department!<br />- The issue with a parallel economy is that the government cannot implement an effective 'monetary' policy. The result is that the government will have no levers at all to shape/grow the economy effectively!<br />- The compliant seems to be that it doesn’t eradicate the future creation of black money. If you have pneumonia, the first step is to take antibiotics to get cured; vaccination against future occurrences is the NEXT step. <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-88461649309757526932016-11-18T12:12:06.531+05:302016-11-18T12:12:06.531+05:30Excellent piece by Suyash. Permit me to add my two...Excellent piece by Suyash. Permit me to add my two cents.<br /><br />In your point on "Readiness of the banking and postal system", there's one aspect that you seem to have overlooked. What on earth prevented the authorities from ensuring that ATMs could handle the new currency notes without the need for reconfiguring all the machines? It is widely reported that the new Rs.500 and Rs.2000 notes are longer than the width of ATM dispensers. The FM himself announced that it will take an additional 3 weeks to recalibrate/reconfigure/modify over 2 lakh ATMs in the country. What kind of inept bunglers would miss something so obvious? I mean, even a person with "ordinary" common sense would make sure that he has space in his house before buying a new piece of furniture, right?<br /><br />It is this kind of blunder, which is now being callously dismissed as inevitable pain, which has raised so many hackles, and rightly so. Even fence-sitters (like me) who are willing to give the government a long rope for this largely symbolic tokenism are completely disillusioned with such fundamental flaws of execution.<br /><br />Last but not least, Ajay, congratulations on your tight moderation policy - I have not seen a single abusive or derogatory comment, unlike almost all other discussion fora.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-11237597995541041262016-11-18T09:55:38.679+05:302016-11-18T09:55:38.679+05:30I do not agree with your point that
'If govern...I do not agree with your point that<br />'If government and central bank just give up their liability with a 4.5 month notice, it might erode faith in the currency.'<br /><br />Inflation is the ultimate test to check faith of population in the domestic currency and post demonetization inflation is likely to come down.<br /><br />Chances of Indians storing black money in USD are less. We have seen discontinuation $100 bill by USA worth of $1.2 trillions and launch of new $100 bill in 2013. More than 50% of old $100 bills were stored outside US and are worth of just a paper now. Even Europe is mulling discontinuation of €500 bill.Aditya Jadhavhttps://www.blogger.com/profile/07532448973422827388noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-8584543717370156992016-11-17T08:18:51.558+05:302016-11-17T08:18:51.558+05:30My comments are not be glorify PM or what is done ...My comments are not be glorify PM or what is done by him. PM objective is spelled out clearly in public domain. Our is a representative democracy not participative democracy. People do not decide on everything gov does. What PM decides and what he does is privy to him and his cabinet. There is secrecy which cabinet enjoys everything need not be told in public domain. If certain actions of him are not correct are leading to damages only way it can be remedied is by voting him out. Damage is a relative term, PM has multivaried responsbilities, he has responsiblities to government finances and also well being of his fellow citizens and the nation. <br />On the second paragraph I would not strong defend the statement I have mentioned. People are not ready to factor the cost of tax into their calculations. They want to pocket the tax. Government is also a factor why people do like that. When government extends it reach and collects tds or tcs it is doing so forcefully creating and applying law. On areas where government does not have a reach black money is created. There are many people in the so called well of category who despite having enough have a attitude of not returning back to the government what is due by mean such as making it invisible. The word called benami fits here. What do you call such action greed or attitude. Greed everybody has attitude some have. <br />You have strong words for PM, time will tell what is the result. Damages on the people at large it is visible for the government the benefits are visible. But one thing is for sure this decision is heartless. Government is trying to act retrospectively which it had said that it will not bring retrospective laws. Trying to tax retrospectively for the past actions is very harsh. Government is trying to snatch from the people its due thro enforcement and is similiar to what you said (strangle) by digital means at point of creation. The demonitization is also strangle at point of creation as cash is where black money originates in India. Question also arise if not now when should we tackle the issue of black money. The problem is the expectation that people should be pay income tax. If that expectation is removed then work black money vanishes.Government taxation should not depend on taxing individuals income it should raise raise tax thro other means which are easily measurable and not dependent on individual disclosure or assessment.