<p>As banks and ATMs across India witnessed longer queues on Saturday following demonetisation of currency, India&rsquo;s finance minister Arun Jaitley said it will take two to three weeks to recalibrate 2 lakh ATMs with new Rs.2,000 and Rs. 500 notes.&nbsp;</p>

<p>While addressing a press conference in New Delhi, following a meeting with the heads of three banks, Jaitley said it is a massive operation to replace &ldquo;86 per cent of currency under circulation&rdquo; and he is &ldquo;constantly monitoring&rdquo; the cash crunch following demonetisation.</p>

<p>&ldquo;The State Bank of India alone has done 2.28 crore transactions in the last two days after demonetisation of currency,&rdquo;&nbsp;the finance minister said, adding that the total number of banking transactions in the period would be four to five times the figure, amounting to more than $33 billion (Rs. 2-2.5 lakh crore).</p>

<p>Addressing claims about a GPS chip in the Rs. 2,000 note and the possibility of digital lockers, Jaitley said these were &ldquo;concocted rumours&rdquo; and appealed to stagger depositing the defunct currency and not crowd banks.</p>

<p>&ldquo;4000 RBI bank currency chests have enough currency stocks,&rdquo;&nbsp;Jaitley assured that the current inconvenience will only be there for the first few days but long-term benefits to the economy will be greater.&nbsp;</p>

<p>&ldquo;In short term, there will be some disruption cost to the economy; once currency is available the advantages will be far more.&rdquo; he said.</p>

<p>Jaitley added that no illegal transaction in bullion will be allowed and stock details have been sought from jewellers on reports of dealings in defunct currency.</p>

<p>(WION with inputs from PTI)</p>


Defending the govt's decision, Jaitley said there will be greater long-term benefits as more than $33 bn were already deposited in banks

As banks and ATMs across India witnessed longer queues on Saturday following demonetisation of currency, India’s finance minister Arun Jaitley said it will take two to three weeks to recalibrate 2 lakh ATMs with new Rs.2,000 and Rs. 500 notes. While addressing a press conference in New Delhi, following a meeting with the heads of three banks, Jaitley said it is a massive operation to replace “86 per cent of currency under circulation” and he is “constantly monitoring” the cash crunch following demonetisation. “The State Bank of India alone has done 2.28 crore transactions in the last two days after demonetisation of currency,” the finance minister said, adding that the total number of banking transactions in the period would be four to five times the figure, amounting to more than $33 billion (Rs. 2-2.5 lakh crore). Addressing claims about a GPS chip in the Rs. 2,000 note and the possibility of digital lockers, Jaitley said these were “concocted rumours” and appealed to stagger depositing the defunct currency and not crowd banks. “4000 RBI bank currency chests have enough currency stocks,” Jaitley assured that the current inconvenience will only be there for the first few days but long-term benefits to the economy will be greater. “In short term, there will be some disruption cost to the economy; once currency is available the advantages will be far more.” he said. Jaitley added that no illegal transaction in bullion will be allowed and stock details have been sought from jewellers on reports of dealings in defunct currency. (WION with inputs from PTI)

Short-term pain, long-term gain: Indian finance minister on demonetisation

<p>Days after the government&#39;s announcement of scrapping Rs.500 and Rs. 1,000 currency notes, people across the country are still facing a harrowing time withdrawing money and exchanging old currency notes.&nbsp;</p>

<p>While some have committed suicide fearing that the large sums of money in their possession were invalid, there have also been some cases of hospitals refusing to accept the discontinued currency and denying treatment to patients.</p>

<p>In a heart-breaking incident in Mumbai&#39;s Govandi area a couple lost their newborn child after being denied treatment at Jeevan Jyot Hospital and Nursing Home, Mumbai Mirror reported.</p>

<p>The infant&#39;s father, Jagadish Sharma had requested the hospital authorities to accept Rs. 500 currency notes as a&nbsp;deposit. Distraught by the hospital&#39;s apathy, the parents visited the Shivaji Nagar police station to lodge a complaint but was advised to submit a letter which would be forwarded to the Maharashtra Medical Council, the publication said.</p>

