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One Year After India Killed Off Cash, What Other Countries Should Learn

product50 9y ago
The author is a known critic of the demonetization policy. This was a complicated decision and it is still unclear whether it worked or not. I personally know a lot of business owners and merchants who really hate Modi for this move - which I feel is a good sign given these are the very people who kept the so called black money hidden from the govt and were negatively affected. Of course, the GDP would fall given economic activity got affected at the grass roots level. That said, there were some benefits 1) people would think twice before hoarding onto cash and keep it hidden from the govt 2) more people would use banking facilities as the govt basically forced a lot of people to create bank accounts and deposit cash there for easy tracking. Also, there are long term tax benefits for the govt too given now it has a snapshot of who exchanged how much black money (in old notes) with the new notes. As such, the answer isn't black or white here.
- voltooid 9y ago
  Maybe it would have been more widely received, if the country in general had been prepared more for digital transactions. When electricity supply is often unstable (especially during and after natural disasters as the one that struck the south east coast last year), it did not make sense to roll out this measure when it was rolled out.
  - candiodari 9y ago
    You are confusing the purpose of the demonetization. You might think it is to improve the economy. False. You might think it is to make payments more fluid and fast. False. Modernization ? No. You might even think it is a corrupt measure to make the banks richer. False. It is to get the people making the decision reelected. It is to give the government party control of the spending of other political parties that might replace them [1]. This decision had a very specific aim, and achieved exactly that aim. In very predictable fashion it did a ridiculous amount of economic damage to the country in the process, but that shows nothing more than what the priorities of Mr. Modi are. It was very well received (judging by voting afterwards) and further cemented the current party into power. That was the purpose. That aim was achieved. Why was the timing what it was ? It was election time ... [2] Immediately before this "make or break" (dixit BBC) election BJP suddenly made itself the only party capable of doling out cash and other direct political favors in that state. Coincidence ? No. [1] https://www.forbes.com/sites/timworstall/2016/12/17/this-is-clever-indias-political-parties-can-deposit-old-notes-with-no-tax-investigation/#4f0663d57c92 https://www.forbes.com/sites/timworstall/2016/12/17/this-is-... [2] http://www.bbc.com/news/world-asia-india-39228615 http://www.bbc.com/news/world-asia-india-39228615
    - sremani 9y ago
      This is conspiracy theory masquerading as a political strategy. The judgement on demonetization should be withheld for couple of years, the banks while accepting old cash collected substantial amount of information before giving new cash. This is going to be a busy year for tax man in India and so will be the next one. Even though most of the money made back into system, there are enough breadcrumbs to triangulate bad actors and black money. Expect some drastic policy changes with real estate, corporate taxation and gold.
      - mos38 9y ago
        Like indian traffic and indian traffic cops, there weren't ever enough tax men to enforce anything too strictly even before all this new data was collected. But I agree in general that it takes things in a positive direction long term. The digitization allows for more automation and wider enforcement. Its going to take some time to settle. Hope the opposition doesn't complicate the story with mindless hysterics.
      - wtmt 9y ago
        > Expect some drastic policy changes with real estate, corporate taxation and gold. Nope. I don’t expect any changes on real estate or corporate taxation, except to help people who have/control them become richer and have even more lax regulation. A lot of real estate is held by politicians of all political parties. So there’s no reason they’d shoot themselves in the foot. One “maverick” Prime Minister cannot overrule hundreds of others with vested interests, however clean or idealistic he may project himself to be. As for corporates, the NDA government is highly favorable to them. The tax rates are set to decrease as announced a couple of years ago anyway. Gold is probably a slightly easier target. It has already seen restrictions before, which means the rich and powerful likely don’t hold too much of it or transact a lot with it.
      - kamaal 9y ago
        >>The judgement on demonetization should be withheld for couple of years How many? 10? 20? After than what happens? People stop taking bribes? Start paying taxes? Drive around Bangalore anytime during day light. See how many policemen are standing every 1 km negotiating bribes from motorcycle/car users. Go for property registration anywhere, go see what is the going rate for a single registration... Things like Demonetization changed/changes NOTHING. You need to change people. And that is next to impossible in India. >>Even though most of the money made back into system 0 Black Money came back into the system, as per the government's own admission. >>Expect some drastic policy changes with real estate, corporate taxation and gold. So we learn nothing from the mistakes? Only thing this will do, is make millions of people jobless. Destroy family incomes, disrupt their ability to provide for their families and put the economy in tremendous strife. For any policy to work, People need to cooperate. In India its basically every one, all the time optimizing only for personal profit. The only thing you will end up doing in this set up is harming a lot of innocent people, and end up providing immunity training to the crooks.
- mknits 9y ago
  LOL. Looks like you're sucking Modi's dick. It is perfectly clear to everyone that it DID NOT work at all. Govt removed 1000/- notes and introduced 2000/-, the biggest irony of supposed anti-corruption move. And how many of corrupt people, and among them include most MLAs, MPs etc. were caught hoarding black money? ZERO. I personally know a lot of people, popularly called as BHAKTS, no matter what logic you give them, they remain illogical and keep sucking Modi's dick.
  - sctb 9y ago
    We've banned this account for repeatedly violating the guidelines. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- TheArcane 9y ago
