Compensating citizens for Demonetisation hardship

Govt. should give Fixed Deposit rates and a 100% extra for all money in banks to individual account holders

The Government's unprecedented action of declaring the Rs. 500 and Rs. 1000 as illegal and the resulting chaos continues unabated. Everyday, the National Media - which is mostly Delhi centric - comes to know a little bit more about the hardship of people in farflung areas and tells us how devastating this has been for many people.

The Government is however happy. The banks are also happy. Why won't the banks be happy?

For too long the banks had hidden their NPAs (Non Performing Assets) from their accounts. Industrialists have been taking loan after loan, often refinancing the old loans with even bigger new loans. The previous RBI Governor Shri Raghuram Rajan, who had famously predicted the 2008 economic collapse, had forced the banks to come clean on their bad loans or NPAs.

The Gross NPAs of banks in March 2016 was 7.6%. In rupee terms the Gross NPAs stood at 5,94,929 crores at the end of March 2016. RBI Projection says this is expected to rise to 8.5% by March 2017. And it had also said that if the "macro situation deteriorates in the future, the gross NPA ration may increase further to 9.3% by March 2017".

The public sector banks, atleast a majority of those, are like personal fiefdoms of the Chairman of the bank along with a coterie of politicians. Not many can question them. For too long this nexus between bankers, industrialists and politicians had continued till Shri Raghuram Rajan as RBI Governor decided to bring this issue to public. Shri Raghuram Rajan forced the banks to make 15% provisions for restructured loans. Now that the NPAs have been made public and are reflected in the balance sheets of the banks, they required massive recapitalisation. So there were some demands of recapitalisation of banks to the tune of 70,000 crores. However, given the scale of NPAs, that was too less.

The withdrawal of Rs. 500 and Rs. 1000 notes and people being forced to deposit their own money, banks are now flush with funds with several lakh crores of money already deposited. So a few banks have even announced reduction in their deposit rates by .15 to .25%.

Unfortunately, it is a double whammy for the common man. His/her money is forcibly deposited in the banks and only partial withdrawal of upto Rs. 2000 is possible per day. So even legitimate cash kept by people is now tied up in banks. It is like a forced fixed deposit without any extra interest rate.

If the cash deposited by the public is unaccounted for then the public have to pay income tax, as well as some 200% penalty. Though under what section that penalty percentage will be applied is not known.

Government is expected to be for the people and Government has to be seen as "just" and "fair". Unfortunately, in this entire #Demonetisation episode the public has been brutally hit. So it would be fair for the Government to announce that all deposits in the banks will earn an interest rate equal to annual fixed deposit rates and a special 100% extra on amount of hardship to the common man. That would be too low and too less because this demonetisation exercise has taken more than 50 lives and have resulted in massive loss of legitimate business.

Unfortunately, this Government only demands sacrifice from people and doesn't appear to be concerned for the "sacrifices" and doing even a small bit to alleviate their stress.

Read BlackMoney Politics & Way Forward: http://arjunaubacha.blogspot.in/2016/11/blackmoney-politics-way-forward.html

Psychological warfare in Demonitisation

The Government of India on 8th November night declared that the 500 and 1000 rupee notes are not legal tender from midnight that is effectively from 9th November. This 9/11 moment is as momentous in its impact on India as was the 9/11 attack on the twin towers of America.

If one looks at the messages emanating from the Government, much of it is warning to the public about the consequence of certain actions. It is a strange situation where the Government is consistently telling people to not to do certain things and if they don't listen then they will be prosecuted. If people are doing something wrong then they should be prosecuted. Lets analyse some of the warnings of the Government.

Since the Government announced that the Rs. 500 and Rs. 1000 notes are no longer legal tender and needs to be exchanged in the bank or deposited in the bank accounts, people have been depositing the money in the bank accounts. The Government then announced that any deposits in the bank accounts above Rs. 2.5 lakhs will be investigated. So some people started depositing only Rs. 2.5 lakhs in each account.

Then the Government warned that deposits in the name of housewives will be questioned ie the Government can question the source of funds.

It was reported that the Jan Dhan Yojana accounts that were opened and were lying dormant were being used to deposit upto the allowed Rs. 50,000. The Government warned that such deposits will be investigate.

