Some questions about this demonetisation thing

Let us for a moment forget the plight of the many small vendors and businessmen who are basically busy sinking while enough people get enough cash in hand at the very limited rates allowed by the government to bother with the non-essentials they are selling. Let us forget about medical emergencies and people dropping dead in front of banks or committing suicide. Let us forget about any problems people face – however huge – and dismiss them as “inconveniences” (I believe that is the euphemism of the hour the government wants us to remember) toward a larger goal. Since the government’s talk is all about strengthening India’s economy, security, preventing black money, preventing terrorist funding, etc…. let us understand clearly this larger goal we are suffering inconveniences for.

[For the record, what you and I suffer are inconveniences, I have met small vendors by the dozens these last few days and what they suffer is described better as economic devastation, but going with the term given the abundance of people who couldn’t care less what people not them suffer.]

Here are some questions.

What is black money?

Ignoring that the supporters of the government are currently bullying anyone questioning the government as a hoarder of black money, let us look at this phrase. It is basically unaccounted money. It is money that is earned or received that the government does not receive tax on. So basically, it is the transaction that determines whether the money is black or not. For example, you purchase something with cash you got as salary that you withdraw from an ATM, get a receipt for it and the seller accounts for it and pays tax on it, your entire journey of the money is “white” – even if you made a cash purchase. You got cash in envelopes from relatives on your wedding, which you didn’t declare as an income, but spent it, you spent black money. If the seller still gave you a receipt and paid his dues on it, you spent black money, but it is white on the trader’s end. Now here is the question. You withdrew some money from the ATM from your salary and you have some money you got as a gift. Which note in your pocket is white and which one is black? Is it the notes themselves or the amounts based on sources? If you receive an online payment for some fictional item which you never sold, but gave an invoice for… Seems to me, thinking of black money as being like black sheep that you could herd into a corner and take to slaughter is a bit simplistic.

Does size matter? How big is too big?

Seems to me that currency makes sense for exchange. For storing, there are more compact methods. It isn’t just a 1000 rupee note that is smaller than a 100 rupee note. You could probably swallow a lakh worth of gold without any health issues or less hideously, you could tuck it into a corner of your wallet and it would be so small, you could flash your wallet to show it was “empty” when it carried a lakh worth of gold. “Storing” black money as currency notes makes little sense. If it is to be used in transactions, the transactions will already be a cover up in place and even if they weren’t, the work into tracing them wouldn’t be different for old or new notes (unless you really fell for the news of the 2000 rupee note that screams if you use it as black money).

How does “sudden” matter?

While there is a brief logic in the entire population being wary of large quantities of notes and thus less likely to unwittingly launder it for someone, the black money owner has about as much time to launder his money in as you or me. While we may think of minor hacks like withdrawing from different banks to get more than 4000 rupees in 14 days (because really, you like pizza, and that’s less than 8 days of pizza assuming you spent on nothing else), big black money holders will likely have way more experience at juggling money as well (not to mention plenty of white money to claim it to be if questioned). Sure, exceptional idiots could have managed to amount vast amounts of currency and be too stupid to evade capture, but really, how many would they be? Why, just last month, this diamond merchant from Surat gifted 400 flats and 1000 cars to his employees. The cars were gifts while the more expensive flats were on EMIs of which the company paid a sum. Now, if the returns he gets on these are over time, he successfully vanished a hell of a lot of money just before this ambush and will likely get it back in tidy white installments as the dust dies down. Of course his money may have been white. Just a hypothetical question. From all accounts, this chap seems to be a serial gifter (not that that is any proof of white money, just saying), but an example of what could be done.

In any case, with clear evidence that BJP officials had advance information, certain economic elite had advance information, etc… pretty much the only people to be caught unawares seem to be the gullible citizens so far. Certainly there seems to be no exceptional news of recoveries, though many raids, and heck even inspection of passengers in trains has been reported. If it is about causing panic, it is quite illogical to think that a person with plenty of money will panic before a person with little due to a strangling of cash flow (which is most of the country). You could drive small businesses to extinction and still have the big black players patiently changing some money at a time along with them right to the end. Or just take some loss and change it at lesser value in the black market the government so obligingly created with its abrupt scare tactics. Or perhaps they already got the gold and changed their roomful of cash into a purseful of gold that they put in a bank locker.

Do we have the capabilities for getting intelligence on big money movements?