<p>After similar reports in Thane, the district collectorate issued a show-cause notice to a private hospital at Kalyan for not accepting the currency notes from patients. The hospital&#39;s refusal came to light after a patient, Ratilal Shah, reported the matter to the Collector office.</p>

<p>According to Shah, at the time of his discharge from the hospital, he tried to settle his medical bill using Rs. 500 and Rs. 1,000 notes. However, the staff at the payment counter squarely refused to accept the notes.</p>

<p>(WION)<br />
&nbsp;</p>


Despite government instructions to hospitals to accept the old currency notes several patients have been denied treatment

Days after the government's announcement of scrapping Rs.500 and Rs. 1,000 currency notes, people across the country are still facing a harrowing time withdrawing money and exchanging old currency notes. While some have committed suicide fearing that the large sums of money in their possession were invalid, there have also been some cases of hospitals refusing to accept the discontinued currency and denying treatment to patients. In a heart-breaking incident in Mumbai's Govandi area a couple lost their newborn child after being denied treatment at Jeevan Jyot Hospital and Nursing Home, Mumbai Mirror reported. The infant's father, Jagadish Sharma had requested the hospital authorities to accept Rs. 500 currency notes as a deposit. Distraught by the hospital's apathy, the parents visited the Shivaji Nagar police station to lodge a complaint but was advised to submit a letter which would be forwarded to the Maharashtra Medical Council, the publication said. After similar reports in Thane, the district collectorate issued a show-cause notice to a private hospital at Kalyan for not accepting the currency notes from patients. The hospital's refusal came to light after a patient, Ratilal Shah, reported the matter to the Collector office. According to Shah, at the time of his discharge from the hospital, he tried to settle his medical bill using Rs. 500 and Rs. 1,000 notes. However, the staff at the payment counter squarely refused to accept the notes. (WION)

Mumbai: Demonetisation claims another victim, newborn dies after hospital denies treatment

<p>Communist Party of India (Marxist) mouthpiece in India&rsquo;s eastern state of West Bengal, known as &lsquo;Ganashakti&rsquo; made startling revelations on Friday.&nbsp;</p>

<p><br />
The regional daily carried a page one story revealing that hours before the Indian Prime Minister Narendra Modi announced a move to demonetise Rs.500 and Rs.1,000 currency notes, the Bengal unit of Bharatiya Janata Party deposited Rs.1 crore into its bank account comprising Rs.500 and Rs.1,000 currency notes.&nbsp;</p>

<p><br />
On the afternoon of November 8, a bank account at Indian Bank&rsquo;s Central Avenue branch registered in the name of BJP &ndash; West Bengal bearing an account number, 554510034 recorded a transaction under which Rs.60 lakhs were deposited, comprising all notes of Rs.1,000 denomination. A few hours later, another transaction was recorded, where in Rs.40 lakhs were deposited, this time comprising notes of not just Rs.1,000 denomination but also Rs.500 notes.&nbsp;</p>

<p><br />
The CPI(M) claims that the Rs.1 crore deposited in the bank account of BJP&rsquo;s Bengal unit hours before the Prime Minister Narendra Modi&rsquo;s announcement reveals the close quarters of the party were aware of the government&rsquo;s move of demonetisation.&nbsp;</p>

<p><br />
&ldquo;Why did the BJP suddenly deposit this huge amount of Rs.1 crore hours before the announcement? Were they aware that the Prime Minister Narendra Modi was to announce something that same evening? This is not just an attempt to convert black money to white but also reveals that the party was aware of the government&rsquo;s move,&rdquo; said CPI(M) state secretary, Surya Kanta Mishra.&nbsp;</p>

<p><br />
Sujan Chakraborty, a CPI(M) MLA took a dig at the ruling party at the Centre &ndash; BJP that more such transactions have taken place across the country. &ldquo;Here we have evidence of this transaction taking place in Bengal. But, similar transactions have taken place in other parts of the country, hours before the announcement,&rdquo; Chakraborty said.&nbsp;</p>

