“Certainly the End of something or other,One would sort of have to think” – David Foster Wallace.

The Indian government on the 8th November 2016, made an announcement , saying the 500 and 1000 rupee notes are invalid from the same night.

In this blog, I put forward a few conversations, I have had about demonetization, and what is my take on it. These conversations helped me understand the actual effect of demonetization.

The first conversation was on the day next to the announcement, in my workplace. Everybody was like, this is a masterstroke move, and all the black money is going to be eradicated. I was quite not sure about it. So I first started understanding, what black money was. I was surprised to know that, the term black money itself, is not true. The actual word is , “Unaccounted Money”. What formulates us to enable us have “Unaccounted Money”, is called black activities. Black activities, include, corruption, non-billed goods, illegal sold goods, differential pricing on paper and reality of purchase goods/assets, like house etc.

Lets take 3 examples.`

  1. A person who sells, “Packaged tap water” for 22/- when the MRP is 20/-
  2. A real estate person, who sells a house for 50L on paper, plus 50L as separate unaccounted cash, to escape tax.
  3. A money lender, who lends money for higher interests.`

Now if we consider these 3 cases, all the 3 cases, the activity performed by them is called a black activity. The extra money that is not accounted for, is called Unaccounted money. If we properly analyze, the shop selling water bottles, would possibly make about, 200 extra bucks a day, but the person selling the flat, would possibly make about 50L. Now if we take the last case, the typical money lender, lends money at 14% interest, the 14% interest is unaccounted money. Now which of this money has to be actually cribbed ? The 2/- or the 50L . On the moral side, we should curb the 50L, but that dosen’t justify the 2/- as right. But that will solve the need for the shop vendor to not ask for that 2/- Why am I saying it, when large hoards of Unaccounted Money stays around, the economy is completely unbalanced. regulating that, would eventually lead to a better economy balance, and in turn better rules that govt the money among people.

The second conversation, was when I was traveling in a cab, the conversation I had with the cab driver and the questions he had put forward to me. My conversation with the cab driver, put forward to me 2 questions,

1. The places I visit for food or groceries , don't accept plastic cash or digital money. So what do I do ?

2. why are hospitals not accepting 500 and 1000. I saw a person die, since the patient only had 500 to pay with and the hospital did not accept it. What about people like them ?

I was actually curious about these questions. Starting my research on the 1st question, here are some very interesting statistics that I discovered.

Only 2.6 crore out of 130 crore people in our country has a credit card. Also the fact that there are only 15 Lakh Card Readers with the stores with the ability to accept plastic cash. So nearly, 80% is the cash economy in our country.

This article and this article clearly states that, the smart phone and Internet usage in India is no where even 30% of the users in our country. Here is one more interesting article, to all those people who can understand and relate Internet to only facebook

This clearly proves that, only a very small feeble crowd of the whole economy is living or even having just access to plastic money, and even another small feeble amount of that small percentage, is on Digital money.

Also to the sad fact is that, the rural co-op banks, where the NPA(Non-performing assets) is about 1%, cannot issue change ? But the sad fact is , rural co-op banks, is where 86% of the population’s bank accounts are. And also 90% of the geographical area of rural places are not covered by bank. source

To answer the 2nd question, I was quite surprised. When the Maharastra told that, you could use the invalid 500 and 1000 to buy movie tickets , I was quite surprised that, emergency services like hospitals, transportation and food places, are not accepting the same. What surprised me more was, that, who gave permissions for these to be allowed ? At this point it is important to understand the answers to some of the questions. I couldn’t nearly find any norms that says, who control these allowances. Even if PM is allowed to make allowances, shouldn’t all emergency services always be allowed to accept demonetized notes ? Are we as citizens not even allowed for basic facilities ? All these for a greater good ? To all those comparing , solders fighting in the borders to the state that we are experiencing, I say, Please stop. Leave them alone. Dont make statements such as “If they can stand in the borders, cant we stand in queues”. why ? Not because, it is not morale, the next conversation I had answers your question.

The third conversation, was with a random person, I met in one of ATM queues (I was standing for more than an hour, and yes for the greater good. What is the greater good, my stomach :-D ). Me and my friend were standing and discussing my research so far, and this random person, turned around and make a powerful statement. “A masterstroke move like this will surely bring out all the black money in India, and stop all the counterfeit notes in circulation. India is surely on the No corruption country list.” This led me to wander more into the details of Unacounted money and counterfeit money in India to understand it in more detail.

