Cash crisis in India causes chaos!

[jimmy olsen]

Wow, pretty ballsy to pull that without warning. I'm surprised there hasn't been riots.

http://www.slate.com/articles/technology/technology/2016/11/would_facebook_or_twitter_ban_president_trump.html

India Wants a Cashless Society. But There's a High Cost.

A sudden government change has created chaos—and long ATM lines.

By Hasit Shah

Cash crisis in India

Earlier this month, the world watched as voters in the United States went to the polls to elect their new president. The same day, the government of India—the largest democracy of all—suddenly announced that more than 80 percent of all its banknotes are no longer legal tender. At once, $200 billion of hard cash became worthless.

On Nov. 8, Indian Prime Minister Narendra Modi, a right-wing nationalist who had made the fight against India's endemic corruption a key campaign issue on his way to victory in the 2014 general election, stunned 1.25 billion people by going on television and telling them their 500- and 1,000-rupee notes (approximately $7.50 and $15, respectively) would be valid for only another four hours. After that, they would have to be exchanged at banks for newly designed 500- and 2,000-rupee notes, with a grace period of just a few weeks. This in a country where nearly half of the population doesn't even have a bank account, and 90 percent of transactions are made in cash. There has been utter chaos ever since. Actually, chaos may be an understatement.

This government is trying to fight corruption and move towards a more digital economy. In India, people have stashed away huge amounts of money—income that has never been declared and is then laundered through extravagant weddings, construction work, luxury vehicles, jewelry. Nobody knows exactly how much "black money" there is, but it's safe to say that there's a lot. By forcing people, apparently without warning, to go to banks and change the old notes for new ones, the government is trying to account for a huge quantity of money and bring it rapidly into the system.

Many in India agree with the principle of demonetization, as it's become known, because corruption has been so detrimental to the country's progress and limits opportunities for honest people. There are parts of the capital, New Delhi, for example, in which dozens of newly built mansions have new BMWs and Jaguars on the forecourt, driven by teenage offspring and polished every morning by the families' drivers. It's an open secret that much of this is fueled by black money, and it infuriates many Indians.

But millions of people are struggling badly. There is not enough cash available, and the government has had to impose limits on how much can be exchanged. The rules keep changing. There are long, debilitating queues for banks and ATMs. Wages and bills have not been paid. Rural Indians often have to travel a long way to reach a bank, and an estimated 300 million people don't have the official ID that's required to process a cash exchange. In some places, a barter economy has even re-emerged. That's a marker of ingenuity, perhaps, but hardly the modernity that India is striving for. India's most decorated economist, the Nobel Laureate and Harvard Professor Amartya Sen, says: "The move declares all Indians — indeed all holders of Indian currency — as possibly crooks, unless they can establish they are not." Meanwhile, the people with the most black money—the people the policy was intended to target—are unlikely to have wads of cash under their mattresses. Their money will be safe in foreign bank accounts and property holdings.

Most people have been exchanging their 500- and 1,000-rupee notes for more cash. But the Finance Minister Arun Jaitley has also made it clear that the government wants to jumpstart a transition to a cashless society. Alongside the fight against corruption, another of the Indian government's key policy initiatives is Digital India, an ambitious plan, involving several government departments, to connect the country's huge population to the internet and tap into the social and economic opportunities from which other countries have benefited. Launched in July 2015 by Modi, it consists of three core components: infrastructure, digital literacy, and delivery of services. Banking and payments are the kinds of services that are becoming rapidly digitized elsewhere in the world.

While demonetization isn't officially part of Digital India, there is certainly overlap. It would be harder to hide money if the country were to rely less on cash, with more goods and services bought and sold online. One of tech's global leaders agrees: Bill Gates, the world's richest man—and, through the Gates Foundation, a major philanthropist in India—recently praised Modi's policy. "The bold move to demonetize high-value denominations ... is an important step to move away from a shadow economy to an even more transparent economy," he told the prime minister and his Cabinet colleagues in Delhi. He also said, "I think in the next several years India will become the most digitized economy, not just by size but by percentage as well."

India's digital payment startups have responded very quickly. Within days of Modi's announcement, Paytm, which is based near Delhi, had produced several new advertisements, urging Indians to adopt mobile money and avoid the hassle of dealing with cash. The company tells me it experienced a 300 percent increase in downloads of its app following the announcement and that it now has 150 million users.

But only about one-third of Indians currently have internet access. And most of them can get it only through mobile devices because the country's broadband supply is so limited outside urban areas. There simply aren't enough wires in the ground. Mobile connectivity is patchy, even in cities. This reflects wider infrastructural problems that have never been solved: Hundreds of millions of people are also without a stable electricity supply or efficient sanitation. In India, grand ideas are plentiful; implementing them is rarely straightforward. And a country that is largely offline is perhaps not ready to go cashless.

On Nov. 19, Coldplay headlined a show in Mumbai, in front of 80,000 people who are unlikely to struggle for access to money. Jay Z had been on earlier. During the British band's set, Modi appeared with a recorded video message, opening with the kind of comedy for which he is not noted. "You have been smart in asking me to only address the gathering and not sing," he quipped. "Else I'm pretty sure your audience would be asking you for their money back, and that too in 100-rupee notes." Most people are not laughing.

