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How to rollback the demonetization policy? Musings of Dadeechi

Discussion in 'World Economy' started by dadeechi, Nov 25, 2016.

  1. MilSpec

    MilSpec Mod MODERATOR

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    thats just 12 lack rupees.
     
  2. Tejasmk3

    Tejasmk3 2nd Lieutant FULL MEMBER

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    There are some bits about Sonia's early days but mostly about IG and politics at the time, her next book, India's broken tryst talks more about the period after that and about Sonia's rise. In many places she says Sonia basically tries to copy IG mannerisms to manage the party, down to even body language in meetings. Also talks about how many many schemes designed for the simple things like alleviation of hunger never ended up reaching people and became a big hole where more and more money was being thrown in...makes realize how important direct cash transfers are, in side stepping that problem.
     
    Last edited: Nov 28, 2016
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  3. Nilgiri

    Nilgiri Lieutenant IDF NewBie

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    LOL hahaha great find here sis, made my day.

    BTW all, the silver lining in all this may be Nitish Kumar...good on him for sifting through the BS and clearly getting on board. He may have a chance of being rehabilitated yet!
     
  4. Nilgiri

    Nilgiri Lieutenant IDF NewBie

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  5. VCheng

    VCheng RIDER REGISTERED

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    Regardless of whether one supports the decision or not, the basic issues remain that lead to such large amounts of black money in the first place. A suitable analogy that comes to mind is trying to clean up an overflowing septic tank by throwing a hand grenade into it. Dramatic, and even effective for a while, yes, but then shit goes flying everywhere and on everybody, and it soon fills up again since all the inflowing pipes are still there. How does that help anyone in the long run? This step is truly disappointing for India's future.
     
  6. Nilgiri

    Nilgiri Lieutenant IDF NewBie

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    Disagree. It was not a hand grenade at all, rather a surprise spot draining.

    This is the exact problem when you rely on the anti-modi media for analysis, rather than talking to people on the ground along with jumping to verdicts rather than waiting for the next few years of economic performance.

    Of course the inflowing pipes are all going to be there, the whole point is to empty the tank and use the sludge for biogas....and get very usful data on the size and numbers of these inflowing pipes that have finally been drained and can be inspected and measured....as opposed to before when they were completely submerged in the sludge themselves.

    Then dealing with those pipes finally becomes an option unlike before.
     
  7. dadeechi

    dadeechi Lieutenant FULL MEMBER

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  8. VCheng

    VCheng RIDER REGISTERED

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    Incorrect. The channels of corruption have been well known for decades and decades. The present measure is more political grandstanding than actual solution for the widely endemic corruption, the root causes of which will remain untouched.
     
  9. VCheng

    VCheng RIDER REGISTERED

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    A relevant article:

    http://www.economist.com/news/finan...omy-makes-life-harder-everyone-india-grapples



    Short-changed
    India grapples with the effects of withdrawing 86% of cash in circulation
    A crackdown on India’s black economy makes life harder for everyone

    [​IMG]
    A short, sharp liquidity shock

    A NEW strain of trickle-down economics has been spawned by the decision, on November 8th, to withdraw the bulk of India’s banknotes by the end of this year. As holders of now-useless 500-and 1,000-rupee ($15) notes rushed to deposit them or part-exchange them for new notes, an e-commerce site offered helpers, at 90 rupees an hour, to queue outside banks in order to save the well-off the bother.

    Elsewhere, a chronic shortage of banknotes in a cash-dominated economy has left most trades depressed. Seven out of ten kiranas (family-owned grocers) have suffered a decline in business, according to a survey by Nielsen, a consultancy. Supply chains, in which wholesalers and truckers deal mostly in cash, have fractured. Some 20-40% less farm produce reached markets in the days after the reform. City folk admit to hoarding the 100-rupee note, the largest of the old notes to remain legal tender. Taxi drivers refuse to break the new 2,000-rupee note. Road-tolls have been suspended until at least November 24th, to prevent queues. Beggars have disappeared from parts of Delhi; no one has spare change.