Now the Income Tax department of Government of India has announced that if anyone is depositing cash in someone else's account, then these cases will be investigated under the Benami Transactions Act. The person whose account the money will be deposited will be treated as "benamidar" and the person who is the original owner of the money will be the termed as the "beneficial owner". Under the Benami Transactions Act all the persons involved are liable to be punished from anywhere between 1 to 7 years of rigorous imprisonment (R.I).

Why Govt. Creating Fear Psychosis:

The question that can come to mind is why the Government is trying to induce fear in people? Why this effort to create fear psychosis? The answer is two fold.

It Helps Political Narrative:

The first is the political narrative. The Modi Government hopes to utilise this as their big bang war on corruption and black money and use it to fight the UP and Punjab elections in early 2017. They believe, that the poor people will buy the argument that though they faced some inconvenience, they helped down in hunting the rich and the blackmoney holders. If a soldier can fight for the country, why can you not suffer this huge inconvenience for the betterment of the country, runs the argument. Since it gives the poor the vicarious pleasure of hunting the rich, it is a kind of a de-facto class warfare. Instead of directly proclaiming themselves as communists, Mr. Modi believes they can usurp the class struggle theme of the communists and get an entirely different class of voters cutting across caste and religious boundaries.

It is ofcourse a different matter that this chaos is resulting in a severe disruption of India's predominantly Cash only economy and the GDP is likely to contract. According to initial estimates the economy will take a year to come back to the days before demonitisation.

Income Tax Department will drown with work:

The Second reason for creating this fear psychosis is that the Income Tax department is not geared to handle this massive amount of work.

Only 2.87 crore Indians had filed personal income tax in the assessment year 2012-2013. Out of this 2.87 crores 1.62 crores didn't pay any income tax. So one can realise that the work of the Income Tax department is to analyse the data and work on this number.

Till last year there were some 31 crore bank accounts and then the Government is supposed to have added some 20 crore bank accounts under Jan Dhan Yojana. So roughly 50 crore savings bank accounts may be in India. Since the Government is forcing people to deposit the Rs. 500 and Rs. 1000 notes in the bank accounts, it is expected that the money will be deposited in many of these accounts. Due to computerisation it is easy to get data of high amounts of money deposited in the banks.

However, now the Income Tax department has to scan through data of deposits in atleast 50% of the bank accounts. I am assuming 50% because many of the Jan Dhan Yojana accounts are supposed to have been used by people to deposit money. So the workload of the Income Tax department is going to increase by atleast a massive 10-12 times. From roughly 2 crore plus accounts to some 25 or 30 crore accounts, the workload increase is going to be humongous. So it would be in their interest to discourage people to not deposit blackmoney in different accounts.

India with a population of 1.3 billion is much more than any other country except China. The sheer scale of work here is a challenge. To add to that challenge is this unprecedented action of the Government forcing people to deposit their cash in the bank accounts. One thing is for sure, neither the blackmoney holders can sleep in peace, nor the income tax guys will have any respite from work, work and more work.

Is possession of lot of old notes a crime?

Possession of lot of old notes a crime?

The Income Tax department is now conducting raids across the country based on tip-offs. In one case, in Delhi, a doctor was arrested when he was loading lot of cash in his car. A sum total of 69.86 lakhs was recovered from him in 100 rupee notes.

A man by the name Nazer-e-Alam was arrested in Delhi on Nov 18th with Rs. 1000 notes worth 96 lakhs. Alam was arrested under Section 103 of Delhi Police Act which is about possession of property for which no satisfactory explanation can be provided.

Though the above two cases appear to be same, however there is a big difference.

Technically, all our notes are legal tender. However, the Government on 8th November declared that Rs. 500 and Rs. 1000 are no longer legal tender. It is not known under what act this declaration was made. Though some may consider that Government declaring the notes not being legal tender is akin to Government reneging on its promise. Every currency note is a promissory note and is guaranteed by the Central Government. Nevertheless, that is not a point of discussion for this article.

When the notes are no longer legal tender, these notes are just pieces of paper. So When a man possesses a large amount of these notes like Nazer-e-Alam, technically he cannot be charged for possession of assets disproportionate to his known income. Neither can he be charged for possession of property for which no satisfactory explanation is provided because the notes he is in possession off is no longer legal tender. Since it is no longer currency and is worthless, unless and until deposited in a bank, technically any lawyer can successfully argue and rescue him.

