Demonetization:Why it is not about “Black Money” and Why the Government had to do it?

I have acquired a new domain. So, you will be able to read this article by clicking on the following link: http://monishborah.com/2016/11/14/1380/

 

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31 comments

    • Why did you assume 20% of 500 and 1000 notes are black economy? The world bank did not mention the percentage of black money is 20% across all asset class including notes.

      Secondly, why are the other benefits not considered in the article for the holistic view? like counterfeits notes and the dangers of counterfeits to the nation primarily is the terror sponsor.

      Lastly, why do you think this is the last step of attacking the black economy? I know 500 and 1000 rupee note is some part of black economy but this is not the last step.

      Why don’t you mentioned that banks are bleeding and there is minuscule returns on assets from long time and previous governments are equally responsible (if not 70-80% responsible) for that state of the banking system.

      • Regarding why I considered only 20% of 500 and 1000 rs notes- it is because I was giving some leeway to the government. Most writers (including myself) think that at most it will be only 10% (for eg here: http://www.hindustantimes.com/india-news/why-govt-s-demonetisation-move-may-wipe-out-illegal-money-worth-rs-140000-00-00-000/story-adn8v35a3Kd6NtBHqXpOjP.html) – because as we see from the massive note destroying and hawala operations post demonetization- it is very uncomfortable to store black money in cash.

        Regarding counterfeiting – I have made my opinions clearly here: https://monishborah.wordpress.com/2016/11/09/why-did-the-government-take-out-indias-big-rupee-banknotes/

        Regarding terror financing- I know only what I am seeing on the ground- Naxalites are using innocent tribals to deposit their cash into their accounts. In the North East people are very afraid that extortion which had been reduced in the last 2 years due to reasons like govt negotiating with Naga rebels will restart again as now their currency has become garbage. An example of this new aggressive stance of the North East militants can be seen in what happened just 30 minutes back when ULFA attacked an army convoy (check the news). Finally, terror financing involves a lot of things like share market operations through shell companies, human trafficking, drug, gold and weapon smuggling which cannot be dealt with only by demonetization.

        Every article has a mandate and I cannot discuss everything and I have tried to stay away from politics as far as possible here. In fact I have given credit to the present government for recognising the problem and undertaking the Indradhanush plan, even though I think it was inadequate but something was better than nothing. Amongst other things that I have not mentioned here is also that the government has delayed the GAAR act which could have played a good role in reducing black money.

        Finally, I have not mentioned anywhere or even indicated anywhere that I think the demonetization step is the last step the government would take against black money- how you came to this conclusion is beyond me.

  1. Wow! I was certain that there is something that this government is trying to divert our attention from, but lacking any flair for financial analysis and knowledge of the reality of our banking system, I wasn’t able to work it out. Your article is a ray of light. I am gonna try and spread this information as far as I can.

  2. Hahaha. Deposit is not capital what banks want to capitalize. Written without any study. Also there is no concept of tier3 capital now. Are you living in 2010 Mr.

  3. In your first view where you said that 20℅ of total money is in 500 and 1000. That means you are saying 80℅ is in lower currency viz. 100,50,10,5,2,1. This is beyond realization.

    In Second view as you agreed it is assumption. Everything is not in Trump’s hand or he could do whatever he wants. There is a Senate and Congress which decides the policy and it entails discussion which will considers interest of everyone just the Trump’s.

    • No Sir, please read my article carefully- I said 86% of all the money was in 500 and 1000 rs notes.

      Regarding Trump- I was thinking of the Ben Bernanke years as the head of the US Federal Reserve after the recession. Many a times he would say that he might think of increasing the interest rates in US and the global markets would tumble and in one such instance Indian bond market collapsed and there was a run on the Indian rupee and now we are stuck with the +-67 to 1USD situation. But Ben Bernanke never increased the the interest rates. If so much disruption can be caused by “nothing”, what will happen if Trump decides or tries to do “something”?

  4. I had made a similar guess too, but since financial terms and figures bog me down, couldn’t articulate as well as you have done. Kudos.

  5. It’s usually interference of IMF and world bank that creates recessions. And this demonetization has already started employment situation. Labourers are not getting jobs. No cash to pay. This is a strategy to reap benefits out of recession.

  6. It’s a very good insight about the demonetization. The moment should not be closed here and should be supported by other measures like making it mandatory to accept cashless transactions in all medium size shops and vendors. Provide enough education and security for the cashless transactions. Now when bank will have more money to give credit to the people, it should be controlled tightly now. NPA’s should not increase.
    More efforts should be made for the transparent transactions.
    I do not have much knowledge on the finance but thought of writing this with whatever i know.

  7. Great article man. The thing about all this that is happening is that there are too many factors that are at play that we do even realise. There are benefits and problems that will spring outta nowhere.

    One thing I do believe here is that this might weaken rupee coz now probably people holding onto black money will try to keep it in Dollars, which is quite the asset.

    Its well researched, great article!

  8. I applaud you for a well researched and reasoned summary of the underlying truth of the measure undertaken by the Government and RBI, in concert with the banks and big capital.

    How one wishes that the government of a democratic nation would learn to be transparent and accountable to its people! The sad truth is that in the Indian context, power and authority have always been seen as the means to exploit and loot at the expense of the public at large, and not as manifestations of the faith reposed and responsibilities assumed to work for the greater, larger good.

    How do we treat an ailment properly unless the symptoms and further dangers are fully shared and made known, and unless the treatment and subsequent precautionary and preventive measures are informed and understood to be necessary? Why should we be attempting to explain it away with such hype and hoopla? Shouldn’t we brace ourselves for a situation if the course of treatment embarked upon with such disinformation does not solve the problem, by taking all stake holders on board?

    I have a sneaking fear that the aim is to postpone, rather than resolve, the crisis in the banking sector. And to make hay while doing it!

  9. We Indians are very good at finding faults/ drawbacks with any initiative.
    I don’t personally like any party; but must point out here that the Congress has hardly done anything constructive in 60+ years. People used to suffer for ration, kerosene etc for years wasting time in long queues.
    The problem is too complex for a simplistic solution or even to go about in a specific sequence. Now the need of the hour is – all the so called stalwarts should recommend constructive plans to plug the loopholes and further improvement.
    writing negative is too easy; at least appreciate a sincere person working 18+ hours a day and NOT doing anything special for his family – a genuine worker for the nation.

  10. I have not understood how the deposits gathered can capitalise banks. Deposits are deposits. Even if we gather 12 lakh crore rs as deposits, that cannot be considered as capital of banks. Please enlighten.

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