    India’s prime minister, Narendra Modi, is gambling that this temporary pain will be worth it. His goal is to flush out “black money”, stores of wealth that bypass the tax system, finance election campaigns and grease the wheels of high-level corruption. An enforced swap of high-value notes, say the reform’s boosters, acts as a tax on holders of illicit wealth. The element of surprise is disruptive but without it, there would be time for black-money holders to launder their funds by purchasing gold, foreign currency or property. A tight deadline makes it hard for holders of large stashes of notes to swap or deposit them without alerting the tax authorities.

    This swiftness comes with a cost. Aside from cases where hyperinflation has rendered a currency worthless, such swaps generally take place over long periods to avoid disrupting commerce. GDP growth might be as much as two percentage points lower this quarter and next before returning to normal as the money stock is replenished, reckons Pranjul Bhandari of HSBC, a bank. Much depends on how quickly new cash can be swapped for old. It has not been a smooth process so far. The Reserve Bank of India (RBI), which issues notes, waited for six days before setting up a task force to ensure ATMs could dispense the new 2,000-rupee note. Only a quarter of ATMs in four big cities were full on November 21st, according to Goldman Sachs.

    Yet there are signs that the reform is nudging Indians out of cash and into bank deposits and plastic, where money can be tracked. In the fortnight after the announcement, bank deposits were up by 5.1trn rupees, thanks to an influx of old notes and restrictions on withdrawals of new ones. PayTM, a provider of digital wallets, reported a surge in transactions.

    Despite the distress, and the raucous protests, the reform seems to have widespread support. Bashing the rich is popular even if the poor are inconvenienced. Some may also hope it will bring new state benefits for the poor and make housing more affordable. Indian real estate is so expensive in part because it is a store of illicit funds. In theory, whatever black money cannot be laundered will be worthless, yielding a gain for government’s finances and perhaps ultimately for poorer Indians. But such a boost cannot be relied upon. The RBI has not yet formally said that old notes will be cancelled for good, says Ashish Gupta of Credit Suisse, and it may be loth to do so. No central bank likes to say it no longer stands behind the paper it issues.
     
  10. Nilgiri

    Nilgiri Lieutenant IDF NewBie

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    That's a big statement to make given we are only weeks into this measure and not years.
     
  11. VCheng

    VCheng RIDER REGISTERED

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    There is no rush to judge here, since such a drastic step needs time to be evaluated fully. We can discuss the success or lack thereof once more data are available. How are the exchange rate for the INR and gold prices holding up in India?
     
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  12. randomradio

    randomradio Colonel REGISTERED

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    The rupee weakened because of an EMFX sell off after the US elections. It has nothing to do with demonetization. Even the yuan is depreciating. So what this actually means is that the dollar is getting strong, not that the other currencies have weakened.

    http://www.marketwatch.com/story/ch...rther-as-dollar-rises-analysts-say-2016-08-11

    Gold prices are obviously down. Nobody is buying gold. Sales will start once people get enough currency. And they will start riding the surge in prices for many months, unless Modi puts a stamp on gold purchases by law.

    Lot of changes are set to happen actually. For example, there will be a limit on gold/silver purchases, linked to the PAN/Adhaar card. It is possible that even real estate curbs will be done. Then there will be cash transaction limits and so on.

    He is changing everything. Even when it comes to the fiscal, he may be changing it to the Jan-Dec cycle instead of the Apr-Mar cycle. The union budget is being moved to Feb 1st next year and will be clubbed with the Railway Budget. Many changes coming up.

    Everybody's waiting for his speech on the 31st of Dec.
     
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  13. Nilgiri

    Nilgiri Lieutenant IDF NewBie

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    Yep I agree, its why I will make a full comment/analysis on the impact a year or two from now.

    Exchange rate and gold prices have both fallen, but not drastically.
     
  14. VCheng

    VCheng RIDER REGISTERED

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    As @Hellfire would say by stealing my line, let's wait and see what happens. :D
     
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  15. randomradio

    randomradio Colonel REGISTERED

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    Hope for the best, prepare for the worst.

    Hopefully the govt's got a Plan A, B and C all through Z. Hopefully Plan A is enough.

    Lot of hope riding on Modi now.
     
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