[Josquius]

Yes. Been reading of this for a few weeks. Hadn't heard the move to digital currency angle, I thought it was just about black money.
There's a burgeoning business on the go apparently of converting old notes for a significant % loss. The converters then go and queue at the bank.

It shouldn't be hitting people's savings too hard. The poor keep their savings in gold. But for short term spending it is chaos.

[garbon]

Of all the articles you could post...

[Eddie Teach]

Of all the articles you could post...

<3 Slate 

[Liep]

Yeah, a link to the Bugle episode about this would've been better.

[CountDeMoney]

You'd fuck up a ham sandwich's byline, so there's no reason to expect a proper Variety headline like Oh, Calcutta!: Cash Crunch Causes Chaos!

Mutt.

[jimmy olsen]

Looks like the situation is not improving.

http://www.businessinsider.com/india-currency-money-2016-12

India's money mess could get worse


Associated Press 

Katy Daigle and Nirmala George, Associated Press

Fifty days ago, India yanked most of its currency from circulation without warning, jolting the economy and leaving most citizens scrambling for cash.

As the deadline for exchanging the devalued 500- and 1,000-rupee notes for new ones hits Friday, many Indians are still stuck waiting in long bank lines.

Empty ATMs and ever-changing rules are preventing people from withdrawing money, and many small, cash-reliant businesses from cinemas to neighborhood grocery stores are suffering huge losses or going under.

Despite those problems, Prime Minister Narendra Modi says his Nov. 8 demonetization decree has succeeded in uncovering tax evasion and cracking down on graft. The Indian government is urging patience, insisting it's playing a long game that will eventually modernize Indian society and benefit the poor.

So far, despite the widespread inconvenience and costs, most of the country's 1.25 billion citizens appear to be taking Modi's word for it.

Here are a few things to know about India's massive cash overhaul:

Hardship for the poor

Modi's announcement that 500 and 1,000 rupee bills — making up 86 percent of India's currency — were no longer legal tender has posed an enormous hardship for millions of people who use cash for everything from salaries to cellphone charges.

Almost immediately, serpentine lines appeared at banks and ATMs as people waited hours to deposit or exchange old currency notes for new bills. Since authorities only began printing the new bills after the policy was announced, demand vastly exceeds supply and cash machines often run dry. Daily commerce in essentials including food, medicine and transportation screeched almost to a halt.

Worst affected were the country's hundreds of millions of farmers, produce vendors, small shop owners and daily-wage laborers who usually are paid in cash at the end of a day's work. Many lost their jobs as small businesses shut down, compounding their poverty.

Pankaj Aggarwal, owner of a clothing shop in the Old Delhi neighborhood of Chandni Chowk says his sales crashed by 70 percent.

"You can imagine what our business is like now. It will be some time before our sales normalize," he said.

Modi appears to have succeeded in promoting the cash overhaul as a "pro-poor" policy, tapping into deep anger among the have-nots toward wealthy elites.

"The first two months have been so bad for us, we don't even have enough money to buy food," said daily wage laborer Neeraj Mishra, 35. "Overall, I think Modi has done some good. People with a lot of money are the ones who have been troubled. I don't have enough cash for it to bother me much."

Political scientist Sreeram Chaulia, dean of the Jindal School of International Affairs in New Delhi, describes the strategy as "classic populism."

"Some people are outraged, but are hesitant to come out and say it because they don't want to be branded as anti-national or self-centered," he said.

A bruised economy

The wide impact of the demonetization won't be known until the government issues its next quarterly GDP figures in February, but the Reserve Bank of India already has shaved half a percent from this year's GDP growth forecast, to 7.1 percent.

Since domestic commerce drives most economic activity, analysts have expressed alarm over the scale of economic and social disruption and are warning a contraction is likely in coming quarters.

"The countless unpredictable consequences that will continue to show in the coming weeks and months mean that it is, in effect, a huge gamble," said Jan Zalewski, an Asia expert with the Britain-based risk assessment firm Verisk Maplecroft. "Inflicting such huge costs for what is an uncertain outcome is problematic."

Real estate, tourism, transportation and gold and gems have been hit the hardest, along with informal sectors that rely mostly on cash.

Prices are forecast to rise since the cash crunch is pinching supplies of all sorts of goods.

The country's banks, however, are seeing banner business. The central bank said old notes worth 13 trillion rupees ($191 billion) had been deposited as of Dec. 10, with many more expected by Friday's deadline.

That should improve bank liquidity and in turn encourage more lending to boost economic growth.

Mixed messages, chaotic rules

The Finance Ministry and central bank have issued at least 60 different directives, some of them contradictory, about such issues as how much money can be withdrawn from bank accounts and which documents are needed for depositing old cash. The mixed messages have compounded the overall chaos and shaken investors' confidence.

"There appears to be less trust in many institutions, including the Reserve Bank and other banks. That is one important behavioral change that has been ushered in," said Mihir Sharma, senior fellow at the Observer Research Foundation, a New Delhi based think tank.

Financial experts are baffled about how to evaluate the move.