  > it is still unclear whether it worked or not. Didn't they report that almost all the cash came back - proving that there was basically no black money returned and the only people they inconvenienced was ordinary citizens with their hard-earned cash reserves?
  - sudhirj 9y ago
    All the cash coming back was one thing, now everyone has to file their income tax returns, which is when it gets interesting. There’s going to be a lot of people filing tax returns for the first time, and a lot of explaining to do.
    - crdoconnor 9y ago
      Black money largely isn't held as large stacks of suspicious looking cash - that's a Bollywood trope. It's invested domestically in real estate, art, gold, or other assets, or held offshore, either in the form of freely convertible currency or other assets, which is why 98.96% of the cash was returned. I strongly doubt a significant number of criminals openly advertised their possession of black money by returning it themselves. Modi's ploy was an unmitigated failure.
      - xapata 9y ago
        If criminals didn't turn in the cash, then it evaporated, which is just as good. No?
        crdoconnor 9y ago
        No. Just 1% of the cash evaporated, as opposed to 33% as Modi predicted, and majority of that was probably just due to loss or unlucky circumstance. For such a disruptive event, that's pathetic. The only winner was the banking system, who saw one of their major competitors (cash), hobbled. Modi now seems to be saying that this was the point all along.
        9y ago
- sifar 9y ago
  Even after a year, calling whether it worked as unclear is being naive or ignorant. Would you say ripping off 80% of your code base and rewriting it was a good idea if you are still unclear about the benefits ? To wit, you can't go back to the old code base also. I so wish GRR Martin had put this in GoT. Then most Indians would have been aware of it. I'll repeat it here once again. Not all black money is in cash. Not all cash is black money. A major portion is in real estate, gold, businesses and other financial assets. Cash is just ~8-10% of the economy. Most people with unaccounted cash had access to networks which would launder it for them. Even if you have a digital trail, the justice system is not digital. Sure some would have to pay up, but a majority would have enough accountants/lawyers to avoid the taxes. People complaining about black money in India, forget that the relatively low consumer prices that they enjoy is partly due to black money. If one wants the SMEs to pay their taxes, the consumer should be ready to pay more in price. People want low prices, low taxes and no black money/corruption. Well, pick any two. >> 1) people would think twice before hoarding onto cash and keep it hidden from the govt Or they could change the govt :).
  - product50 9y ago
    Of course not all black money is in cash. However, because of this move all assets which are known carriers of black money including real estate, gold etc. also took a hard hit. Additionally, the thinking is that people would be more careful dealing in cash going forward. And I would abstain from using absolute stance like you are using. I think this move definitely falls into the grey territory.
amriksohata 9y ago
Many in India consider demonetisation a great thing, it's mostly the political opponents of Modi trying to defame it
- programmer_dude 9y ago
  Why do they do that (consider a good thing)?
  - amriksohata 9y ago
    Corrupt people losing a lot of money, even the ones that worked around the problem, were a small number as the cash flow was so limited. heres an example dramatisation of what happened to terrorist funders too: https://www.facebook.com/KasheerHinduzFront/videos/1235092493207103/ https://www.facebook.com/KasheerHinduzFront/videos/123509249...
    - sumedh 9y ago
      > Corrupt people losing a lot of money So a person is corrupt just because he deals with cash?
      - ahamedirshad123 9y ago
        Looks like he is a bot. Just posting three links everywhere
        amriksohata 9y ago
        ahamed? I see, I see. No I'm not a bot, but here is another link you should read and understand why demonetisation has been good for India. programmer_dude asked for sources and thats why I'm posting them. https://timesofindia.indiatimes.com/business/india-business/demonetisation-helped-bring-down-realty-prices-by-5-10-housing-ministry/articleshow/61569838.cms https://timesofindia.indiatimes.com/business/india-business/...
amrrs 9y ago
While I wonder what makes HN interested about India's demonetisation, The biggest irony of Demonetisation is not how the ruling government started listing down auxiliary benefits as the intended objects, It's how rural Indian is always being ignored by the people who celebrate the success of Demonetisaion. We who live in Cities like Bangalore have got Card swiping machine with every merchant, Imagine a village where there is only a few ATM machines, That's where the real impact - the failure is. It may not be even captured by a metric like GDP but when you travel across the country - not just hopping from Station to Station but actually to places, you'd find it out! Edit: Ppl celebrating demonetisation doesn't refer to HN but a broader group in India.
- eqtn 9y ago
  No one here is celebrating demonetisation. And the initial hype about the digital transactions was long dead. Most of the people who were using cash, went back to using cash for transactions.
- mos38 9y ago
  Travel to rural India and talk to a money lender. There was a nice much needed shake down. They were all sitting on cash that had to be pushed into bank accounts. This is a long term net positive in shedding light on the shadow economy which has been exploiting the unbanked rural poor for the longest time.
  - ahamedirshad123 9y ago
    just don't lie, for god sake http://www.thehindubusinessline.com/money-and-banking/indias-rural-economy-hit-hard-as-informal-lending-breaks-down/article9391669.ece http://www.thehindubusinessline.com/money-and-banking/indias...
    - hu61 9y ago
      Wow so in your reality what was reported about money lending one year ago, one week after demonetization still holds? All the money lenders in India went into retirement is it? Go find an article on what moneylenders are doing today. They are still lending. But from their bank accounts not from under their mattress. Just blind reactions without knowing how the world works has become very fashionable today.
NiklasMort 9y ago
The only winners are the credit card companies and the banks here. Getting rid of cash is the final step of their financial prison for the average Joe.
- brianwawok 9y ago
  So large chunks of a country not paying any taxes is an OK place to be? Unclear what the right solution is but clearly there was a problem.
  - NiklasMort 9y ago
