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Indian Prime Minister Narendra Modi’s demonetisation plan was initially planned to wipe out hoards of black money.
In his address on Nov 8, where he announced that Rs500 and Rs1,000 notes would no longer be legal tender, Modi spoke dramatically of currency notes stashed under beds and in gunny bags.
Scrapping large banknotes is seen as a realistic way of tackling the informal economy by some economists, notably Harvard professor Kenneth Rogoff.
Of course, India’s demonetisation has got the wrong end of the stick. Rather than ban large notes, the drive actually ended up adding a larger bill to the pile: the Rs2,000 note, double the value of the largest banknote till last month.
Far from helping wipe out cash hoards, this large note, if Rogoff’s theory is to be believed, will actually provide a fillip to the informal economy, of which the so-called black money is a subset.
Show me the money (in Rs2,000 notes)
Sure enough, the past few days have seen headlines about income tax and police raids across the country, with the authorities discovering large stashes of new Rs2,000 notes.
Given that the new banknote is being carefully rationed by the Union government, the raids have raised some serious questions about how these people have managed to lay their hands on so much of the new currency.
The latest raid occurred on Saturday as a law firm in Delhi was found holding around Rs25 million in new notes. Earlier on Saturday, Union government officials seized Rs240m in new Rs2,000 notes from a car in Vellore, Tamil Nadu.
On Wednesday, a Bharatiya Janata Party (BJP) leader in West Bengal was arrested in possession of Rs3.3m in the newly issued Rs2,000 notes. Earlier on December 2, another BJP leader was arrested with over 900 new Rs2,000 notes.
Line up and outrage
In a public database of new currency seized, curated by public policy professional Meghnad S, nearly Rs1.6b in new notes seems to have been recovered in raids and arrests till now.
Given that the common man is currently braving it out in ATM lines for a new note or two, with a limit on Rs2,500 per day on ATM withdrawals, and a weekly limit of Rs24,000, it is more than ironic that at the same time, large stashes of new currency notes are being recovered in raids.
This article was originally published at Scroll.in and has been reproduced here with permission.
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Comments (53) Closed
Dec 15, 2016 02:00pm
Just wait for few months... Rs 2000 is introduced temporarily so that this move would have less impact on economy..
2000 notes will scraped permanently
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Dec 15, 2016 02:02pm
@Ankur At the end of 2017 all paper currency will be demonitized and by that time plastic notes will be main currency.
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Dec 15, 2016 02:10pm
So this Rs.l.2b will become government profit.
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Dec 15, 2016 02:33pm
Some bank officials are corrupt.
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Dec 15, 2016 02:32pm
@ghouse basha Nope, It will again go to people through Banks
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Dec 15, 2016 02:34pm
@ghouse basha It is the money tat belongs to the nation.
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Dec 15, 2016 02:37pm
Property prices are already down by at least 20 percent all over the country. Bank has reduced the interest rate, and many more to come. Yes, there are pains for many specially for the poor, but in the long run, it is the poor who will be better off.
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Dec 15, 2016 02:44pm
@gary Cottage industries will be wiped out as owners have no money to pay.
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Dec 15, 2016 03:37pm
Money is not important. The people who have it are.
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Dec 15, 2016 03:40pm
@gary. How could that be after eliminating a medium of "exchange" making economy defunct yet somehow demonetization will bring prosperity to all still remains a wishful thinking? There is always other side of the coin where minimum flat fee on the old money could have resulted much better outcome by extending the conversion process to take place over longer period. You don't choke economy by eliminating suddenly 86% of the money supply (considering Macro Exonomics formula where, Money Supply = Goods and Services produced X Velocity of Money). Should you eliminate any of the variable even temporarily that would make economy defunct.
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Dec 15, 2016 03:41pm
@Cong i raga - *"Cottage industries will be wiped out as owners have no money to pay."*
The Prime Minister had introduced the Jan Dhan Yojana long ago which would allow people to open a bank account for as less as ₹1. If they manage to open an account and do all their transactions digitally then their money is safe. We, the people of India, support demonetisation.
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Dec 15, 2016 03:43pm
Corrupt people with their influential hands getting new notes but that will be recovered. Even corrupt people of deposited their money in the account of labourers having Jan Dhan Account that will be seized by the Government. Government is bound to take action on these corrupt people. In the end Middle Class and Poor people get benefits.
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Dec 15, 2016 03:48pm
@Cong i raga " cottage industries are wiped out "
Possible that you are not aware exactly what cottage industry is ! They don't need much cash.
In fact retail inflation rate has gone to 3 % and people are happy !
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Dec 15, 2016 03:54pm
Demonetization of large notes is the right step towards curtailing informal economy, nevertheless, its execution can be debated especially in economy where almost 80% transactions are in cash form.
However, more important would be the address those factors which lead to informal economy and corruption.
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Dec 15, 2016 03:59pm
Don't worry Modi ji is taking care of our country,follow Indians please keep cool and calm as we have been making from last one month. We are facing problems to make a better country, some culprits are taking advantage but our PM will get all the solutions.