<br />On third paragraph, Their are numerous data being collected. deposit above 2.5l and deposit above 50k. This has to be combined w;ith data from other sources lt returns. It is not possible by human supervision in reasonable time to determine who has not paid tax. Only 3 to 5% of people are assesses now it may be more. To determine who among the depositors are having large dues the big data technique may be used. If I believe the data is real huge not possible to be manually processed.<br />There is another clarification which I like to make their is difference between corruption and blackmoney. Blackmoney is not paying tax, corruption seeking favour to do a work. Corruption applies to official work and by large applies to government officials and employees in public context. Corruption in private place is limited impact mostly controlled by respective enterprises. So when someone say people are corrupt it invariably means government officials and employees and does not apply to people who have not paid taxes.<br />RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-4088767442946307552016-11-17T01:10:23.636+05:302016-11-17T01:10:23.636+05:30>Rightly said. Big Data machine learning is not...>Rightly said. Big Data machine learning is not to flag, it is pick the likely offender.<br /><br />>On the second part , that depends on what the objective of PM is on the exercise.<br /><br />The "objective" of the PM is not his private business. He needs to spell it out clearly. And if those "objectives" are not met or can provably not be met with the action he has taken, he should be raked over the coals and thrown out of office. Unfortunately, even throwing him out of office may not undo the damage that has already been done and all the damage that is being inflicted as we speak.<br /><br />>Black money is due to attitude of people it cannot be changed. <br /><br />Then you have to live with it. You have to live with black money and corruption being a way of life. Furthermore, it is utter nonsense to say that black money is "attitude of people". It is not. <br /><br />Greed is a human trait... but greed alone cannot create black money. Black money is created wherever and whenever there is scope for human discretion. The real way to combat black money is to strangle it at the points of creation. And the way to strangle it is extensive digitization, computerization, decentralization of government and massive reductions in size of government. Any and all elements of personal human discretion should be removed. Only then will corruption be alleviated (not 100% eliminated). But this action of Modi, as catastrophically far fetching as it is, does NOTHING to address any of the root causes. It has foolishly gone after symptoms and is unraveling as we speak.<br /><br />If this ends as badly as I'm fearing it might, Modi will need to be tried for treason and waging war against the state. And history will remember all his cheerleading acolytes as active accomplices. This is like a doctor prescribing chemotherapy to fight a cold.<br /><br />aside:<br />>Rightly said. Big Data machine learning is not to flag, it is pick the likely offender.<br />Wrong for several reasons, but I don't want to go into that discussion now. It is a separate debate.<br /><br /><br /><br /><br /><br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-11909247645852193072016-11-16T22:55:37.908+05:302016-11-16T22:55:37.908+05:30I was thinking of how #Demonetisation could have b...I was thinking of how #Demonetisation could have been done better. Here are my thoughts.<br /><br />Govt could have clubbed #Demonetisation with Jan-Dhan account opening earlier or now in second and decisive round. They could have announced first / second round with incentive of Rs. X (how to arrive at it later) be deposited [not credited through Direct Benefit Transfer (DBT)] in new and existing accounts.<br /><br />Once account is opened, the beneficiary could have been given Rs. X cash with a credit & debit entry as a practice exercise (a disguise) in simple banking operation of withdrawing money with usual form-filling or otherwise. For this, massive preparation like staff augmentation, availability of Rs. X notes in denomination 100 in all parts of the country could have been done in anticipation of huge rush. Infact, they could have done excess by exaggerating the foot-falls expected per branch.<br /><br />Many people from poor economic background who would've not understood or skipped opening the account or for second, third member of the family would have queued up for Jan Dhan not just for DBT & other benefits but for free Rs. X/- in cash!<br /><br />There are 210+ million Jan-Dhan opened till now. Assuming this could have gone upto 3/400 million, the cost of this operation could have been around Rs. 3/40 billion (assuming Rs. 100 given out) which could have been absorbed by freeing up of RBI's liability from 500/1000 Rs which is not going to return to its balance sheet. This would have really meant wealth distribution, paying the poor with black money!<br /><br />Coming to X. It could be Rs 100 or some multiple of it related to daily wage. Assuming half-day wage is paid (time spent for opening account) it could be Rs 200 based on average Rs 400 daily wage).<br /><br />How could this be fool-proof? This would've prepared the banking system for massive foot-falls and availability of Rs. 100 notes across the nation which would have brought down the desperation and need to rush to banks.Roopeshhttps://www.blogger.com/profile/05046151939889407542noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-8299931971941269452016-11-16T21:19:55.393+05:302016-11-16T21:19:55.393+05:30Very well written arrticle. Congratulations.
