Sunday, December 11, 2016

Demonetisation of the 500 and 1000 rupee notes sucks

Note: I first posted this in Facebook some 5 or so days after the demonetisation was announced in India. I realised it was still in Draft form only when I wanted to publish my article on "An old man ...".

Demonetisation sucks! (a) If as reports suggest, only about 6% of illegal money is in cash in Indian rupee notes, it is a relatively small irritation to the cheaters; (b) the collateral damage to honest or relatively so citizens of a primarily cash based society is huge - at a personal level and macro level (lost gdp when productive time is used to stand in lines at banks); (c) the measures make a very tiny dent in "illegal money" because it will not "catch any big fish" - the big fish would have to be stupid to get caught because they risked 100% of their ill-gotten wealth to save 6% of it, far better to light cigars with the cash that is the 6% (or of course use the 13 ways in the attached article); (d) the best connected cheaters would have probably got insider information and "saved" their 500 and 1000 rupee notes in a number of ways - was there an uptick in stock and real estate transactions in the 2 or 3 months that this hare-brained scheme was being discussed and implemented? How about in the number of new bank accounts, or of the number of accounts that mysteriously suddenly had 2,50,000 rupees in them.
I must admit that I was excited when I first heard about it. Then when I got home and started thinking about it and reading the opinions of others I realised what a costly gimmick this was by the Indian Government. The sad part is that after the first day there seem to be many who do not think it is a gimmick and a fair share of them most likely think that the collateral damage is worth the trouble to get at that illegal money. What is even sadder is that whatever amount is not lost and goes into government coffers (via people suddenly paying years of taxes or levees with cash, or the confiscation of funds) is most likely going to get misappropriated or used very inefficiently!
Once again the common citizen is made to pay for the folly and greed of others.

Article from Huff Post
13 Ways In Which Indians Will Convert Their Black Money Into White Even After Demonetisation
As the poor struggle, black money owners are finding a variety of ways to save their wealth.

Note to self - start blogging again!