<p><br />
On the other hand, the President of BJP&rsquo;s Bengal unit, Dilip Ghosh ruled out the possibility of conversion of black money to white. &ldquo;First of all, I&rsquo;m not aware of any such transaction taking place. Even if this huge amount has been deposited, there is nothing wrong. We must have the sent the money to Delhi for election-related expenses. The party does not lack funds in this part of the country,&rdquo; said Ghosh.&nbsp;</p>

<p><br />
Another leader of the Bengal unit of BJP, Jayaprakash Majumdar said it was a completely legal bank transaction.</p>

<p>&nbsp;</p>

<p>(WION)&nbsp;</p>

<p><br />
&nbsp;</p>


Regional Bengali daily ?Ganashakti?, mouthpiece of Communist Party of India-Marxist in West Bengal, made the startling revelations on Friday

Communist Party of India (Marxist) mouthpiece in India’s eastern state of West Bengal, known as ‘Ganashakti’ made startling revelations on Friday. The regional daily carried a page one story revealing that hours before the Indian Prime Minister Narendra Modi announced a move to demonetise Rs.500 and Rs.1,000 currency notes, the Bengal unit of Bharatiya Janata Party deposited Rs.1 crore into its bank account comprising Rs.500 and Rs.1,000 currency notes. On the afternoon of November 8, a bank account at Indian Bank’s Central Avenue branch registered in the name of BJP – West Bengal bearing an account number, 554510034 recorded a transaction under which Rs.60 lakhs were deposited, comprising all notes of Rs.1,000 denomination. A few hours later, another transaction was recorded, where in Rs.40 lakhs were deposited, this time comprising notes of not just Rs.1,000 denomination but also Rs.500 notes. The CPI(M) claims that the Rs.1 crore deposited in the bank account of BJP’s Bengal unit hours before the Prime Minister Narendra Modi’s announcement reveals the close quarters of the party were aware of the government’s move of demonetisation. “Why did the BJP suddenly deposit this huge amount of Rs.1 crore hours before the announcement? Were they aware that the Prime Minister Narendra Modi was to announce something that same evening? This is not just an attempt to convert black money to white but also reveals that the party was aware of the government’s move,” said CPI(M) state secretary, Surya Kanta Mishra. Sujan Chakraborty, a CPI(M) MLA took a dig at the ruling party at the Centre – BJP that more such transactions have taken place across the country. “Here we have evidence of this transaction taking place in Bengal. But, similar transactions have taken place in other parts of the country, hours before the announcement,” Chakraborty said. On the other hand, the President of BJP’s Bengal unit, Dilip Ghosh ruled out the possibility of conversion of black money to white. “First of all, I’m not aware of any such transaction taking place. Even if this huge amount has been deposited, there is nothing wrong. We must have the sent the money to Delhi for election-related expenses. The party does not lack funds in this part of the country,” said Ghosh. Another leader of the Bengal unit of BJP, Jayaprakash Majumdar said it was a completely legal bank transaction. (WION)

India: Daily claims state BJP knew of demonetisation plans, deposited Rs 1 crore on morning of announcement

<p>India&#39;s ruling Bhartiya Janata Party&#39;s &nbsp;president Amit Shah on Friday launched a counter-attack on the opposition asking them to clarify whether they are &nbsp;for or against demonisation, saying that he questioned the political leaders&rsquo; commitment to do the same. He asked the opposition to clarify whether they were &quot;for or against black money and terror funded by fake notes&quot;. Shah specifically called out Delhi chief minister &nbsp;Arvind Kejriwal, saying, &ldquo;Arvind Kejriwal, make clear whether you support weeding out black money.&rdquo;</p>

<p><br />
Attacking the West Bengal chief minister Mamata Banerjee, who called the demonetisation &ldquo;draconian&rdquo;, the BJP president said, &ldquo;I know Mamata Banerjee opposed the move, but politicians shouldn&rsquo;t join ranks of black marketeers, drug dealers who are upset.&rdquo;&nbsp;</p>

<p><br />
However, contrary to this position, back in 2014, when &nbsp;the Congress led-United Progressive Alliance government had called in for demonetisation of currency notes issued before 2005, BJP had called it an&quot;anti-poor&quot; move which would badly affect the illiterate and poor living in remote areas of the country.</p>