    ", the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. " And this is not only true for India.
    - sliverstorm 9y ago
      That's wealth, not transactions. Digital could still bring to light "under the table" taxable transactions.
      - NiklasMort 9y ago
        The problem is that its a digital prison for normal people. If there is no cash then bank accounts, CC and transactions should be free, as cash is free itself. But they are not. It's just a money making machine for banks and CC companies. Furthermore if people want to hide something they'll manage, especially if it about big money.
        sliverstorm 9y ago
        Technically paper money is not free either, people support the paper money machine with their taxes and in the cost of goods. Money must be printed & reclaimed & replaced, bills must be counted & sorted & transported, etc. Any currency system has overhead, the paper money overhead is just very hidden. So if the fees are appropriately low, a system of private banks and CC's could be ultimately similar in cost to normal people.
patrickg_zill 9y ago
Wasn't something like 99% of the targeted cash, ultimately redeemed at par value? If so, it was quite ineffective...
- sfifs 9y ago
  Now there's data on where it came in and went out where as before it was all daek. A lot of people have a lot of explaining to do.
- ahamedirshad123 9y ago
  Reserve Bank of India is still counting.
- rtx 9y ago
  That was the goal.
  - patrickg_zill 9y ago
    No, that was not the original goal, which was to strand and demonetize the black money. After that failed, they changed their stated goal (after the fact).
thriftwy 9y ago
When I was riding my kick scooter, I had this recurring thought: What would my trajectory be if I would to roll my steering handle by 180 degrees? I never got to try, but India did.
- TheArcane 9y ago
  Best part of demonetization - the free policy lesson for every country.
  - thriftwy 9y ago
    Well, North Korea did similar things five years prior, with similar results. Not everybody got the memo.
- legacynl 9y ago
  Yes this is exactly the same. Very apt comparison.
DonHopkins 9y ago
1) Lesson One: Choose Your Experts Carefully The Trump administration would never make a mistake like that, would they?
vita17 9y ago
I don’t think anyone should be learning from India until they fix with their massive list of problems.
- dump121 9y ago
  Can always learn, what not to do.
gwbas1c 9y ago
The most relevant quote: > Third, in a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause. Assuming the data is correct, demonetization was flawed from the beginning.
knowThySelfx 9y ago
The title itself is a misnomer. No one checking stuff in HBR? Only denominations of 500s and 1000s were made illegal. This was replaced with new 500 and 2000 Rupee notes. All the other denominations remained valid throughout.The intent was to control counterfeit currency. It also appealed the public to use more digital transactions. Today, in TV there was news about a district in Kerala (Malappuram) having 50000 crores worth of old currency in the hands of various people there. The person whom the reporter interviewed was an agent who sold these old notes to some people for a percentage of the value of the old notes. They didn't say for what purpose the old notes are bought. A friend of mine who knows some Gujrathi cloth merchants in Kochi's main market was told these old notes are bought so that its thread can be taken for counterfeiting new notes.
- akvadrako 9y ago
  It's funny seeing so many people commenting about a completely fabricated headline.
  - knowThySelfx 9y ago
    The titling is deliberately chosen to mislead readers.
- intended 9y ago
  5000 crore. in Kerala. Theres so many things that raise flags there. Thats a non trivial percent of the missing cash, whihc is very unlikely to be in one place. Kerala gets most of its money via remittances, the idea that they would be a store of cash, especially when most of people convert it into gold around India anyway, makes it extremely hard to accept just from the face of it
  - knowThySelfx 9y ago
    It is not in one place, but in the hands of different people. Hawala (https://en.wikipedia.org/wiki/Hawala https://en.wikipedia.org/wiki/Hawala) is very active in certain northern districts of Kerala. I agree, its a fairly non-trivial amount of money.
nocoder 9y ago
This is one of the largest transfer of money from individuals & small businesses to corporate sector. Since notes were denotified, people had no choice but to move to businesses which could support digital payments. This led to huge loss of business for smaller players who were dealing in cash and a drop in economic activity. And the small businesses are the ones which employ highest number of people, so the subsequent job loss. Additional domino effects is loss of man hours spent in exchanging the notes and the general anxiety it caused amongst people. Moreover data shows [1], the whole exercise only caused a temporary change in behaviour & cash in back in vogue, so essentially a pointless & damaging exercise. [1] - http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-year-after-demonetisation-cash-is-still-king.html http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-...
- mabbo 9y ago
  Those small businesses were the ones taking cash only, paying employees in cash, and generally continuing the trend of no one paying any taxes what-so-ever. Of course they could employ more people- they were unfairly competing with the companies that were following the law. I have a hard time sympathizing.
  - intended 9y ago
    Unfairly competing? Thats the weirdest example which doesnt describe India.
    - rtx 9y ago
      It does, not paying taxes is unfair competition.
      - intended 9y ago
        against who? Most of those firms earn less than the barrier for payment being required. So which taxes and who?
otakucode 9y ago
Lesson one: Payment processors are taxing bodies. The degree to which your society operates without cash is the degree to which your governing bodies lose all control over the supply of money in your nation. Value of your currency is handed over to payment processors who do little beside moving numbers from place to place, and charge a percentage cut of every such movement on the fictional basis of moving larger numbers somehow costing more or being a harder service to provide. Should the payment processors wish your currency to be in greater supply, they will lower their rates. Should they wish to restrict the supply of money, they will raise them. Their influence is more flexible and has many fewer restrictions than stodgy old things like 'central banks'.
- coldcode 9y ago
  So a digital Fed. Who says a government can't regulate the payment processor?