Let u...Very well written arrticle. Congratulations.<br />Let us add one more dimension - collateral impact. The world now knows that the Indian PM can take bold decisions based on his instincts and impulse without bothering about the consequences. He is probably advised by people who think similarly or unable to present him a coherent alternate view. Couple it with the facts that our Defence minister has an alternate view on the "Nuclear no first use".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-7186972430942161752016-11-16T18:33:26.951+05:302016-11-16T18:33:26.951+05:30"Assuming that your giving up some money will..."Assuming that your giving up some money will lead to a corrupt person losing some money, how many rupees would you be willing to lose to inflict a loss of hundred rupees upon an unknown corrupt persons?" Your premise is not correct at this point, the 100 rs lost by the black money holder is being redistributed in the system, which you did not consider.Chandra Sekharhttps://www.blogger.com/profile/17428568729651952365noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-75270598089158705352016-11-16T17:21:14.131+05:302016-11-16T17:21:14.131+05:30Another point that has been missed is that even th...Another point that has been missed is that even though property is 90% of the black money, with no black money in the system the prices of property are also going to fall. Same with gold and other ways black money is hoarded. <br /><br />for e.g if today property costs 10cr(5cr white and 5 cr black) we can expect it to go down to 6cr(5cr white and 1 cr black).<br /><br />What people are not realizing is that the the person incurred a notional loss of 4 crs which will deter hoarding black money in future no matter what form.Ekansh Babbarhttps://www.blogger.com/profile/01775749409191720601noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-36801718860761545032016-11-16T14:56:30.636+05:302016-11-16T14:56:30.636+05:30What will happen to real estate is question mark. ...What will happen to real estate is question mark. Real estate has strong association. There might be difference in price between organised and unorganised. Currently speculation is how will real estate deals be done with cash component.<br />The temptation to go back to old way is there as another demonetization is many years away. RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-85973865167096506292016-11-16T14:08:27.972+05:302016-11-16T14:08:27.972+05:30Rightly said. Big Data machine learning is not to ...Rightly said. Big Data machine learning is not to flag, it is pick the likely offender.<br />On the second part , that depends on what the objective of PM is on the exercise. And what control and monitoring PM has on IT department and it's officer it also depends on moral of the officers with respect to the exercise. Enforcement is the grey area but still 100 compliance cannot be expected but yet uncollected tax will get collected and RBI will be benefited as RBI does not have to keep its promise for lot of notes which has not been returned. <br />Black money is due to attitude of people it cannot be changed. This exercise will cause a shift in people's mind how they should deal with cash. In February budget withdrawal tax is for sure. When you withdraw cash from bank gov will tax.RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-15125347018632908042016-11-16T02:27:45.331+05:302016-11-16T02:27:45.331+05:30flagging an account for deposit over 'x' a...flagging an account for deposit over 'x' amount, does not need any sophisticated algorithms, big data or "machine learning". it can be done in a few lines of code in a few minutes.<br /><br />the question is what then? what if it is flagged? what if they find that somebody deposited 10 crores but didn't explain it in their returns? what then? right.. then they pay the guy a visit or send him a notice. at the point, what is preventing the offender from paying a bribe to the IT dept with his newly minted Rs. 2000 notes and getting away with it. THAT, right there is the crux of the issue and how black money is generated and tax evaded in the first place. And this stupid "surgical strike" does nothing to address that.