India’s Demonetisation Tale’s Untold Parts

Prime Minister Modi’s sudden demonetisation trashing Rs.500 and Rs.1000 currency notes achieved many things.

The move successfully forced around Rs.8.5 lakh crores [US$128 billion] worth stashed ill-gotten wealth back into the economy.

Among other things, the step exposed the camouflaged meadow-snakes’ poison-dripping fangs.

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The trashing of Rs.500 and Rs.1000 currency notes was the second surgical strike against Pakistan. Its singular success is the binning of the only flourishing business in Pakistan – printing of counterfeit currency – for the time being.

Reports reveal that Pakistan had pumped as much as Rs.20 lakh crores into the Indian economy to fund terrorism and cripple Bharat financially using diplomatic bags and human mules through Nepal, China, Bangladesh, Indonesia, South Africa and UAE, to name just a few.

According to intelligence inputs, the illegal currency funded sabotage in the Kashmir valley and encouraged Islamic fundamentalist terrorism in Muslim pockets of Telengana, Andhra Pradesh, Maharashtra, West Bengal, Uttar Pradesh, Bihar, Jharkhand, Uttarakhand, Madhya Pradesh, Tamil Nadu and Kerala.

Significantly, pro-Pak street protests in Kashmir have simmered down.

It also lined the pockets of what passes for ‘sections of the secular press in India,’ reports added.

Peeved at the loss and with nothing better to do, the anti-Modi channels are yelling blue-murder on the demonetisation issue.

Significantly, a huge cache of cash was being burnt in Uttar Pradesh. Some of the smoking embers have been recovered and sent for forensic tests to find links with Pakistani sabotage. This news disappeared from headlines almost immediately after it appeared for the first time. 

One probable reason is that the Modi regime does not want to give more credit to Pakistan than what has already been done. Further, such talk could trigger a run on Indian economy.

The cobra in the grass

My tweet early Wednesday: “Did anyone bother to notice [Union Finance Minister] Arun Jaitley’s silence on the surgical strike against black money?”

Operative portions of Jaitley’s mischievous response 10 hours later that has a lot of hidden meanings: [Jaitley’s statements are in a different colour for easy identification.]

“A lot of currency operating outside system will now have to get in to banking system”.

The unsaid part:

At least 48 hours before the demonetisation, there were serious attempts to turn some Rs.25,000 crores from black to white. Premiums amounting to 25% were on offer – in Chennai. This writer has personal knowledge of it.

Simply put, the ‘system’ is rotten, per se. And Jaitley propagates the rotten system.

“It will change the course of the way people spend and keep their money”.

Read between the lines:

Jaitley implied that moneybags would rethink on bankrolling the Bharatiya Janata Party [BJP].

“The new step is also of significant advantage.”

The tricky double-Dutch

The significant advantage has been introduced already. Small-time shopkeepers and/or housewives and/or other individuals can shove money into the banks in minor tranches – from Rs.5 lakhs to Rs. 40 lakhs. It would result in at least 35% of the ill-gotten stash to change colour and crawl back into the crannies of the economy.

It doesn’t nudge the economy in the direction of a cashless economy, but, significantly pushes it toward one.”

The Houdini act – to escape criticism – the reality:

There are no 100% cashless economies anywhere in the world.

There are only hopes – to achieve this utopian concept, or so said the Harvard Business Review some 4 months ago. Operative excerpts:

Denmark, Sweden, and Norway are already considering it, while the European Central Bank is considering getting rid of large-denomination bills.

Cash, according to a recent MasterCard study, accounts for nearly 85% of global consumer transactions.

Some of Sweden’s neighbours, in response to EU’s increasing regulations on restricting cash usage, are demanding a “constitutional right to pay in cashfuelled by concerns around negative interest rates and a perceived loss of privacy that comes with digital money.

Mobile payments today account for over 70% of all e-commerce transactions in China due to wallet wars among three major players – whose acronym is BAT. They comprise Baidu, Alibaba, and Tencent.

Keeping ATMs stocked and working properly is a cost to banks. These ATM maintenance costs are disproportionately high in many parts of the developing world, such as sub-Saharan Africa and Latin America , with myriad security and infrastructure challenges, as well as in geographically large, sparsely populated countries, such as Canada, Russia, and Australia, where the logistics challenges are high.

The absolute cost of cash to consumers, based on average transit time and cash access costs are high in some of the world’s most populous countries: Indonesia, Nigeria, Bangladesh, India, China, and the United States. They are high in many of the major European countries, such as Germany and France, as well as in Japan. These costs are lower in several Scandinavian countries with relatively entrenched mobile payments systems, such as Sweden, Finland, and Denmark, as well as countries with rapidly evolving mobile payment systems, such as South Korea and Kenya.

Countries in the developing world tend to have a greater tax gap and a greater degree of uncertainty about the reliability of the estimate of the gap. Developing countries have the largest tax gaps, with their shadow economies as large as 30%-44% of GDP. In India, for example, the tax gap could be as large as two-thirds of overall taxes owed.

The following countries have the greatest potential for unlocking value by policy and innovation led migration to a cashless society: U.S., Netherlands, Japan, Germany, France, Belgium, Spain, Czech Republic, China and Brazil. The U.S., for example, incurs a cost of $200 billion annually to keep cash in circulation; nearly a third of all store sales are still cash based despite its long history with plastic money

The second group that could go cashless in the long run includes parts of Eastern Europe such as Poland and Russia, and countries with large populations such as India, Indonesia, Mexico, Nigeria, Egypt, and the Philippines. Cash imposes severe costs on consumers in India and Mexico as we detail in our Cost of Cash studies

New Delhi’s 11 million inhabitants collectively spend some 72 million hours per year chasing cash.

Mexico’s small businesses suffer a 21% incidence of cash fraud — nearly twice the rate faced by larger businesses in the country.

“The government’s decision has given a sense of satisfaction among honest tax payers.”

The hidden prose:

Suddenly the middle-class with cash available on their declared returns would be in demand and make a killing – by merely circulating the ‘available balance on their cash-books to help money change colours and thus help financial villains.

“Long term advantage to the economy is significant. We appeal to the people to bear the minor inconveniences for the short period of time.

It is a big feint for a future sucker punch.

Ground is being prepared through this guarded statement on short-term inconveniences to assail the PM in the future.

Post script:

Question:

Will this end black money?

Answer: NO!  Persons with leeway in their income tax returns will make a killing by helping cash change colour from black to white and then to black again. Help could come from sources that owe allegiance to – of all people – FM Arun Jaitley!

Question:

Will Pakistan stop its misadventure?

Answer: No. The ISI goons will try to counterfeit the newer notes

Verdict

One should view the demonetisation exercise in the final analysis. The longer term reactions will be the ones to watch.

Author: haritsv

42 years' unblemished record of being an investigative journalist. Print quality journalist in 3 languages - English, Tamil, Hindi. Widely travelled, worldwide. Cantankerous and completely honest.

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