  - otakucode 9y ago
    They certainly could. And I would argue that in the USA right now they absolutely should. If not providing a modernized federal ACH system that can handle realtime funds transfers, then at least by absolutely and criminally forbidding charging a fee which scales based upon the amount of money changing hands (a small flat fee would be warranted, the problem is that they charge more just because the numbers are bigger which is nonsensical, we're not talking about them extending credit or doing the liability hot potato that credit card transactions are, this is just pure transferring from one account to another). Ideally the government would establish their own cryptocurrency, but I think that ship has sailed. Society in general has accepted that the standards of cash - anonymity, non-traceability, non-freezability, etc - are simply too dangerous to trust people with.
- sifar 9y ago
  This. I wonder if the proponents of digitization realize this at all. Do the government policy makers/central banks realize that in their drive to digitize transactions to make them traceable, they are ceding some power to these payment processors.
rahulpandita 9y ago
>"It most recent GDP growth figure has fallen to 5.7%, and part of that, too, can be attributed to the policy move from last November." It would be interesting to quantify what "part". AFAIK GDP growth has many contributing factors both short term and long term. It would really help readers to better comprehend the affect and also help policy makers to be cautious going forward. >Lesson One: Choose Your Experts Carefully : Agreed, we must choose our experts carefully. However, author is silent on "how". Instead what author presents is his take on who are experts. I am not questioning the authors credentials but as HBR article, I expected authors to present a methodology instead of what seems a subjective view to me. >Lesson Two: Don’t Ignore Basic Data : Authors criticism that basic data was ignored seems more of a speculation. No concrete sources that such data was not consulted at all. >Lesson Four: Beware of Digital Silver Bullets : Here I feel author selectively uses the citation to benefit his narrative. The very citation states the following verbatim. http://www.moneycontrol.com/news/business/economy/digital-payments-growth-dips-27-in-aug-from-peak-bhim-upi-to-take-charge-2380617.html http://www.moneycontrol.com/news/business/economy/digital-pa... >"Still, it is appreciable that the numbers have not come down by a large amount. There are many who have permanently moved on to digital, which is a bigger benefit."
known 9y ago
Slipping GDP growth, declining private spending and investments, falling jobs, decreasing industrial production, rising inflation, and rising current account deficit. https://qz.com/1090478/no-matter-how-hard-the-government-tries-it-cant-sell-indias-growth-story-to-the-world/ https://qz.com/1090478/no-matter-how-hard-the-government-tri...
bufferoverflow 9y ago
You can't kill off cash or other forms of anonymous payment. Humans will always find a substitute. Stamps is an obvious choice. And then there are cryptocurrencies, which are about to teach the world economists all kinds of lessons.
m23khan 9y ago
kuddos to Indian Govt. for taking this step. South Asian economies are rife with black money and small vendors and regular citizens rarely pay taxes. Any attempt to rectify this menace is a welcome step -- hopefully regional countries like Pakistan and Afghanistan can implement similar measures.
known 9y ago
Narendra Modi fulfilled just 9% of his poll promises http://www.electionpromisestracker.in/governments/central-government http://www.electionpromisestracker.in/governments/central-go...
wtmt 9y ago
If I were to make a statement on this, I’d say that other countries shouldn’t attempt such an exercise, and if they do, they should certainly look at how it was done in India as a classic case study of “how not to do it.” There’s close to nothing that came as a benefit from this exercise. But the so called “collateral damage”, that the richer classes ignore, on people’s livelihoods, their very lives (many people died) and the economy was significantly bad. The “first cashless village in India” touted during that time has gone back to using cash. [1] Dreams about digital money alone won’t do. There’s a long, long way to go on telecom/Internet infrastructure improvement, availability of electricity, availability of devices that are easy to use, education and awareness on security, etc. I believe any future government in India would be downright foolish to consider doing such a thing again. Now all that the government has done by eliminating the Rs.1000 note and introducing the Rs.2000 note is made it easier to hoard and transport large sums of cash. [1]: https://www.bloombergquint.com/demonetisation-one-year/2017/11/07/cash-is-king-again-in-indias-cashless-village https://www.bloombergquint.com/demonetisation-one-year/2017/...
known 9y ago
All the destruction that was unleashed in its aftermath, could have been avoided, if PM Modi had heard the best economist he had at his disposal, and not an accountant masquerading as one. http://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-safe-to-say-this-if-only-modi-had-listened-to-the-economist-he-had-at-his-disposal_a_23268888/ http://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-sa...
Feniks 9y ago
I live in a country that is rapidly becoming cashless. This was not a government program. It happened naturally and was deemed to be in the best interest of all. At every purchase people can freely choose to use cash or a card/phone. An advanced economy, low corruption, efficient banking system, top level infrastructure and supreme faith in civilization are not things you can just implement.
oarla 9y ago
Seems early to declare demonetization as a failure.
mankash666 9y ago
The article axiomatically attributes demonetization as the reason for a reduction in GDP growth, even 3 quarters after the event. Is it that obvious as I don't see the direct connection - more currency flowing through official channels = increased GDP and taxes. What am I missing?
known 9y ago
BBC nails it better. Invalidating 90% of the stock of currency notes to catch 6% of illegal wealth was a clear case of using a hammer to kill a fly. The rationale of a crackdown on counterfeit notes was also misleading since India's central bank's own estimate was that fewer than 0.02% India's stock of high-value currency was growing in line with GDP and the share of such currency in India's GDP remained constant at around 9% for half a decade http://www.bbc.com/news/world-asia-india-41896865 http://www.bbc.com/news/world-asia-india-41896865