The sudden declaration by the Government has caught many small time traders and businessmen with cash which has not been declared to the Income Tax authorities. So they are expected to use people couriers to transport such cash from one place to another. It is expected that some of them will get caught and will be tried under various sections. However, it would be interesting to watch how the prosecution will unfold.

However, when people are found with Rs. 100 notes which are perfectly valid legal tender, there would be no respite from the income tax authorities from prosecuting the arrested persons.

Indian economy predominantly runs on cash. Demonitisation cannot happen overnight. It would take sufficient effort by the Government to move much of this to digital cash. Not many people understand how to use e-wallets. Not many trust those as well. It would help if the Government of India comes out with an e-wallet which would be readily acceptable in all places. There would be trust factor if the Government steps in as the Government would be responsible for security. The Government though at the moment seems to be letting the PayTMs of the world run with the ball.

Notes Ban: Terrible Implementation shows no Planning

The Government of India order to declare the current Rs. 500 and Rs. 1000 notes as not legal tender has initially said as a well planned move against black money. Shri Arun Jaitley, Union Finance Minister as well as Shri Rajnath Singh, Union Home Minister has reiterated the Government stand that the Government had thought through the move and implemented it. However that appears to be complete hogwash.

It seems that the number of Rs. 500 notes withdrawn are 1570 crores. And 630 crores of Rs. 1000 notes were withdrawn by the Government order. The total capacity of Government of India's currency press is 300 crore notes a month. So it would have taken some 7 odd months to print replacement of Rs. 500 and Rs. 1000 notes. So the Government decided to print Rs. 2000 notes in lieu of Rs. 1000 notes. Nevertheless, it appears that it will take some 3-4 months atleast for the Government to fully print replacement currency. So the queues will last for a long time.

The Government initially said that people will be able to draw RS. 2000/- from their ATMs per day and from 19th onwards they will be able to draw Rs. 4000. However, the Govt. again raised the limit to Rs. 2500 and dropped the promise of raising the limit to Rs. 4000/- per day. Clearly they realise that it is impossible.

The initial order said that people will be able to exchange Rs. 4000 worth of old Rs. 500 and Rs. 1000 notes by filling a form. Now that limit has been reduced to Rs. 2000. People will old currencies can however deposit all the money in their bank accounts. However despite the Jan Dhan Yojana accounts not many in India have bank accounts. So that makes it very difficult for people.

The Government has also allowed people to withdraw Rs. 2.5Lakhs if a family has a marriage. This appears to be a fallout of Mr. Modi sarcastically saying in Japan that even marriages have been stopped and the people were heard laughing. The Government has now decided to fight that negative image by ensuring that anyone in the family having a marriage can draw Rs. 2.5L. So this again shows that the Government had not thought about this before ordering its implementation.

The Government realised that many people are going to exchange notes. Some of the people are visiting again and again. So to stop it the banks were asked to put indelible ink on the finger of people while exchanging old notes.  However, there was shortage of such ink, so the banks were advised to use the ink that dhobi's use to mark clothes. Now the Election commission has written to the finance ministry that that since this ink is only for use in elections, the finance ministry ask the banks to stop using it. This again shows how this Government is grappling with a bad idea which was implemented without planning. The Government is moving from one knee-jerk solution to another.

Mr. Modi had come to power by promising efficiency and development. Certainly this muddle headed idea and its poor implementation has left his carefully crafted image in tatters. If this impasse continues for some more days, which it is likely to be, the anger against the Government will rise and no amount of giving it a positive spin will suffice.

His past actions tell us that he will try some other big bang announcement to make people talk about it and forget the pain of notes ban. We haven't heard the last word yet on this issue.

Read the previous article: http://arjunaubacha.blogspot.in/2016/11/blackmoney-politics-way-forward.html

BlackMoney, Politics & Way Forward:

In the 2014 Lok sabha elections, you all would have seen the unprecedented money power. 20,000 crores was spent by BJP. Do you know how much is the official income of BJP in 2014-15? It is 1475.44 crores. So you guys think that the election was fought with “white” money?

According to grapevine, Mukesh Ambani is supposed to have given some 4000 crores. Do you think he gave all that in cheque?

Wake up guys!