<p><br />
&quot;The latest gimmick of the finance ministry to demonetise the notes, printed before 2005, is an attempt to obfuscate the issue of black money stashed outside the country... This measure is strongly anti-poor. The &#39;aam aurats&#39; and the &#39;aadmis&#39; - those who are illiterate and have no access to banking facilities will be the ones to be hit by such diversionary measures,&quot;BJP spokesperson Meenakshi Lekhi had told the media in 2014.</p>

<p><br />
65 per cent of people in India do not have bank accounts and are living in remote areas, they store their money in cash, she had said.</p>

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<p>&ldquo; They will fall victim to middlemen who will scare them that the notes are worthless and charge them hefty fees to convert them. They will also be ripped off by shopkeepers,&quot; the BJP leader had claimed.</p>

<p>Lekhi had went on to accuse the UPA government of not being in a position to measure the correct quantum of black money as those possessing it would convert them into new currency notes.</p>

<p><br />
&nbsp;&quot;This policy of Mr P Chidambaram is only meant for the blue blood and not for the sweating, red-blooded, toiling millions. It is not going to affect those who have numbered accounts in Swiss accounts, but will hit those who do not have any bank account even in India.&quot;, she had said.&nbsp;</p>

<p><br />
The step is not going to affect those who have their savings in US dollars and other foreign currencies, but those who have saved in rupees, Lekhi had said.</p>

<p><br />
It is certain that in times to come, as the debate unfolds further, BJP will have a tough time in responding to those Indians who have been drastically hit by the move as alleged by the opposition parties.&nbsp;</p>

<p><br />
(WION)<br />
&nbsp;</p>


The party had opposed the very same move in January 2014 when a Congress-led government was in power

India's ruling Bhartiya Janata Party's president Amit Shah on Friday launched a counter-attack on the opposition asking them to clarify whether they are for or against demonisation, saying that he questioned the political leaders’ commitment to do the same. He asked the opposition to clarify whether they were "for or against black money and terror funded by fake notes". Shah specifically called out Delhi chief minister Arvind Kejriwal, saying, “Arvind Kejriwal, make clear whether you support weeding out black money.” Attacking the West Bengal chief minister Mamata Banerjee, who called the demonetisation “draconian”, the BJP president said, “I know Mamata Banerjee opposed the move, but politicians shouldn’t join ranks of black marketeers, drug dealers who are upset.” However, contrary to this position, back in 2014, when the Congress led-United Progressive Alliance government had called in for demonetisation of currency notes issued before 2005, BJP had called it an"anti-poor" move which would badly affect the illiterate and poor living in remote areas of the country. "The latest gimmick of the finance ministry to demonetise the notes, printed before 2005, is an attempt to obfuscate the issue of black money stashed outside the country... This measure is strongly anti-poor. The 'aam aurats' and the 'aadmis' - those who are illiterate and have no access to banking facilities will be the ones to be hit by such diversionary measures,"BJP spokesperson Meenakshi Lekhi had told the media in 2014. 65 per cent of people in India do not have bank accounts and are living in remote areas, they store their money in cash, she had said. “ They will fall victim to middlemen who will scare them that the notes are worthless and charge them hefty fees to convert them. They will also be ripped off by shopkeepers," the BJP leader had claimed. Lekhi had went on to accuse the UPA government of not being in a position to measure the correct quantum of black money as those possessing it would convert them into new currency notes. "This policy of Mr P Chidambaram is only meant for the blue blood and not for the sweating, red-blooded, toiling millions. It is not going to affect those who have numbered accounts in Swiss accounts, but will hit those who do not have any bank account even in India.", she had said. The step is not going to affect those who have their savings in US dollars and other foreign currencies, but those who have saved in rupees, Lekhi had said. It is certain that in times to come, as the debate unfolds further, BJP will have a tough time in responding to those Indians who have been drastically hit by the move as alleged by the opposition parties. (WION)

Demonetisation: BJP says good for economy now, but had opposed in 2014

<p>All of a sudden.&nbsp;</p>

<p>While America was voting for its 45<sup>th</sup> president and the world was keenly tuned in, the Indian prime minister informed us that within a few hours, 85 per cent of our cash in hand would be stuck. 500 and 1000, the two largest denominations of INR, could not be used except for transactions anymore except emergency ones. However, the value of the cash is not lost, they could be deposited in any bank till the end of December with some valid identification. The banks will, in turn, introduce new banknotes of denominations 500 and 2000.&nbsp;</p>