Say someone uses an Aadhaar card to change 4000 rupees in a bank branch. For good measure, they take along their wife, maid, driver and driver’s girlfriend (or whatever, just hire a few… if you get my drift). Then the next bank branch, then the next bank branch and so on…. The next day, the same bunch more or less returns with PAN cards. Day after that is voter ID day, and so on… till fourteen days are over and they can withdraw from the first again. Or just steal some identities. Heck, International couriers have databases. Would the bank even be able to alert tax authorities about abnormal exchanges? Add to that these people withdraw 20k a week in cash from their account, then return in a few days with the defunct currency and dump in 20k…. and so on. What about say…. hiring the maid’s neighbourhood people who are struggling for cash and tell them to take a couple of hundred for every 4k exchanged…

Then of course there are stories of people offering cash loans worth 2 lakh in old currency without interest or at low interest to be returned later. Mostly poor people barely using their bank accounts deposit the 2 lakh cash…. There are student bank accounts that were recently showed to be used to hide money. Anyway, is it really impossible to create a totally fake new Aadhaar and open a Jan Dhan account and dump the money there? Or just borrow accounts wholesale? All you need is a harassed looking housewife type woman. Does anyone think they will get tracked when the Tax people are essentially monitoring the whole freaking country at one go?

How long does it take to create fake currency?

A lot of people are saying that this isn’t about black money, but fake currency. Dawood/ISI/other anti-national elements will be disrupted when the fake currency they have loses value. Not sure of that, but the whole freaking country is disrupted because the REAL currency we have has lost value. And it is unclear what prevents fake currency from being legitimized as new notes. It is true that once the switch is over and the existing notes are properly declared dead and can no longer be exchanged (not sure when that will realistically be), the notes counterfeit currency makers make, will have no value. Then the question remains about how permanent this situation is. If someone is in the currency business, I imagine it isn’t all that different from the piracy business. New security measures simply mean a race to find a crack, as opposed to a change of occupation and giving up of counterfeiting or piracy. And we haven’t even added security measures beyond the notes they already are able to duplicate. They already have distribution channels that we haven’t been able to seal (or we wouldn’t need to change currency). They have the intent, clearly. So what are the methods we have to prevent the note from being duplicated or at least copied enough to fool people and how long can this protection be reasonably expected to last?

Given the lunacy of “cashless”, how long are people expected to survive without money?

Cashless is a lunatic idea. Not even government departments like the post office accept cashless payments. Various offices and forms want cash fees. Large swathes of India have connectivity problem due to remoteness or politics – for example the Kashmiri asking how they were supposed to go cashless when they had no mobile internet for 129 days of the year. When someone like me (and imagine you too) has limited cash, it isn’t a very huge issue. You pay your bills, rent with transfers, you make purchases online and have them delivered and so on. At best you suffer for fresh vegetables or have to use app based cabs instead of whatever you can flag down. When someone using cash in daily life runs out of cash, everything comes to a standstill. If they stay in a place with rent 2000 rupees and get a 300 rupee electricity bill, all they have left for the next 14 days is 1700 rupees to cover everything from school fees to vegetables and milk and groceries.

We are agreed that we don’t care of the plight of these people who don’t matter. But what do we do about the market losses from the drops in sales that go all the way from small sellers to middlemen and distributors and manufacturers and…. um… the tax department at most stages? What do we do about losses from perishables like vegetables or fish? What do we do about security concerns when these people who don’t matter bring their “inconveniences” to where our nose begins? And this is not hypothetical. We already have anger at various places. For a leader who was mostly respected, at least publicly, the last 24 hours have seen a disturbing number of abuse videos addressed to Modi. Staunch allies like Shiv Sena and RSS have gone on record criticizing this move.  Economists are muttering about impact on GDP. Stocks have tanked (you realize that just covers five major vote banks for the ruling government?). So yes, anger is definitely the writing on the wall.

Are we certain that enough of this mythical black money will be caught to justify all this? Which brings me to…

Is this yet another bank bailout by forcing people to put money in banks?