The author is a known critic of the demonetization policy. This was a complicated decision and it is still unclear whether it worked or not. I personally know a lot of business owners and merchants who really hate Modi for this move - which I feel is a good sign given these are the very people who kept the so called black money hidden from the govt and were negatively affected. Of course, the GDP would fall given economic activity got affected at the grass roots level. That said, there were some benefits 1) people would think twice before hoarding onto cash and keep it hidden from the govt 2) more people would use banking facilities as the govt basically forced a lot of people to create bank accounts and deposit cash there for easy tracking. Also, there are long term tax benefits for the govt too given now it has a snapshot of who exchanged how much black money (in old notes) with the new notes. As such, the answer isn't black or white here.

voltooid 9y ago
Maybe it would have been more widely received, if the country in general had been prepared more for digital transactions. When electricity supply is often unstable (especially during and after natural disasters as the one that struck the south east coast last year), it did not make sense to roll out this measure when it was rolled out.
- candiodari 9y ago
  You are confusing the purpose of the demonetization. You might think it is to improve the economy. False. You might think it is to make payments more fluid and fast. False. Modernization ? No. You might even think it is a corrupt measure to make the banks richer. False. It is to get the people making the decision reelected. It is to give the government party control of the spending of other political parties that might replace them [1]. This decision had a very specific aim, and achieved exactly that aim. In very predictable fashion it did a ridiculous amount of economic damage to the country in the process, but that shows nothing more than what the priorities of Mr. Modi are. It was very well received (judging by voting afterwards) and further cemented the current party into power. That was the purpose. That aim was achieved. Why was the timing what it was ? It was election time ... [2] Immediately before this "make or break" (dixit BBC) election BJP suddenly made itself the only party capable of doling out cash and other direct political favors in that state. Coincidence ? No. [1] https://www.forbes.com/sites/timworstall/2016/12/17/this-is-clever-indias-political-parties-can-deposit-old-notes-with-no-tax-investigation/#4f0663d57c92 https://www.forbes.com/sites/timworstall/2016/12/17/this-is-... [2] http://www.bbc.com/news/world-asia-india-39228615 http://www.bbc.com/news/world-asia-india-39228615
  - sremani 9y ago
    This is conspiracy theory masquerading as a political strategy. The judgement on demonetization should be withheld for couple of years, the banks while accepting old cash collected substantial amount of information before giving new cash. This is going to be a busy year for tax man in India and so will be the next one. Even though most of the money made back into system, there are enough breadcrumbs to triangulate bad actors and black money. Expect some drastic policy changes with real estate, corporate taxation and gold.
    - mos38 9y ago
      Like indian traffic and indian traffic cops, there weren't ever enough tax men to enforce anything too strictly even before all this new data was collected. But I agree in general that it takes things in a positive direction long term. The digitization allows for more automation and wider enforcement. Its going to take some time to settle. Hope the opposition doesn't complicate the story with mindless hysterics.
    - wtmt 9y ago
      > Expect some drastic policy changes with real estate, corporate taxation and gold. Nope. I don’t expect any changes on real estate or corporate taxation, except to help people who have/control them become richer and have even more lax regulation. A lot of real estate is held by politicians of all political parties. So there’s no reason they’d shoot themselves in the foot. One “maverick” Prime Minister cannot overrule hundreds of others with vested interests, however clean or idealistic he may project himself to be. As for corporates, the NDA government is highly favorable to them. The tax rates are set to decrease as announced a couple of years ago anyway. Gold is probably a slightly easier target. It has already seen restrictions before, which means the rich and powerful likely don’t hold too much of it or transact a lot with it.
    - kamaal 9y ago
      >>The judgement on demonetization should be withheld for couple of years How many? 10? 20? After than what happens? People stop taking bribes? Start paying taxes? Drive around Bangalore anytime during day light. See how many policemen are standing every 1 km negotiating bribes from motorcycle/car users. Go for property registration anywhere, go see what is the going rate for a single registration... Things like Demonetization changed/changes NOTHING. You need to change people. And that is next to impossible in India. >>Even though most of the money made back into system 0 Black Money came back into the system, as per the government's own admission. >>Expect some drastic policy changes with real estate, corporate taxation and gold. So we learn nothing from the mistakes? Only thing this will do, is make millions of people jobless. Destroy family incomes, disrupt their ability to provide for their families and put the economy in tremendous strife. For any policy to work, People need to cooperate. In India its basically every one, all the time optimizing only for personal profit. The only thing you will end up doing in this set up is harming a lot of innocent people, and end up providing immunity training to the crooks.
mknits 9y ago
LOL. Looks like you're sucking Modi's dick. It is perfectly clear to everyone that it DID NOT work at all. Govt removed 1000/- notes and introduced 2000/-, the biggest irony of supposed anti-corruption move. And how many of corrupt people, and among them include most MLAs, MPs etc. were caught hoarding black money? ZERO. I personally know a lot of people, popularly called as BHAKTS, no matter what logic you give them, they remain illogical and keep sucking Modi's dick.
- sctb 9y ago
  We've banned this account for repeatedly violating the guidelines. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
TheArcane 9y ago
> it is still unclear whether it worked or not. Didn't they report that almost all the cash came back - proving that there was basically no black money returned and the only people they inconvenienced was ordinary citizens with their hard-earned cash reserves?
- sudhirj 9y ago
  All the cash coming back was one thing, now everyone has to file their income tax returns, which is when it gets interesting. There’s going to be a lot of people filing tax returns for the first time, and a lot of explaining to do.
  - crdoconnor 9y ago
    Black money largely isn't held as large stacks of suspicious looking cash - that's a Bollywood trope. It's invested domestically in real estate, art, gold, or other assets, or held offshore, either in the form of freely convertible currency or other assets, which is why 98.96% of the cash was returned. I strongly doubt a significant number of criminals openly advertised their possession of black money by returning it themselves. Modi's ploy was an unmitigated failure.
    - xapata 9y ago
      If criminals didn't turn in the cash, then it evaporated, which is just as good. No?
      - crdoconnor 9y ago
        No. Just 1% of the cash evaporated, as opposed to 33% as Modi predicted, and majority of that was probably just due to loss or unlucky circumstance. For such a disruptive event, that's pathetic. The only winner was the banking system, who saw one of their major competitors (cash), hobbled. Modi now seems to be saying that this was the point all along.
        9y ago
sifar 9y ago
Even after a year, calling whether it worked as unclear is being naive or ignorant. Would you say ripping off 80% of your code base and rewriting it was a good idea if you are still unclear about the benefits ? To wit, you can't go back to the old code base also. I so wish GRR Martin had put this in GoT. Then most Indians would have been aware of it. I'll repeat it here once again. Not all black money is in cash. Not all cash is black money. A major portion is in real estate, gold, businesses and other financial assets. Cash is just ~8-10% of the economy. Most people with unaccounted cash had access to networks which would launder it for them. Even if you have a digital trail, the justice system is not digital. Sure some would have to pay up, but a majority would have enough accountants/lawyers to avoid the taxes. People complaining about black money in India, forget that the relatively low consumer prices that they enjoy is partly due to black money. If one wants the SMEs to pay their taxes, the consumer should be ready to pay more in price. People want low prices, low taxes and no black money/corruption. Well, pick any two. >> 1) people would think twice before hoarding onto cash and keep it hidden from the govt Or they could change the govt :).
- product50 9y ago
  Of course not all black money is in cash. However, because of this move all assets which are known carriers of black money including real estate, gold etc. also took a hard hit. Additionally, the thinking is that people would be more careful dealing in cash going forward. And I would abstain from using absolute stance like you are using. I think this move definitely falls into the grey territory.