Many years ago, Ratan Tata had proposed State funding of elections. It was rejected. Without adequate funding, good guys can never contest elections. Only the rich, corrupt can contest elections. Today they spend anywhere between 6 crore rupees to 10 crores for an assembly election and it varies according to the importance of the seat. That is way more than the stipulated amount that is shown to the election commission as election expenses. Majority of the money spent in elections is black money. During elections when the blackmoney comes out and is pumped into the economy, it becomes legitimate earnings for some and gives rise to a boost to the economy as it has a multiplier effect.

Nevertheless, funding of elections have to be streamlined, else politicians will continue to have a reason to generate blackmoney.

And don’t think the black money is generated only by rich.

Many of you would be paying house rent by cash. Any money that is not accounted for ie declared to the income tax is black. In Delhi, people pay part of the house rent as cash. This is because the owner insists on payment in lieu of pumping water to fill the overhead tank. Much of delhi is like that.

And if you every paid money to the traffic cop for a traffic violation, then that would have been without bill and it is a blackmoney. Did you request the TTE to allot you a berth in the train and given him some money. That is blackmoney. Next time run after the TTE and record video and see what he does. :)

A road side food vendor earns much more than many salaried employees. A TV report suggests a chaat wala in Bhubaneshwar earns 32000 profit per day. That is after paying the mandatory haafta to the police. How many common men and women earn that much money after tax? And all that is black. In Bombay, road side eateries have declared some Rs. 50 crores income. http://economictimes.indiatimes.com/news/economy/policy/roadside-eatery-owners-declare-rs-50-crore-under-black-money-scheme-in-mumbai/articleshow/54618396.cms

The generation of black money is relentless. Modi Govt. has done nothing to stop the generation. Neither it has done anything to hunt the super rich who have already converted their black money to white.

The gems and jewellery industry had grown by 97.1% in FY 2015-2016. Most of that is due to the cash getting converted to gems and jewellery. Govt. mandated the use of PAN card for high value transaction. However, people know how to bypass it by breaking the purchases into instalments as well as lot of those not being shown in the books and through fake id proofs.

The people who are hit by the Rs. 500 and 1000 notes ban are the poor and small time traders. In Delhi when a maid goes to convert her 1500 rupees which she had got as salary by giving it to the sabji wala, the sabjiwala thela guy gives 300 worth of sabji for each 500 note.

An industrialist has got 80 employees. He signed contract with all his employees and gave them 5L each to be deposited in their account as well as their wifes account (2.5L each). So he made some 4 crores white. This is one of the methods adopted. People are ingenious and can figure out a loophole to deposit their notes in the bank accounts.

The challenge is the significant loss in sales in the markets. The economy is hit. There is partial impact of this on some guys who had blackmoney. However for a large economy like India, this is way too less. We order food/groceries online paying through card to tide over the problem. The poor cannot afford to do that. In smaller towns the number of banks are too less and due to lack of media coverage we don't get to know the suffering of the people.

Note ban is More to do with Politics:

There is so much of data these days. The Government should have put people to analyse it. This kind of data analytics is called “big data”. However, the Government decided to create fear in the minds of people to benefit politically.

Else, there was no reason to say that any deposit over Rs. 2.5L in bank will be taxed. What was the point in making that announcement? Let people deposit all their money and then the Government could have just gone and caught the people who had deposited huge amounts and asked them to justify it.

What was the need to announce that the Government is tracking the Jan dhan yojana accounts where money is being deposited. It is simple politics my friend to tell you guys that the Government is actually hunting down the people with blackmoney. It wants you all to have vicarious pleasure in participating in that blackmoney hunt. Remember the Roman era where people used to applaud the bloody man vs animal sports? The psyche is the same. The Govt. makes the aam aadmi feel the same about hunting blackmoney guys. Unfortunately, due to the poor implementation, the poor people instead of applauding the Government have become collateral damage. The Supreme Court has rightly said that it is Carpet bombing.

Citizens can help unearth BlackMoney:

The Government can setup toll free numbers, email ids and fax numbers dedicated to unearthing black money where any person can send a message about instances of blackmoney generation.

Some bhakts say that banning Rs. 500 and Rs. 1000 will lead to more PayTM which is good. Tell me why going with a Chinese company is good?

Govt. App for e-money:

I would prefer that all buying and selling be done via an app linked with mobile and that app should be owned by the Government. It should have voice assisted features, so that even a layman can understand how to use it.

