Monday, January 02, 2017

Forgotten Reality

Vasu Reddy from Chicago
vasureddy@aol.com

Peace and Happiness to everyone in 2017. 

At the dawn of New Year 1/1/2017, India was reporting that 90% of the 500 and 1000 Rupee notes were back into the banks as the process of demonetization comes to an end.  From 11/1/2016 to 12/31/2016.  Getting 90% of the old currency out of circulation is not just a very good effort, and for a nation that is plagued with corruption and fakes, this is somewhat a super human result.  There was a Times of India column recently that said the expectation of a wind fall for the government doesn’t seem real because 90% of the old notes are already redeemed.  This is a disingenuous claim by TOI and the news channels, which already reported that money being burned, thrown thru the train toilets, thrown into the rivers, thrown into the trash cans, and simply being left everywhere and being donated everywhere.  Assuming all the old notes that were legal were only 90% accounted for, it is still a 10% wind fall of the entire money that should have been in circulation, and if 10% of the entire value of printed high value notes is not a windfall, the reporting agencies must be on dope.

First the difficulties still being faced by the normal citizen are real, and 50 days of long lines to exchange money is hard to endure.  It is obvious that the normal citizen is the one who is most effected in the demonetization process as the list of requirements needed to exchange old notes and/or deposit them, and long lines they continue to endure is just for common man, and the rich and the crooked have already got into the action of getting their hands on unreasonable amounts of new currency and have already started the new ways of hording new currency.  To a large extent the India’s corrupt will find ways to get their hands on whatever process the government can think of to curb corruption.  There will be no 100% proof of avoiding the illegal hoarding of money.  The demonetization simply forces everyone to reveal the old bills, and what comes from new notes is something to deal with.

The government, the news channels and the citizens complained that Pakistan and others printed Indian currency to promote terror in India.  The special reference to fake Indian currency coming from Pakistan to promote terror in Kashmir, and other areas of India was constantly highlighted.  Indian banking system did not have a full proof system to validate currency, but once the demonetization was announced, the streets of Kashmir are quiet.  The news channels don’t high light this anymore.  Also, the greater good is that all the fake notes are now worthless.  In reality a 10% windfall of real Indian currency and also 100% curbing of fake notes, is more than a financial windfall, but it is also a security apparatus that immediately helped with curbing the terror and violence, and also eliminating fakes from the banking system.

The banks also report billions being deposited into the banks, or exchanged.  While Indians like to hold their money in cash, the demonetization has encouraged new deposits into the banking system.  Even if this adds a 25% new value to the currency in deposits, it is a windfall for the banks with new resources available for investments.  So, once again reporting the value of new deposits should have been given the front pages.

Perhaps the greatest effect f demonetization is that the unreported income, all of a sudden is taxable income.  The government continues to actively take steps to encourage people to deposit money with the banks, and also report any unreported income.  If the new reports are to be accurate, the IT department has been very busy with people and businesses reporting massive amounts of new income (and paying taxes and penalties) and also the IT raids yielding mega money that was unaccounted for.

What is the windfall that the news agencies were expecting that the Indian government has not achieved?  It is true that the process might not be perfect, but it has certainly eliminated the hoarding, hawala, terror and anti-social and anti-national activities.

A combination of all the after effects of demonetization is such a windfall of the Indian economy to allow for TOI of any news outlet to start piecing together 100% of the after effects of the demonetization, and they will certainly come-up with a thesis that will show a multitude of economic and societal value, while the long lines and loss of life are unacceptable.  But India being what it is, it would have been impossible to announce a long term demonetization and still achieve the listed objectives.

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