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Dec 15, 2016 04:00pm
Like all other matters, Modi has mismanaged the demonetisation also.
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Dec 15, 2016 03:59pm
We are making cash less india we are into face of transaction.
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Dec 15, 2016 04:07pm
@Kamal Pasha I hope we had politicians who had done some similar mismanagement at home as well.
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Dec 15, 2016 04:12pm
Not everybody is saint here, this will happen, people will get caught stashing money. But this step towards making India a cashless society will ultimately do good. Just think if governement wud have nearly all the money of 130 billion people for building schools, roads,hydro projects, setting up industries, loan to startups...
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Dec 15, 2016 04:14pm
@Kamal Pasha typically ill informed comment from you.This is a long term process.
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Dec 15, 2016 04:20pm
@Kamal Pasha
His mismanagement is going to be beneficial to entire country and therefore majority are happy and waiting for the next move. Income tax rates are going to be lower as declared yesterday. Retail inflation has gone down to 3% ,Property rates have gone down.......
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Dec 15, 2016 04:20pm
Good to see action even if not perfect and good to see members of ruling party subject to the law.
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Dec 15, 2016 04:44pm
The corrupt people are seems to be more influential and powerful than the Government. These just peanuts who have been caught and large group must have enjoyed the feast with Rs 2000 notes.
All this is adding to the anxiety and desperation of poor people.
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Dec 15, 2016 04:48pm
@Ankur Which is brilliant isn't it , First introduce a certain denomination , spend millions on printing it and then scrap it, Meanwhile the common man can suffer in long serpentine queues , If the BJP wants to get rid of the corrupt they can start by cleaning up their own house, this move has proved to be disastrous for the economy with the GDP falling by 2 per cent .
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Dec 15, 2016 04:56pm
@Kamal Pasha Coming from someone who has never seen management in his country ever!
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Dec 15, 2016 05:01pm
Another Dawn article...another point of view
http://www.dawn.com/news/1301855/rupee-ban-could-unleash-indias-economic-potential
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Dec 15, 2016 05:28pm
@Kamal Pasha Sitting so far away and not being impacted by it you an say anything.
I am impacted and I am in ATM queue every week and yet I firmly believe that this is an excellent move.
My business too is suffering now. Some people just cannot withstand Modi. Personality has taken over logic.
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Dec 15, 2016 05:27pm
@Sarfarosh best one dude.
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Dec 15, 2016 05:31pm
@Kamal Pasha is that a matter of your concern ?
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Dec 15, 2016 05:41pm
Demonetization a good move but very badly implemented, in a longer run it will help India if all goes well. Narendra is a fundamentalist, blood once spilled can't be forgotten though.
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Dec 15, 2016 05:45pm
Its very surprising how Rs 2000 notes make the raids so successful to bring Rs 1.6bn from the same people who were having bundles of Rs 500 & 1000 earlier!!! Is there any in build tracker in 2000 notes???
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Dec 15, 2016 05:53pm
@sachin
If that is the case then enjoyand get screwed as much as you want!!!!!!!!!!!!!!
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Dec 15, 2016 05:59pm
@Kamal Pasha
Its your wishful thinking...
Modi has done god job and he has a popular support for sure.
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Dec 15, 2016 06:04pm
@Black Indian
Good to know that. you can also get screwed as much as you want but don't put us in this trouble
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Dec 15, 2016 06:02pm
"Given that the new banknote is.....so much of the new currency."
That's precisely the point of demonetisation that those that tried to convert black money are caught & exposed because banks have been asked to keep records of people who came in to convert old notes. As regards 2000 note ; it is temporary as revealed by the brain child of demonetisation Mr Bokil's in his interview to local TV in Pune; that 2000 Rs note is a kind of a bridge or diversion when you want to create a new highway & allow such a large conversion. After 6 months or a year; the government has a choice to call back Rs.2000 note once enough lower denomination is in market. Mr Bokil had a year ago requested meeting for presenting his ideas to PM Modi who gave him 6 minutes time but the presentation lasted for totally uninterrupted 90 minutes & the rest is history. He had made similar presentation to Rahul Gandhi who took no decision. Mr Bokil calls our PM is like a surgeon who will act ruthlessly once convinced.
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Dec 15, 2016 06:05pm
The great confusion created by the Modi government and there is no end seems possible.
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Dec 15, 2016 06:22pm
@GSK, Majority are ashamed to accept the reality that Modi has failed them at every junction and do not want to accept their mistakes.
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Dec 15, 2016 06:26pm
It's too early to write off or praise the demonitisation directive. The cost benefits will become clear in a few months.
Whatever the outcome, at least this was an honest attempt that did not benefit Modi personally. Instead, he has risked his popularity. There are not many politicians who are willing to do so. Let's be fair on this account.