If there is any hacking then the Government should be responsible. When it comes with sovereign guarantee, people will definitely use it.

And the Government will then know all the users using the app to buy and sell even small things like samosa in the road side. Let the Government take the lead. It would be the biggest e-money payment mechanism in the world.

Why bow before chinese and use PayTM? If that can be done, then the entire India will stand up and applaud Modi. No amount of tears can move me. Only visionary work can. I still have hopes that Mr. Modi can do good things based on his mandate, without disrupting lives of common man and making him/her collateral damage in his politics.

Edit: Readers have emailed that there is a National Payments Corporation of India with its UPI (Unified Payments Interface) gateway, where some 30 banks are linked. So one can directly pay from your account. It was done during Raghuram Rajan's time and hasn't got much publicity. May be the Hon'ble Prime Minister can promote it instead of being shown in PayTM advts. However, we are not sure if this UPI will work in toll booths and other places.

Read the Next article: http://arjunaubacha.blogspot.in/2016/11/notes-ban-terrible-implementation-shows.html

Real Demonitisation is Yet to Come

Demonitisation of Rs. 500 and 1000

Much has been said about the move of the Central Government to suddenly declare all the 500 and 1000 rupee notes to be worthless and needs to be replaced in the bank and post office and how it impacts black money. However, a lot needs to be done as the impact is not as one expect it to be.

It is a very easily understood thought that anyone who has stored Black Money in form of cash will do so in higher denomination notes. So 10,000 notes of Rs.1000/- will become a crore. Whereas one needs to use 20,000 notes of Rs. 500/- each to make it One crore rupees or 1lakh ie 100,000 notes of Rs. 100/- each.

There are many small traders, businessmen who keep unaccounted for cash at home or in godowns. So these people are going to get affected. These people can deposit that money in the banks in their accounts. However, that means attracting a penalty of 200% if the IT department feels that these are part of unaccounted for wealth.

However, it is a well known fact that most of the people convert their black money to white by investing in real estate. Some put up shops and establishments as a front to convert their ill gotten wealth that have been amassed as bribes or other dubious means. Many people invest in gold, diamonds etc.

The bigger players either stash it in Swiss bank accounts or send it abroad and get it back via Participatory Notes (PN Notes). The Government doesn't ask any questions about the PN notes. Several years ago the move by the Government to seek more details about Participatory Notes had spooked the share market and the Government had to backtrack. So the big fish is always out.

The Government however is not tackling black money generation. Much of our economy runs on cash. When I asked a road side Momo seller in Malviya Nagar, New Delhi, he told me that every evening he sells Rs.3000 - Rs.4000/- worth of Momos. The Momo seller infront of Hauz Khas Metro station sells anywhere between Rs. 13,000/- to Rs. 15,000/- per evening. And there are many more such road side vendors. All these people are out of the tax net. Ofcourse, the police man on the beat collects Rs. 10 and Rs. 20/- everyday.

The Tandoori Chicken that I order from the eatery never gives a bill. None of the restaurants give a standard bill. They just write a cash memo which is not a proper bill. The medicine stores give a bill only if you ask. And they threaten that they will have to add VAT extra and then inflate the bill.

The Government has to bring all these people under the tax net. Today there is technology to fall back on. With mobile phones becoming ubiquitous, we should mandatorily force people to use mobile phone linked electronic cash which is directly linked with the bank accounts. The Government can come out with a mobile phone payment gateway which doesn't charge people per transaction. Let it be run by a Government agency and all such data can be mined by the Income Tax department. If it is done by Government, then we know that the Government will be responsible for its security.

This electronic payment linked with mobiles should be used everywhere to pay toll, parking fees, any payment anywhere.

The Government has to be creative, use technology and think ahead to curb the menace of Black Money.

It is said that the Government has been planning this removal of Rs. 500 and Rs. 1000/- notes for a long times. However, the timing seems to be aimed at disrupting the roadshows of Akhilesh Yadav, Chief Minister of UP and the money power of Samajwadi Party. How much actual effect this move has on the rival political parties is not known. However, according to grape vine, SP and BSP are hit hard. How this changes the campaigning in UP will not be known accept for whispers here and there.

Nevertheless with this move, the BJP has something to talk about for the next two years. Whether this demonitisation will be able to overcome the perception of their lack of results by the Modi Govt. will be known later.