So Modi-ji has dealt the whole country a severe blow.
Is it a good move? Is it a bad move? Is it a move with good intentions but bad execution? Or, since people keep the least amount of their portfolio in cash, this was just an indication to those who hoard black money to straighten themselves or else be ready to face the next blow?
Did the PM underestimate the common man's intelligence in finding the loopholes? I reckon he did, as many people have managed to play the system. Otherwise, such large sums of money would not have found the route to banks. As of today, approximately 85% of the demonetized currency is already in the banking system -- this includes the money deposited after the November 8 announcement, the amount the banks keep with the RBI in the form of CRR and the amount that was with the banks from earlier. Figure this -- What Black Money?
One can't help but speculate that the remaining 15% will also be deposited much before the December 30 deadline - meaning, essentially, that all the high-denomination currency printed by the RBI was white! That black money is being hoarded in some other form and the government was unable to see where to attach the donkey's tail! Or that most of the black money was converted to white through the one in-your-face mistake the government made - allowing people to exchange old, banned currency for new ones over the counter. That shouldn't have been allowed simply. Instead, they should have been told to deposit the banned currency notes in their account and withdraw the new notes - something that they did announce after a few days. Had they realized their mistake?
Yes, he must have aces up his sleeve and I reckon he will achieve much more with the strict implementation of the Benami Properties Act, but he will soon have to address a very potent issue too -- What does he plan to do to give respite to the middle-class businessman?
The typical middle-class Indian businessman conducts most of his transactions without bill to avoid high taxes, i.e. conducts business in black. He does that to avoid the myriad taxes which eat up his income, which is anyways under pressure due to increasing competition. Some businesses are inherently low-margin, high-volume oriented. In those cases, burdening them with high indirect taxes and taxing the leftover income with Income Tax and expecting them to pay in all honesty is wishful thinking. Whatever one might say, people will not do that. This is where the cat and mouse game begins.
Here is the chicken and egg problem - should the government reduce tax rates first so that people become more complaint, or should the people start paying taxes first so that the government can afford to lower the rates?
But I digress. The real issue is not the money stashed with the general trader; the real issue is the black money hoarded by politicians, bureaucrats, criminals. This move was supposed to maim them. It was supposed to fight counterfeit money. Maybe it has managed to address the issue of fake currency, but rumors have already started floating that the new currency is not immune to it either.
The real issue is the exploitation of free will that black money commands. Those in possession of it can and do throw it at those who are deprived of it to get things they normally couldn't have gotten done. Right from the bribe you pay to your customer's salesman to sell more of your goods to the laborers who help gold smugglers to the police and politicians who can stop all this but turn a blind eye, everyone's free will is exploited by the lure of money which goes under the radar.
Has the current move managed to address this issue? I don't think so. Again, it is not something you can wish away; it is a long-drawn process, but one can't help but think that the process could have been faster if the scheme was implemented a little better.
In my limited understanding of the matter, the scheme should have seen some money being destroyed. Only that could have meant that people with black money couldn't find avenues to deposit it into banks and such loss will make them understand that there is no point in hoarding black money. Losing such money won't stop black money generation completely, but it will slow it down considerably.
Having said that, one must give credit to the PM for an extremely gutsy step and clarity of vision -- here is a man who knows what he wants to do with the powers and responsibilities bestowed upon him by the people and his chair, here is a man who can communicate his intentions clearly and who is not afraid to take decisions, here is a man who dares to meet the dark forces of his country head on.
There might have been goof-ups and unexpected twists in this whole process, but we must understand that we make mistakes even while organizing family functions of 300 people - he is trying to handle 1.3 billion people!
Indeed, a demonetization drive of such a massive scale has never taken place anywhere in the whole world and hence, everyone is waiting to see how this saga unfolds.
Is it a good move? Is it a bad move? Is it a move with good intentions but bad execution? Or, since people keep the least amount of their portfolio in cash, this was just an indication to those who hoard black money to straighten themselves or else be ready to face the next blow?
Did the PM underestimate the common man's intelligence in finding the loopholes? I reckon he did, as many people have managed to play the system. Otherwise, such large sums of money would not have found the route to banks. As of today, approximately 85% of the demonetized currency is already in the banking system -- this includes the money deposited after the November 8 announcement, the amount the banks keep with the RBI in the form of CRR and the amount that was with the banks from earlier. Figure this -- What Black Money?
One can't help but speculate that the remaining 15% will also be deposited much before the December 30 deadline - meaning, essentially, that all the high-denomination currency printed by the RBI was white! That black money is being hoarded in some other form and the government was unable to see where to attach the donkey's tail! Or that most of the black money was converted to white through the one in-your-face mistake the government made - allowing people to exchange old, banned currency for new ones over the counter. That shouldn't have been allowed simply. Instead, they should have been told to deposit the banned currency notes in their account and withdraw the new notes - something that they did announce after a few days. Had they realized their mistake?
Yes, he must have aces up his sleeve and I reckon he will achieve much more with the strict implementation of the Benami Properties Act, but he will soon have to address a very potent issue too -- What does he plan to do to give respite to the middle-class businessman?
The typical middle-class Indian businessman conducts most of his transactions without bill to avoid high taxes, i.e. conducts business in black. He does that to avoid the myriad taxes which eat up his income, which is anyways under pressure due to increasing competition. Some businesses are inherently low-margin, high-volume oriented. In those cases, burdening them with high indirect taxes and taxing the leftover income with Income Tax and expecting them to pay in all honesty is wishful thinking. Whatever one might say, people will not do that. This is where the cat and mouse game begins.
Here is the chicken and egg problem - should the government reduce tax rates first so that people become more complaint, or should the people start paying taxes first so that the government can afford to lower the rates?
But I digress. The real issue is not the money stashed with the general trader; the real issue is the black money hoarded by politicians, bureaucrats, criminals. This move was supposed to maim them. It was supposed to fight counterfeit money. Maybe it has managed to address the issue of fake currency, but rumors have already started floating that the new currency is not immune to it either.
The real issue is the exploitation of free will that black money commands. Those in possession of it can and do throw it at those who are deprived of it to get things they normally couldn't have gotten done. Right from the bribe you pay to your customer's salesman to sell more of your goods to the laborers who help gold smugglers to the police and politicians who can stop all this but turn a blind eye, everyone's free will is exploited by the lure of money which goes under the radar.
Has the current move managed to address this issue? I don't think so. Again, it is not something you can wish away; it is a long-drawn process, but one can't help but think that the process could have been faster if the scheme was implemented a little better.
In my limited understanding of the matter, the scheme should have seen some money being destroyed. Only that could have meant that people with black money couldn't find avenues to deposit it into banks and such loss will make them understand that there is no point in hoarding black money. Losing such money won't stop black money generation completely, but it will slow it down considerably.
Having said that, one must give credit to the PM for an extremely gutsy step and clarity of vision -- here is a man who knows what he wants to do with the powers and responsibilities bestowed upon him by the people and his chair, here is a man who can communicate his intentions clearly and who is not afraid to take decisions, here is a man who dares to meet the dark forces of his country head on.
There might have been goof-ups and unexpected twists in this whole process, but we must understand that we make mistakes even while organizing family functions of 300 people - he is trying to handle 1.3 billion people!
Indeed, a demonetization drive of such a massive scale has never taken place anywhere in the whole world and hence, everyone is waiting to see how this saga unfolds.
