While the American elections are bombarding the news over the world, last night our Führer did some bombarding of his own.
Appearing on television at eight in the evening, Prime Minister Narendra Modi announced that from midnight, currency notes of Rs1000 and Rs 500 denominations would no longer be legal tender.
As of yesterday, these were the valid currency denominations in India: Re 1, Rs 2, 5, 10, 20, 50, 100, 500 and 1000. Of these, the top two, as of midnight yesterday – with a four-hour notice – have ceased to be anything more than scraps of printed paper.
Modi announced, in his address, that this was being done to curb what in Indian parlance is known as “black money”: undeclared income, as well as slush funds from bribes and other illegal gratifications. It seems that all this money is stored in the form of high denomination notes, and allegedly demonetising said notes and forcing people to turn them in to banks and post offices (they can do that till 30th December) will compel them to expose the black money to the light. He also announced that, today, 9th November, all banks around the country would be closed for transactions and all ATMs rendered inoperative.
Predictably, this triggered massive queues outside ATMs all over the country for the few hours as people short of money tried to withdraw what they could. Of course, the ATMs dispensed 500 and 1000 rupee notes as well as the 100s, and those would be useless before the night was half through. But needs must while the devil drives, and so on.
Perhaps it is the failing of my poor demented brain that I have a smidgen or two of doubt about how efficacious this will be. One reason is that though the Rs 500 notes have been demonetised, a new design Rs 500 note will be introduced, along with a totally new Rs 2000 note. Yes, you got that right. The remedy for black money dependent on Rs 500 and 1000 notes, a problem severe enough to require removal of the currency from legal tender, is...issuing of new Rs 500 notes and a totally new denomination of 2000 rupees, double the note that apparently was so prone to being a tool of corruption that it had to be scrapped.
How the hell is this supposed to work, again?
According to one rumour, the new 2000 rupee note is supposed to have some innovative nano GPS chip to track it. I do not believe it, because keeping track of the millions of notes floating around would itself be so expensive that it would break the treasury. Also, this is only a rumour since it has not been confirmed by the government, and the only source is a poorly worded, grammatical message floating around the web and WhatsApp.
But even supposing the claim is true, and the Rs 2000 note can be tracked with 100% accuracy, will it achieve it’s stated aim of eliminating or even reducing black money?
I am no financial genius, and I have absolutely zero knowledge of tax dodges, but even I thought up several perfectly good ways to get past this demonetisation ploy.
For example, let’s take the demonetisation of the 500and 1000 rupee notes, on the premise that it would force the owners of black money to turn the notes in. Suppose I had a million rupees in 1000 rupee notes, which I didn’t want to turn in. All I have to do is pass these notes on to an agent (and if they didn’t exist last night you can be damned sure they do now), probably at a discount. In other words I sell the 1 million rupees to him for, say, 900000 rupees.
And what does he do with the money, which is useless? Of course it’s not useless, he can still exchange it until the end of December. He exchanges it in dribs and drabs over the next weeks, for perfectly good legal tender. If necessary, he hires people for a fee to go to the banks and change some of it for him; people desperate for money will do anything, and India is full of people desperate for money.
Since I am not a financial genius, I took a humongous three minutes to come up with this extremely complex and difficult ploy. I can assure you that people who are conversant with that kind of thing would possibly have arrived at the same conclusion.
As for the idea that the 2000 rupee note will curb black money, while the country erupted in Modi worshippers (“bhakts”) celebrating online, this is what I had to say:
Let me explain this in words even you can understand.
1.There is going to be a huge downturn in all but essential economic activity because nobody has enough 100 rupee notes in hand and will not have enough for a long time to come.
2. People who know enough to conceal their real income do not keep it, contrary to common supposition, inside their mattresses. They know well enough that inflation alone will wipe out their ill gotten gains so they either buy something like gold or land with it or they invest it in bonds or if they can they bank it abroad.
3. Their remaining 500 and 1000 rupee notes are therefore not in any larger amounts than anyone else's, and there are perfectly easy ways of processing them through the system like, for example, *selling* them to criminals to exchange through the banks.
4. In future, they can simply demand that bribes be paid in kind rather than cash or in denominations of hundred rupee notes instead of 500s or 2000s.
5. Therefore the corrupt will be affected by this not at all.
6. In the short run this will lead to an enormous increase in the drain on the exchequer because of these factors:First, to print additional 100 rupee notes to replace the 500s and 1000s being taken out of service.Second, to replace the 500s with new design 500s and issue the new and allegedly high tech 2000 rupee note.Third, to destroy the 500s and 1000s being taken out of service.
7. Don't forget the huge economic loss that will hit India today because nobody will have enough 100 rupee notes for any transaction, and all banks and ATMs are shut. In effect the entire country has been put on a one day business shutdown.
You can go back to your demented celebrations now.
I am still, today, accepting Rs 500 notes, even though they are no longer legal tender. The reason is simple; people, including my specimens, are desperate, and nobody else is accepting these notes.
I can, after all, still just bloody change them afterwards.
|A typical "joke" that did the rounds of WhatsApp last night|