amriksohata 9y ago

Many in India consider demonetisation a great thing, it's mostly the political opponents of Modi trying to defame it

programmer_dude 9y ago
Why do they do that (consider a good thing)?
- amriksohata 9y ago
  Corrupt people losing a lot of money, even the ones that worked around the problem, were a small number as the cash flow was so limited. heres an example dramatisation of what happened to terrorist funders too: https://www.facebook.com/KasheerHinduzFront/videos/1235092493207103/ https://www.facebook.com/KasheerHinduzFront/videos/123509249...
  - sumedh 9y ago
    > Corrupt people losing a lot of money So a person is corrupt just because he deals with cash?
    - ahamedirshad123 9y ago
      Looks like he is a bot. Just posting three links everywhere
      - amriksohata 9y ago
        ahamed? I see, I see. No I'm not a bot, but here is another link you should read and understand why demonetisation has been good for India. programmer_dude asked for sources and thats why I'm posting them. https://timesofindia.indiatimes.com/business/india-business/demonetisation-helped-bring-down-realty-prices-by-5-10-housing-ministry/articleshow/61569838.cms https://timesofindia.indiatimes.com/business/india-business/...

amrrs 9y ago

While I wonder what makes HN interested about India's demonetisation, The biggest irony of Demonetisation is not how the ruling government started listing down auxiliary benefits as the intended objects, It's how rural Indian is always being ignored by the people who celebrate the success of Demonetisaion. We who live in Cities like Bangalore have got Card swiping machine with every merchant, Imagine a village where there is only a few ATM machines, That's where the real impact - the failure is. It may not be even captured by a metric like GDP but when you travel across the country - not just hopping from Station to Station but actually to places, you'd find it out! Edit: Ppl celebrating demonetisation doesn't refer to HN but a broader group in India.

eqtn 9y ago
No one here is celebrating demonetisation. And the initial hype about the digital transactions was long dead. Most of the people who were using cash, went back to using cash for transactions.
mos38 9y ago
Travel to rural India and talk to a money lender. There was a nice much needed shake down. They were all sitting on cash that had to be pushed into bank accounts. This is a long term net positive in shedding light on the shadow economy which has been exploiting the unbanked rural poor for the longest time.
- ahamedirshad123 9y ago
  just don't lie, for god sake http://www.thehindubusinessline.com/money-and-banking/indias-rural-economy-hit-hard-as-informal-lending-breaks-down/article9391669.ece http://www.thehindubusinessline.com/money-and-banking/indias...
  - hu61 9y ago
    Wow so in your reality what was reported about money lending one year ago, one week after demonetization still holds? All the money lenders in India went into retirement is it? Go find an article on what moneylenders are doing today. They are still lending. But from their bank accounts not from under their mattress. Just blind reactions without knowing how the world works has become very fashionable today.