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Dec 15, 2016 06:29pm
@sachin, Yes you are right. I am sitting far away . The difference is I do not believe what Indian papers write because they have been bought by BJP/RSS. I read neutral Western newspapers who do not have to do anything with Indian political parties.
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Dec 15, 2016 06:34pm
@Kamal Pasha I fully accept it , People are not ready to accept the fact that MODI is a failure , From his swachh bharat program to rest of policies they have all failed.
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Dec 15, 2016 06:45pm
@Kamal Pasha western news paper who also have hidden agenda. newspaper are owned by rich and powerful.
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Dec 15, 2016 06:49pm
Can anybody clarify, why the stash of new bills along with old notes are recovered during raid? Something must be there in this new currency that a rumor spread during initial period. In most of the areas, hardship has been reduced to minimum. Only in few places like Delhi and UP, where big sorts have directly syphoned money from banks to their treasuries, shortage in cash in ATM is felt. Nevertheless, majority are having full faith on Modi and they are ready to face the challenges. People who have stashed old currencies as black money are cursing. Indians know very well, there is no gain, without pain.
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Dec 15, 2016 07:18pm
The way this scheme has been implemented is a complete failure. Some people are saying that GOI will withdraw the 2000 notes after 30th December. How can you people so sure that Modi is going to do that? May be you have people gotten any private letters from Modi. But I haven't seen any official announcement about scrapping 2000 rupee notes. It will be impossible to do that due to the failure and mismanagement of the current demonitization, also the bank are only distributing mostly 2000 rupee note so it will become the used.
By the way I don't see any profit of demonitization. People in villages don't even have money for foods ,forget about buying seeds, fertiliser and other necessities for farming, despite having money in their Bank Accounts. They are queuing up in large numbers at each and every bank which is miles away from their villages( in cities) to withdraw their own money. And banks do not have enough cash to give them. They are only paying 2000 rupee that in 2000 note
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Dec 15, 2016 07:19pm
@Cong i raga, legally operated industries pay by cheque or bank transfer. Of course illegal one will be wiped out.
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Dec 15, 2016 07:34pm
@Kamal Pasha Trust me on this bro, if the same step had been taken in Pakistan you'd be happy. Its good for the country, and I'll be more than happy to see Pakistan following the same path as India. Little inconvenience, for a month or two doesn't really matter if the gains are high in the long term. Absolutely no point in bashing Modi when we Indians are standing right behind him. You can call this mismanagement, failure or anything but we're very absolutely fine and happy with it.
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Dec 15, 2016 08:13pm
Consider demonetization as a war against the enemies of the people (corrupt business people, officials and political parties). During war common men stand in queue for hours to get their ration. Enemies always try to evolve new strategies to upset your plans (disrupting parliament, precession in streets, stocking of new currencies, and so on). Only you have to stick to your goal to eradicate them from the society. Then we can leave a clean society for our future generation where they can breathe freely.
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Dec 15, 2016 08:19pm
I don't know why Indians are so simple to believe that there can't be any corruption once India goes fully digital. even in the developed world where there is an option of conducting digital transactions the corruption has not been fully wiped out. corruption has got nothing to do with the mode of payment it has all to do with the mindset of the public. if there are elements of fraudsters in public they will just find a way to commit their ill deeds. the fact that huge sums of newly printed Rs 2,000 notes been discovered just proves it. Modi Hi has been extremely successful in diverting the attention of masses from the core issues of fulfilling promises. when the fever of religiosity gets cured I believe that time Indians will realize that all leaders are the same. hey guys believe it or not they are from the same lot.
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Dec 15, 2016 08:17pm
@jaydeep Seems like you are better economist than people sitting in RBI & GOI. Also seems like you have not read this article.IT department have already recovered around Rs1.6bn all bcz of this move. Have patience bro.Wait till 31st Dec you will get more good news...
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Dec 15, 2016 09:19pm
For the welfare of the nation we will stand in line ...
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Dec 15, 2016 09:24pm
Modi can only be as good as the Indians. If the Indians as bank officers, government officials, builders or rich people are immoral, corrupt and subvert the system, Modi can not succeed.
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Dec 15, 2016 10:16pm
@Ankur Not scrapped ! They will stop printing 2000 rupee notes abut currency already in circulation will remain legal
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Dec 15, 2016 10:42pm
Modi neither can change the mindset of corrupt people, not can he take tuition class to corrupt people who have been living in absolute protection and luxury for 70 years. All he can do, as a fearless leader, is put system in place and create awareness for younger generations to come. You can clean a pond in a day, but not ocean. In subcontinent, people hoard money for the sake of it, not to enjoy it. Indians have to be patient with Modi.
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Dec 17, 2016 05:23am
@S. A. M. The pervasiveness of corruption from daily life needs to be reduced. In Asia India is much better ranked than Pakistan as well as china, but we have a long way to go we are still ranked 76 out of 168 and corruption impacting people in their daily lives needs to be reduced as much as we can. Digitization will achieve that some of that.. and this is just a start. At least people in western countries don't face corruption in their daily lives.
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