Demonetization – Many have already beaten the system?

 

Yes, looks like many have already beaten the system. They have

1. exchanged lot of un-accounted old 500 and 1,000 Rs notes in the initial days, utilizing service of folks willing to stand in long bank queues again and again (for a fee) until government mandated inking the finger (like what is done during voting in election)
2. deposited money in various other “poor” people accounts (again for a fee)
3. Jan Dhan accounts itself reported a deposit of about Rs 64,000+ crores until 25^th Nov 2016. Not all of these account holders can act ignorant of the ramification of what they are doing as many of these folks are getting paid for letting others deposit in their account. This just goes on to say that “poor” folks not necessarily mean non-corrupt
4. taken the risk of depositing un-accounted money in bank, they either will declare it later and pay tax or wait and watch if income tax folks can really catch them
5. found other ways (as per media reports) of exchanging or trying to exchange old notes  

This means two things

1. Corruption is deep rooted (doesn’t matter whether you are rich or poor) and individuals have already found ways to beat the system. Worst part is, many of the black money runs the risk of remaining as black money post completion of this entire demonetization exercise. This goes on to prove that continuous mass movement is required to checkmate corruption, let’s rejoice that Modi has risked everything and dared to take the first step.
2. Windfall that government was expecting from unreturned money might no longer be as high as Rs 3 lakh crores.

a.   As on 28^th Nov, against the total demonetized currency valuing about Rs 14 lakh crores, about Rs 8 lakh crores (in form of old 500 and 1,000 Rs notes) are already deposited/exchanged in the banks. We have one more month to go and everyone is keeping an eye on how much more money (in form of old 500 and 1,000 notes) will get deposited in banks. http://timesofindia.indiatimes.com/business/india-business/60-demonetised-notes-already-accounted-for-RBI/articleshow/55675856.cms

b.      I think this has forced the government to come out with a new amnesty scheme. Apart from other things, this new amnesty scheme has a 4 year lock in period for 25% of the deposit. Next government (Modi or the new PM if Modi loses next Lok Sabha election) will have to take care of paying back this 25% of the deposit to individuals after 4 years from now. Opposition cannot openly fault this amnesty scheme, though they know that they will have to bear the brunt (of paying back 25% of deposits) if they come back to power later J

Does this mean that demonetization was not an effective move ?

Current indicators shows that a sizeable portion of black money might remain black, which is not good for economy in the longer run. Still, it is too early to take a stance, let’s wait till 30^th Dec 2016 to understand things better.

Only reason I’m posting this blog (and not waiting till 30^th December 2016) is because too many folks kept on telling me that demonetization has failed as those who evaded tax or were hoarding cash have found ways to address their black money problem.

I still believe demonetization has already met with huge success as it has already taken care of other critical issues like terrorism, naxals, mafia, other organized crimes, counterfeits, etc., etc., which we covered in earlier blog (http://khadloya.blogspot.in/2016/11/Demonetisation17.html). Need of the hour is for Modi government to continue to take measures to ensure these do not surface again soon and in large numbers.

Also, let's not assume that Mod government will stop with demonetization, more so now because if Modi cannot show large scale results, his political career is at stake. Do expect Modi to take further steps (be to unearth benami properties or push towards a less cash economy etc., etc.,) in near future to not only address corruption and black money but also to cement his position as a mass leader.

I still continue to be optimistic !!