Quite surprising statistics I found. Present PM of India, Modi representing for BJP, when campaigning for elections, made a statement saying, if all the unaccounted money were to be brought in, each citizen in the country, would get 15 Lakh in their bank account. Now keeping this money as the base of unaccounted money,and the total population of India, which is, 130 Crore.

A basic math , reveals that , the total, unaccounted money would be somewhere about, “1950 Lakh Crore or 1950000000000000 Indian rupees”.

Now, based on the RBI docs here, the total amount of 500 and 1000 in circulation is as, about “14180 billions or 14180000000000 Indian rupees”

Now assuming, all the unaccounted money is only in 500 and 1000, the total unaccounted money in this case would only be to about, 0.73% . Remember, this is assuming all the 500 and 1000 rupee notes are always unaccounted money. All this fuss, was to eliminate some 0.73 % of unaccounted money ? Also the same RBI docs, clearly states that , the total amount of counterfeit notes in circulation is only about, 0.028% . I am seriously going crazy over this.

Now the only possibilities here are either, Modi along with BJP is wrong about the whole statement of unaccounted money or the demonetization itself makes no sense.

The last of the conversation, which I had with one of a hardcore BJP Supporter (called as “Bhakt” with love by the world), was a strong statement “Modi with BJP is aimed at completely eradicating corruption, unaccounted money and counterfeit notes”. Very interesting statement indeed. Now that I have clearly told, none of corruption or unaccounted money or counterfeit notes, is even going to be merely solved, this statement, made me go wild with the bhakt.

So for, a little history, a little early this year, there was a huge leak of Off-Shore Account holders database, and the govt already has all the details, of all their names, along with the cash that they have stored. The same govt which talks about, eradicating corruption, hasent taken any step towards investigating this list of people.

For all those people wondering what is this, please read this Wikipedia article. Apart from this, there are many defaulters , who have to pay huge amounts of tax to the country. For ex, Vijay Mallaya has to pay about, 7000 Cr loan amount, RIL is one big defaulter to the list and also Vodaphone was exempted from a additional tax of 3200 Cr. These are only some of the known lists. We have a huge list of defaulters like this. Assuming there are about 20 defaulters, and each has to pay, lets say about 5000 Cr, then 20 * 5000 Cr is 100000 Cr, which is a huge money. So, I at any point still dont see the govt serious about really eradicating corruption or unaccounted money. While this has been talked about, it is also important, that the govt says, “Who all knew about this action being taken ?”. It is an extremely important information , that I feel the govt should list out.

While there were a few conversations , here is what I also have to ask. Lets just beyond reading these articles , still feel demonetization of 500 & 1000 is still going to eradicate unaccounted money, here is a idea I have. Lets keep all the rules of demonetization applicable and only remove the fact that, the money is going to be invalid by tonight. The money is valued till lets say, Dec 30. Do you really think it makes a difference ? If the aim was to bring the gunny bags of 6% of the unaccounted money into the economy, we could have very well done that. Remember, every other law, proposed during this rule applies. I feel it would have not made any difference at all. The so called unaccounted money that we have collected would still have come into the economy for circulation.

With this, the problem is not solved. Here are some more heartbreaking informationS.

Modi, has made a statement saying, it is going to take another 50 days for even they to be ready with the alternative notes. Also the same govt has made a statement saying, it was 1 year of planning behind this move. Now this leads us back to 2 more questions.

  • 1 year is a long time, did it actually give time for enough people to stay alert for this move
  • If it was a 1 year plan, why are we suffering ? Shouldn’t the current situation been handled in a lot better way ?

The RBI last year, circulated about, 10000 Cr rupees of 1000/- notes in to the market.

Sweden is the only country , I know of which works in a completely cashless economy1 2. It was quite possible beacuse the country ensured that every citizen in the country has basic access to technology and Internet. But considering the statistics provided above, we are quite sure that we are no where near to that.

Some other good reads :

While the majority say this was a bold move towards eradication of unaccounted(black) money, corruption, terror funding and counterfeit notes in the country. I would call this bombing the country. We can clearly see that unaccounted money is not the aim. Corruption is going to continue as usual with the new notes. I am quite not clear at all that if terror funding actually happens with gunny bags. So pretty sure they are all electronic money. So I am pretty sure, that is not the case also. Last to the counterfeit notes, come on ? 0.028% ? I don’t even think that is the highest priority now. My sincere request to the govt is to withdraw the law, and let people live, and do something more useful for the country, for the greater good of humanity.

“Certainly the End of something or other,One would sort of have to think” – David Foster Wallace.