There is a lot of talk about black market economy and bringing money under the tax regime, etc. Given that this move worst hits those unlikely to be eligible for tax, one wonders what is achieved. It is possible that those people simply don’t matter, so are treated like dirt and I wouldn’t be surprised, except elections are coming up in several states. This is the time when citizens are suddenly valuable. It is nothing short of suicidal for BJP to devastate the poor so thoroughly. Which means there is some reason to it. And the only one I can think of is this thing called recapitalization. We need to get money under the tax regime, but it has always been money we didn’t have and thus don’t depend on. Getting suicidal chasing it makes no sense either. Which leaves the mismanaged banks and their godawful NPAs threatening to sink them. Given that a hell of the biggest NPAs are by names known to be close to te government (and other politicians), it is looking unlikely that banks are going to do it how it is supposed to be done. The government has given money to banks in various ways. The last two are dramatic because they got funded by money belonging to people. The gas subsidies being routed through banks as cash was rather illogically explained that people were better off getting a subsidy refund instead of not paying the money at all in the first place.

This forced a hell of a lot of Indians to create Aadhaar cards and bank accounts that are still used for absolutely nothing else but that – getting what is due to them. This basically lets the banks keep the subsidy money with them for a while till it is withdrawn, and who knows, with any luck, it may be saved or even added to and the deposits will grow. Obviously it doesn’t seem to have happened much r at least enough to matter to the blackhoe in the bank finances. So now we have this. The whole country thrown into turmoil by literally forcing people to put most of the cash in the country to banks – just to try and get as many people as possible to put money in banks. No matter what it costs the people in losses, life and everything in between. You could call it a crowd funded bailout of cronies. Some funding was put in banks, other funding was spent as extravagant losses to citizens as a part of implementation. Whether people end up putting even a rupee in the bank or not, by god they will have paid for the government’s scheme. I suppose we should pray at this point that the banks figure out how to run themselves or we may find ourselves with our accounts simply “frozen” in the name of “patriotism”.

Speaking of NPAs…

The banks are in crisis with NPAs. The larger ones have got a lot of attention. The question is what will this demonetization do to the smaller ones. Or for that matter other loans. There is a lot of talk about the lending capacity of banks improving. Few seem to be thinking that with the kind of business losses smaller businesses are taking, we may not just be destroying them (which we agree doesn’t matter), but the attempt to bail out the banks may simply add to their NPAs. Not to mention loss of deposits from businesses that don’t have loans but go under anyway or savings from people who suffer losses or loss of income. For example, what do you think is going on with the taxi guy who got the taxi with a loan and for a long time is unlikely to find enough income from it? Will the money created for the banks with what amounts to little more than bullying be worth it or at least be more than it?

Speaking of keeping money in banks…

It is barely a couple of weeks that serious security issues in ATMs resulted in debit cards being misused. Now we have the entire country being pushed to withdrawing cash from ATMs over and over till they have normal amounts of cash with them again. It is unclear what security was added to prevent a repeat before an unprecedented number of cards were sent seeking ATMs. Nor is it clear what actions were taken to recover the losses. No information on ANY online theft being solved and the guilty punished. No assurance that it can’t happen again. Already Swaraj Barooah reports on Twitter that he got a phonecall asking for his card information to unlock his card. Such a large movement is hunting grounds for scammers. What preparations do we have? Or are people to simply put their money in banks on blind faith – mostly because they were forced to?

Or for that matter cashless transactions

There is an overall push for people to switch to cashless transactions. Presumably because some bright person somewhere thinks squeezing tax out of every single transaction is more important than people’s money or rights. A person who withdraws a thousand rupees to do the week’s vegetable shopping and a person who does 10 transactions worth a thousand rupees. With transaction fees on each transaction, the additional 20 or 30 rupees may not matter to the modern Marie Antoinettes, but it sure does to the vast majority of India where 20 rupees is two bundles of spinach or half a kilo of sugar. Why does the citizen have to pay for the government’s mistrust in its citizens that makes it want to know the smallest thing they buy? If the government is so desperate for that detail of information, let them make transactions free. Cashless doesn’t become cheaper than paper currency, does it, if a thousand rupee note can be printed for 3-4 rupees one time, instead of every time it is used. Cashless is “cheap” for the government only because it is people paying for the unit of exchange and not the government. If currency incurred a cost with every use, even 0.01 rs per use would seem exorbitant. But people are expected to pay many times the cost RBI would pay for a paper note as their duty? Those who can afford it may do it for convenience, but the government cannot force citizens to fund use of national currency – that too with third parties!

Anyway, this is getting too long. These are plenty of questions for now.