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-42860899453462023922016-11-16T02:03:45.977+05:302016-11-16T02:03:45.977+05:30I think you've overlooked the biggest benefit ...I think you've overlooked the biggest benefit of this exercise. <br /><br />1) Money coming into the formal banking system (more than compensating for the "unproductive hours" bank employees are spending in this exercise). This will improve transmission of monetary policy, reduce borrowing rates due to reduction in bank CoF and potentially kickstart the domestic investment cycle.<br /><br />2) While an overall deflationary impact would be negative for growth, over the medium term falling interest rates will increase the real rate of return for savers and in real estate specifically, price corrections will leave more money in the hands of home loan borrowers and boost discretionary spending (of course, this could get offset by reduced property prices for existing real estate investors - but the former, over the medium to long term, will far outnumber the former).<br /><br />This is not an exercise of today's or tomorrow's benefits vs immediate costs - this will without doubt add value to the Indian economy.<br /><br />Appreciate the rigor and depth of your analysis and insight though.Anonymoushttps://www.blogger.com/profile/07018442618846587673noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-11210064401163422662016-11-15T21:41:19.226+05:302016-11-15T21:41:19.226+05:30Hi Suyash, nice post.
I just wanted to add one p...Hi Suyash, nice post. <br /><br />I just wanted to add one point to the benefits - wouldn't alteration of behaviour, say people shifting to digital payments, as a result of the measure, be a benefit? To give an idea on some initial leading evidence, some articles are suggesting that people who used to use the Cash On Delivery option on e-commerce have moved to e-wallets, etc. Similarly, I know people who are using their ATM cards for the first time to avoid standing in bank queues. I suspect these people will continue using ATM cards (as adopting to technology involves an initial inertia, and then people find it difficult to go back). Not that this will change the outcome of your CBA, but doesn't a change in behavioural norms factor in, in a CBA?<br /><br />Also, since it is so easy to track consumer behaviour in the digital space, it would be an interesting exercise to identify whether consumers really ended up shifting to digital payments, using this as an event study. This will allow one to measure the "effectiveness" of the measure to the extent it has had an impact on behaviour of citizens.Bhargavihttps://www.blogger.com/profile/07579522239694895124noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-40863620061211544842016-11-15T21:25:23.956+05:302016-11-15T21:25:23.956+05:30Point made in this comment is very true. Governmen...Point made in this comment is very true. Government can't make people dependent on daily cash suffer.<br /><br />BJP has been doing clever thinking. It's thought process will have backup plan to benefit the same people it is troubling now. There significant cash coming to government disposal. RBI dividend plus tax penalties. This amount PM might use to make a major section of citizen happy. Like housing, or other benefit or welfare schemes. Modi mania is still on even after 2 years. Do not rule out Modi in 2019 yet.RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-19102561530670990702016-11-15T20:02:12.204+05:302016-11-15T20:02:12.204+05:30Very well written.. loved it. Economic loss and im...Very well written.. loved it. Economic loss and impact of this decision can still be handled, dealt with. But, social turmoil it has created in incomparable. Govt can not simply say that I told you so... I told you to open bank account.. what good does it do to a labor, farmers and small businessmen, hawkers, rickshaw walas and so many people who do not use bank for day today transactions. You can't force them to be standing in bank for hours to deposit their earnings of lifetime. Someone rightly pointed that BJP might loose 2019 election and I would hate it. Anonymoushttps://www.blogger.com/profile/16062365279273916348noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-84580531374648976642016-11-15T12:15:56.931+05:302016-11-15T12:15:56.931+05:30Yeah agreed. It is a friction. If applied for curr...Yeah agreed. It is a friction. If applied for currency dealings it is a deterrent for people to use bank transactions. As well advertized Indian people look for mileage of vehicle even if vehicle is costly. Hence if cash transaction thro banks are taxed people will go for cheques and cashless methods RKhttps://www.blogger.com/profile/17500200326696491869noreply@blogger.com