<p>The immediate response in most households is one of confusion. In social media, the judgement is knee jerk, coarse and very predictable: those who were already in support of Modi feel that this is a bold step necessary to root out corruption, while all those who have been his critics think that this is a political stunt, toothless at best and anti-people at worst. There is some truth to both sides: the need of the hour is to see what exactly are the positives and negatives, and how they stack up against each other for different sections of the society. That, perhaps, is the job of a two-handed economist.</p>

<p>This is indeed a bold step, more tactical than strategic. Compared to the ineffectiveness and indecision of the Congress and coalition governments of the last twenty-five years, this stands out. But some bold steps are good, some are not necessarily so (both the bank nationalisation and the promulgation of Emergency were bold steps, at most one was good).&nbsp;</p>

<p>The stated objective is to root out counterfeit money. According to <a href="http://indianexpress.com/article/explained/on-paper-1-in-4000-are-fake-notes-on-indias-huge-currency-problem-2840193/">this</a> report, India has 400 crore rupees of counterfeit money in circulation, which is about 0.02 per cent of total value of cash in circulation. Make what you want of the proportion of counterfeits, their existence is a problem. Allegedly, Pakistan is injecting much of this money into India to sponsor terrorism. To that extent, this fits in with Modi&rsquo;s recent tough stance on Pakistan. More importantly, counterfeit in large volumes weakens Reserve Bank of India&rsquo;s control over money supply and, therefore, the government&rsquo;s control over the economy. The problem, however, is that there is always a race between counterfeiters and governments, and in our subcontinent, any technology seems to be susceptible to reverse engineering. We can only hope that the new technology is sufficiently robust.&nbsp;</p>

<p>&nbsp;</p>

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<p>Since the existing stash of large denomination bank notes has to be declared and deposited into banks, a lot of cash not in the books will be hitherto accounted for. Only about 1 per cent of the population pays income tax, and whoever deposits this cash will now have to own up and pay his/her share of tax (and possibly face penalties in addition). That will raise revenue for the government, but will this be able to identify and book the bribe-takers? Only those who have <i>not</i> done either of these two: parked it abroad (the big fish) or spent it already (the small fry). Those who are stuck right now with cash stashed away under their pillows will be booked.&nbsp;</p>

<p>But this brings us to an interesting theoretical point: income is a flow, and tax evasion is a continuous activity. The scooping up of cash will simply net some unaccounted cash for now, it does nothing to prevent future tax evasion except identifying and punishing some who are stuck with the pillow in this musical chair. Some are already burning sacks of cash rather than be identified as tax evaders, and the more industrious are parking their cash in gold with backdated transactions!&nbsp;One would have to wait to see whether this one-time measure does enough to signal to future tax evaders that the government is serious in pursuing tax non-compliance.</p>

<p>&nbsp;</p>

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<p>On the other hand, there are immense inconveniences for the ordinary person. There are very strict limits on how much of the new money can be withdrawn from banks and ATMs per day. At this point, there is no sense of when the banking system will be equipped to serve up 15 lakh crores of shining new notes. Suddenly we have a huge liquidity crunch. As I write this, there is news of 500 and 1000 rupee notes selling in the market at a 10 &ndash; 15 per cent discount.</p>

<p>One must realise that a vast proportion &ndash; more than half by volume and a third by value of all transactions are pure cash transactions. This is the great Indian informal economy. For most of us, this includes all of our everyday needs like groceries, pharmacies and household services (plumber, domestic help, electrician and so on). Almost all transactions in rural India, all payments to agricultural labourers, all payments to small farmers are in cash. In the urban areas, a large number of middle income self-employed service providers and small businessmen work exclusively on cash, which provides them the ability to compete with more established competitors and survive.</p>