NiklasMort 9y ago

The only winners are the credit card companies and the banks here. Getting rid of cash is the final step of their financial prison for the average Joe.

brianwawok 9y ago
So large chunks of a country not paying any taxes is an OK place to be? Unclear what the right solution is but clearly there was a problem.
- NiklasMort 9y ago
  ", the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. " And this is not only true for India.
  - sliverstorm 9y ago
    That's wealth, not transactions. Digital could still bring to light "under the table" taxable transactions.
    - NiklasMort 9y ago
      The problem is that its a digital prison for normal people. If there is no cash then bank accounts, CC and transactions should be free, as cash is free itself. But they are not. It's just a money making machine for banks and CC companies. Furthermore if people want to hide something they'll manage, especially if it about big money.
      - sliverstorm 9y ago
        Technically paper money is not free either, people support the paper money machine with their taxes and in the cost of goods. Money must be printed & reclaimed & replaced, bills must be counted & sorted & transported, etc. Any currency system has overhead, the paper money overhead is just very hidden. So if the fees are appropriately low, a system of private banks and CC's could be ultimately similar in cost to normal people.

patrickg_zill 9y ago

Wasn't something like 99% of the targeted cash, ultimately redeemed at par value? If so, it was quite ineffective...

sfifs 9y ago
Now there's data on where it came in and went out where as before it was all daek. A lot of people have a lot of explaining to do.
ahamedirshad123 9y ago
Reserve Bank of India is still counting.
rtx 9y ago
That was the goal.
- patrickg_zill 9y ago
  No, that was not the original goal, which was to strand and demonetize the black money. After that failed, they changed their stated goal (after the fact).

thriftwy 9y ago

When I was riding my kick scooter, I had this recurring thought: What would my trajectory be if I would to roll my steering handle by 180 degrees? I never got to try, but India did.

TheArcane 9y ago
Best part of demonetization - the free policy lesson for every country.
- thriftwy 9y ago
  Well, North Korea did similar things five years prior, with similar results. Not everybody got the memo.
legacynl 9y ago
Yes this is exactly the same. Very apt comparison.

DonHopkins 9y ago

1) Lesson One: Choose Your Experts Carefully The Trump administration would never make a mistake like that, would they?

vita17 9y ago

I don’t think anyone should be learning from India until they fix with their massive list of problems.

dump121 9y ago
Can always learn, what not to do.

gwbas1c 9y ago

The most relevant quote: > Third, in a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause. Assuming the data is correct, demonetization was flawed from the beginning.

knowThySelfx 9y ago

The title itself is a misnomer. No one checking stuff in HBR? Only denominations of 500s and 1000s were made illegal. This was replaced with new 500 and 2000 Rupee notes. All the other denominations remained valid throughout.The intent was to control counterfeit currency. It also appealed the public to use more digital transactions. Today, in TV there was news about a district in Kerala (Malappuram) having 50000 crores worth of old currency in the hands of various people there. The person whom the reporter interviewed was an agent who sold these old notes to some people for a percentage of the value of the old notes. They didn't say for what purpose the old notes are bought. A friend of mine who knows some Gujrathi cloth merchants in Kochi's main market was told these old notes are bought so that its thread can be taken for counterfeiting new notes.

akvadrako 9y ago
It's funny seeing so many people commenting about a completely fabricated headline.
- knowThySelfx 9y ago
  The titling is deliberately chosen to mislead readers.
intended 9y ago
5000 crore. in Kerala. Theres so many things that raise flags there. Thats a non trivial percent of the missing cash, whihc is very unlikely to be in one place. Kerala gets most of its money via remittances, the idea that they would be a store of cash, especially when most of people convert it into gold around India anyway, makes it extremely hard to accept just from the face of it
- knowThySelfx 9y ago
  It is not in one place, but in the hands of different people. Hawala (https://en.wikipedia.org/wiki/Hawala https://en.wikipedia.org/wiki/Hawala) is very active in certain northern districts of Kerala. I agree, its a fairly non-trivial amount of money.

nocoder 9y ago

This is one of the largest transfer of money from individuals & small businesses to corporate sector. Since notes were denotified, people had no choice but to move to businesses which could support digital payments. This led to huge loss of business for smaller players who were dealing in cash and a drop in economic activity. And the small businesses are the ones which employ highest number of people, so the subsequent job loss. Additional domino effects is loss of man hours spent in exchanging the notes and the general anxiety it caused amongst people. Moreover data shows [1], the whole exercise only caused a temporary change in behaviour & cash in back in vogue, so essentially a pointless & damaging exercise. [1] - http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-year-after-demonetisation-cash-is-still-king.html http://www.livemint.com/Industry/S0AwBRAYuGbJw0SoXOaUaO/One-...

mabbo 9y ago
Those small businesses were the ones taking cash only, paying employees in cash, and generally continuing the trend of no one paying any taxes what-so-ever. Of course they could employ more people- they were unfairly competing with the companies that were following the law. I have a hard time sympathizing.
- intended 9y ago
  Unfairly competing? Thats the weirdest example which doesnt describe India.
  - rtx 9y ago
    It does, not paying taxes is unfair competition.
    - intended 9y ago
      against who? Most of those firms earn less than the barrier for payment being required. So which taxes and who?

otakucode 9y ago

Lesson one: Payment processors are taxing bodies. The degree to which your society operates without cash is the degree to which your governing bodies lose all control over the supply of money in your nation. Value of your currency is handed over to payment processors who do little beside moving numbers from place to place, and charge a percentage cut of every such movement on the fictional basis of moving larger numbers somehow costing more or being a harder service to provide. Should the payment processors wish your currency to be in greater supply, they will lower their rates. Should they wish to restrict the supply of money, they will raise them. Their influence is more flexible and has many fewer restrictions than stodgy old things like 'central banks'.