<p>The&nbsp;entire economy will remain in limbo till the banks are ready and the ATMs are loaded. Till that time, they are divided between accepting money that is no longer legal tender or simply do business with the limited 100 rupee notes that were available in the economy in the evening on November&nbsp;8. Moreover, everyone will want to hold on to his/her stash of 100 rupee notes lest need arises. All this will have a big chilling effect on this cash-based economy till the new money supply stabilises. That will affect growth in the immediate term.&nbsp;</p>

<p>&nbsp;</p>

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<h5>All this will have a big chilling effect on this cash-based economy till the new money supply stabilises</h5>
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<p>For the millions of households that collect cash at the beginning of the month to run their household expenses, things will be difficult for now. Some consumers will, of course, switch to plastic transactions.&nbsp;It was telling that local grocery shops closed down immediately after Modi&rsquo;s announcement on November 8<font size="1">,</font>&nbsp;while corporate retailers kept their stores open till late, even sending patrons text messages to that effect, not all families were&nbsp;able to do that. Even then, the middle class consumer shall be fine once the supply of new notes settles. So will the mid-sized self-employed person who lives with one foot in the informal sector and one in the formal sector.&nbsp;</p>

<p>But, for some, the travails will be more permanent. The labourer or the housemaid who does not have a bank account or even proper identification will first have to go through the sarkari hoops to get identity documents made even in order to deposit his/her cash. Till the time he/she is able to get it, she is out of business. The refugee from the other side of the border does not know where to get documents. The Adivasi who does not have a bank in his village will have a hard time. As usual, the attempt to root out corruption will spawn a profit opportunity for middlemen who will buy identification for a fee, and lend money at high interest in the meantime.&nbsp;</p>

<p>&nbsp;</p>

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<p>At the same time, there is something to be said for getting people to have identification documents, open bank accounts. That would &ndash; in a just world &ndash; help the government target public services better without having to go through middlemen. But there can be much gentler, much less disruptive ways to do that.&nbsp;</p>

<p>In sum, this seems less bold a move when the surface is scratched and actual consequences are considered. Of course, signaling strength matters in an ongoing proxy war with the neighbouring country. Internally too, this does send out a message of strong governance. However, the collateral damage to the economic life of the common man caused by this sudden salvo seems to be out of proportion with the purported benefits.&nbsp;</p>

<p>&nbsp;</p>


Demonetisation seems less bold a move when the surface is scratched and actual consequences are considered

All of a sudden. While America was voting for its 45th president and the world was keenly tuned in, the Indian prime minister informed us that within a few hours, 85 per cent of our cash in hand would be stuck. 500 and 1000, the two largest denominations of INR, could not be used except for transactions anymore except emergency ones. However, the value of the cash is not lost, they could be deposited in any bank till the end of December with some valid identification. The banks will, in turn, introduce new banknotes of denominations 500 and 2000. The immediate response in most households is one of confusion. In social media, the judgement is knee jerk, coarse and very predictable: those who were already in support of Modi feel that this is a bold step necessary to root out corruption, while all those who have been his critics think that this is a political stunt, toothless at best and anti-people at worst. There is some truth to both sides: the need of the hour is to see what exactly are the positives and negatives, and how they stack up against each other for different sections of the society. That, perhaps, is the job of a two-handed economist. This is indeed a bold step, more tactical than strategic. Compared to the ineffectiveness and indecision of the Congress and coalition governments of the last twenty-five years, this stands out. But some bold steps are good, some are not necessarily so (both the bank nationalisation and the promulgation of Emergency were bold steps, at most one was good). The stated objective is to root out counterfeit money. According to this report, India has 400 crore rupees of counterfeit money in circulation, which is about 0.02 per cent of total value of cash in circulation. Make what you want of the proportion of counterfeits, their existence is a problem. Allegedly, Pakistan is injecting much of this money into India to sponsor terrorism. To that extent, this fits in with Modi’s recent tough stance on Pakistan. More importantly, counterfeit in large volumes weakens Reserve Bank of India’s control over money supply and, therefore, the government’s control over the economy. The problem, however, is that there is always a race between counterfeiters and governments, and in our subcontinent, any technology seems to be susceptible to reverse engineering. We can only hope that the new technology is sufficiently robust. India has 400 crore rupees of counterfeit money in circulation, which is about 0.02 per cent of total value of cash in circulation × Since the existing stash of large denomination bank notes has to be declared and deposited into banks, a lot of cash not in the books will be hitherto accounted for. Only about 1 per cent of the population pays income tax, and whoever deposits this cash will now have to own up and pay his/her share of tax (and possibly face penalties in addition). That will raise revenue for the government, but will this be able to identify and book the bribe-takers? Only those who have not done either of these two: parked it abroad (the big fish) or spent it already (the small fry). Those who are stuck right now with cash stashed away under their pillows will be booked. But this brings us to an interesting theoretical point: income is a flow, and tax evasion is a continuous activity. The scooping up of cash will simply net some unaccounted cash for now, it does nothing to prevent future tax evasion except identifying and punishing some who are stuck with the pillow in this musical chair. Some are already burning sacks of cash rather than be identified as tax evaders, and the more industrious are parking their cash in gold with backdated transactions! One would have to wait to see whether this one-time measure does enough to signal to future tax evaders that the government is serious in pursuing tax non-compliance. One would have to wait to see whether this one-time measure does enough to signal to future tax evaders that the government is serious in pursuing tax non-compliance × On the other hand, there are immense inconveniences for the ordinary person. There are very strict limits on how much of the new money can be withdrawn from banks and ATMs per day. At this point, there is no sense of when the banking system will be equipped to serve up 15 lakh crores of shining new notes. Suddenly we have a huge liquidity crunch. As I write this, there is news of 500 and 1000 rupee notes selling in the market at a 10 – 15 per cent discount. One must realise that a vast proportion – more than half by volume and a third by value of all transactions are pure cash transactions. This is the great Indian informal economy. For most of us, this includes all of our everyday needs like groceries, pharmacies and household services (plumber, domestic help, electrician and so on). Almost all transactions in rural India, all payments to agricultural labourers, all payments to small farmers are in cash. In the urban areas, a large number of middle income self-employed service providers and small businessmen work exclusively on cash, which provides them the ability to compete with more established competitors and survive. The entire economy will remain in limbo till the banks are ready and the ATMs are loaded. Till that time, they are divided between accepting money that is no longer legal tender or simply do business with the limited 100 rupee notes that were available in the economy in the evening on November 8. Moreover, everyone will want to hold on to his/her stash of 100 rupee notes lest need arises. All this will have a big chilling effect on this cash-based economy till the new money supply stabilises. That will affect growth in the immediate term. All this will have a big chilling effect on this cash-based economy till the new money supply stabilises × For the millions of households that collect cash at the beginning of the month to run their household expenses, things will be difficult for now. Some consumers will, of course, switch to plastic transactions. It was telling that local grocery shops closed down immediately after Modi’s announcement on November 8, while corporate retailers kept their stores open till late, even sending patrons text messages to that effect, not all families were able to do that. Even then, the middle class consumer shall be fine once the supply of new notes settles. So will the mid-sized self-employed person who lives with one foot in the informal sector and one in the formal sector. But, for some, the travails will be more permanent. The labourer or the housemaid who does not have a bank account or even proper identification will first have to go through the sarkari hoops to get identity documents made even in order to deposit his/her cash. Till the time he/she is able to get it, she is out of business. The refugee from the other side of the border does not know where to get documents. The Adivasi who does not have a bank in his village will have a hard time. As usual, the attempt to root out corruption will spawn a profit opportunity for middlemen who will buy identification for a fee, and lend money at high interest in the meantime. The attempt to root out corruption will spawn a profit opportunity for middlemen who will buy identification for a fee, and lend money at high interest in the meantime × At the same time, there is something to be said for getting people to have identification documents, open bank accounts. That would – in a just world – help the government target public services better without having to go through middlemen. But there can be much gentler, much less disruptive ways to do that. In sum, this seems less bold a move when the surface is scratched and actual consequences are considered. Of course, signaling strength matters in an ongoing proxy war with the neighbouring country. Internally too, this does send out a message of strong governance. However, the collateral damage to the economic life of the common man caused by this sudden salvo seems to be out of proportion with the purported benefits.

Demonetisation: A cost-benefit analysis

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