coldcode 9y ago
So a digital Fed. Who says a government can't regulate the payment processor?
- otakucode 9y ago
  They certainly could. And I would argue that in the USA right now they absolutely should. If not providing a modernized federal ACH system that can handle realtime funds transfers, then at least by absolutely and criminally forbidding charging a fee which scales based upon the amount of money changing hands (a small flat fee would be warranted, the problem is that they charge more just because the numbers are bigger which is nonsensical, we're not talking about them extending credit or doing the liability hot potato that credit card transactions are, this is just pure transferring from one account to another). Ideally the government would establish their own cryptocurrency, but I think that ship has sailed. Society in general has accepted that the standards of cash - anonymity, non-traceability, non-freezability, etc - are simply too dangerous to trust people with.
sifar 9y ago
This. I wonder if the proponents of digitization realize this at all. Do the government policy makers/central banks realize that in their drive to digitize transactions to make them traceable, they are ceding some power to these payment processors.

rahulpandita 9y ago

>"It most recent GDP growth figure has fallen to 5.7%, and part of that, too, can be attributed to the policy move from last November." It would be interesting to quantify what "part". AFAIK GDP growth has many contributing factors both short term and long term. It would really help readers to better comprehend the affect and also help policy makers to be cautious going forward. >Lesson One: Choose Your Experts Carefully : Agreed, we must choose our experts carefully. However, author is silent on "how". Instead what author presents is his take on who are experts. I am not questioning the authors credentials but as HBR article, I expected authors to present a methodology instead of what seems a subjective view to me. >Lesson Two: Don’t Ignore Basic Data : Authors criticism that basic data was ignored seems more of a speculation. No concrete sources that such data was not consulted at all. >Lesson Four: Beware of Digital Silver Bullets : Here I feel author selectively uses the citation to benefit his narrative. The very citation states the following verbatim. http://www.moneycontrol.com/news/business/economy/digital-payments-growth-dips-27-in-aug-from-peak-bhim-upi-to-take-charge-2380617.html http://www.moneycontrol.com/news/business/economy/digital-pa... >"Still, it is appreciable that the numbers have not come down by a large amount. There are many who have permanently moved on to digital, which is a bigger benefit."

known 9y ago

Slipping GDP growth, declining private spending and investments, falling jobs, decreasing industrial production, rising inflation, and rising current account deficit. https://qz.com/1090478/no-matter-how-hard-the-government-tries-it-cant-sell-indias-growth-story-to-the-world/ https://qz.com/1090478/no-matter-how-hard-the-government-tri...

bufferoverflow 9y ago

You can't kill off cash or other forms of anonymous payment. Humans will always find a substitute. Stamps is an obvious choice. And then there are cryptocurrencies, which are about to teach the world economists all kinds of lessons.

m23khan 9y ago

kuddos to Indian Govt. for taking this step. South Asian economies are rife with black money and small vendors and regular citizens rarely pay taxes. Any attempt to rectify this menace is a welcome step -- hopefully regional countries like Pakistan and Afghanistan can implement similar measures.

known 9y ago

Narendra Modi fulfilled just 9% of his poll promises http://www.electionpromisestracker.in/governments/central-government http://www.electionpromisestracker.in/governments/central-go...

wtmt 9y ago

If I were to make a statement on this, I’d say that other countries shouldn’t attempt such an exercise, and if they do, they should certainly look at how it was done in India as a classic case study of “how not to do it.” There’s close to nothing that came as a benefit from this exercise. But the so called “collateral damage”, that the richer classes ignore, on people’s livelihoods, their very lives (many people died) and the economy was significantly bad. The “first cashless village in India” touted during that time has gone back to using cash. [1] Dreams about digital money alone won’t do. There’s a long, long way to go on telecom/Internet infrastructure improvement, availability of electricity, availability of devices that are easy to use, education and awareness on security, etc. I believe any future government in India would be downright foolish to consider doing such a thing again. Now all that the government has done by eliminating the Rs.1000 note and introducing the Rs.2000 note is made it easier to hoard and transport large sums of cash. [1]: https://www.bloombergquint.com/demonetisation-one-year/2017/11/07/cash-is-king-again-in-indias-cashless-village https://www.bloombergquint.com/demonetisation-one-year/2017/...

known 9y ago

All the destruction that was unleashed in its aftermath, could have been avoided, if PM Modi had heard the best economist he had at his disposal, and not an accountant masquerading as one. http://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-safe-to-say-this-if-only-modi-had-listened-to-the-economist-he-had-at-his-disposal_a_23268888/ http://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-sa...

Feniks 9y ago

I live in a country that is rapidly becoming cashless. This was not a government program. It happened naturally and was deemed to be in the best interest of all. At every purchase people can freely choose to use cash or a card/phone. An advanced economy, low corruption, efficient banking system, top level infrastructure and supreme faith in civilization are not things you can just implement.

oarla 9y ago

Seems early to declare demonetization as a failure.

mankash666 9y ago

The article axiomatically attributes demonetization as the reason for a reduction in GDP growth, even 3 quarters after the event. Is it that obvious as I don't see the direct connection - more currency flowing through official channels = increased GDP and taxes. What am I missing?

known 9y ago

BBC nails it better. Invalidating 90% of the stock of currency notes to catch 6% of illegal wealth was a clear case of using a hammer to kill a fly. The rationale of a crackdown on counterfeit notes was also misleading since India's central bank's own estimate was that fewer than 0.02% India's stock of high-value currency was growing in line with GDP and the share of such currency in India's GDP remained constant at around 9% for half a decade http://www.bbc.com/news/world-asia-india-41896865 http://www.bbc.com/news/world-asia-india-41896865