"One of the major problems with the demonetization move is that success is so difficult to measure," Zalewski said. "In and of itself, it can't end black money, stop terrorism funding and the counterfeiting of notes."

New bills, old habits

The idea that swapping old currency notes for new ones would wipe out tax evasion has already been proven naive. Over the last seven weeks, Indian income tax authorities uncovered more than 32 billion rupees ($477 million) in undeclared wealth held in new notes, foreign currency, gold and other commodities.

The Finance Ministry found enormous stashes of new currency bills secreted away by corrupt bank managers. Axis Bank's CEO Shikha Sharma said she was "embarrassed and upset" after it was found managers at the bank had used the stolen funds to fake accounts and launder customers' untaxed savings for a premium.

A global trend?

A month after Modi scrapped the high-denomination notes, Venezuela's president announced that the 100-bolivar notes that account for more than three-quarters of the country's cash would be taken out of circulation.

Skyrocketing inflation had taken the value of the Venezuelan notes to 2 U.S. cents from 10 cents in the past year.
But while India's cash overhaul has been relatively peaceful, Venezuela's was not.

When no new bolivar notes appeared to replace the old ones, riots and looting erupted in towns across Venezuela, whose economy was already in shambles. Hundreds of grocery stores were damaged or destroyed. Ultimately, the government extended use of the old 100-bolivar notes until Jan. 2.

Venezuelan President Nicolas Maduro declared the abrupt cash overhaul an economic triumph, claiming people were racing to deposit the old notes into banks. He did not say how much was deposited.

In Pakistan, opposition lawmakers passed a resolution last week calling for the withdrawal of the country's highest-denomination note from circulation. The government rejected that move, saying there was no need to discontinue the country's 5,000-rupee note, worth about $48.

"The very notion of cancellation of such convenience in transactions is preposterous and unequivocally denied," the Finance Ministry said in a statement.

(Associated Press writers Fabiola Sanchez in Caracas and Munir Ahmed in Islamabad contributed to this report.)

[jimmy olsen]

Things are only getting worse there
https://www.bloomberg.com/view/articles/2017-03-27/modi-s-alarming-power-grab

Modi's Alarming Power Grab
March 27, 2017 5:00 PM EDT

By
Mihir Sharma

Relatively quietly, India's government has just undertaken an unprecedented power grab -- one that should worry not just citizens and taxpayers but also foreign investors. And it comes in the most unlikely of places: the annual federal budget.

The presentation of the budget is a fairly splashy event; it's announced by the finance minister in a speech to parliament that usually reveals the direction of economic policy in the coming year. Once the speech is done, the budget usually vanishes from view: Lawmakers debate and negotiate, a few minor amendments are carried out, and a finance bill is passed, turning the budget into law.

Not this year, however. While the budget itself was lackluster -- with a few handouts, but no real growth-promoting reform -- what happened afterward has been startling. The government decided to tack on amendments that are worrying in both intention and execution. These amendments change as many as 40 other laws, and will have wide-ranging effects. They seem to suggest the worst: that Prime Minister Narendra Modi and his government are trying to expand the powers of the Indian state in ways not seen for decades. Also, he's getting away with it.

Here are just a few things that the new bill does. It will allow Indian companies to donate as much money as they like to political parties, by removing a cap linked to net profits that's been in force for years. Voters won't have a chance to examine which company is giving money to which politician; all donations will henceforth be anonymous. An earlier requirement that a company officially declare its political contributions has been erased.

Another amendment merges various "tribunals," or quasi-judicial bodies that examine appeals of regulatory decisions and which are, essentially, ways to get around the widespread rot in India's regular courts. This might seem like straightforward rationalization, but it's not. In fact, the government will now "make rules to provide for the (i) qualifications, (ii) appointments, (iii) term of office, (iv) salaries and allowances, (v) resignation, (vi) removal, and (vii) other conditions of service" for the tribunals' members. In other words, the executive has been given arbitrary power over the tribunals. It's trying to subvert and control a slew of hitherto independent institutions. The Indian state is already relentlessly litigious and a dangerous enemy. The government has just made that problem much worse.

Most worrying, perhaps, is the way the bill will expand the power of income-tax officials. Indians were already concerned that the prime minister would unleash "tax terror," using tax raids and claims against political opponents. In the process, they worried, ordinary taxpayers would have to endure arbitrariness from the authorities.

Those concerns now look justified. Soon, an income-tax officer will be able to waltz into anyone's house or office to conduct a search or a seizure -- and not even have to explain why. Not to you if you're being investigated, and not even to the tax tribunal you would appeal to for help. With almost comical villainy, the government has even made this apply retrospectively -- the tax guys can, without explanation, investigate you or your company all the way back to 1962. This after Finance Minister Arun Jaitley has insisted several times that he doesn't believe in retrospective tax law.

So why is the government getting away with this headlong expansion of its power? Because the annual finance bill is what is called a "money bill" -- unlike regular legislation, it doesn't need the approval of the upper house of India's parliament. It only needs the lower house to pass it. Right now, Modi's party has a majority in the lower house, but not in the upper. By tacking these changes onto a money bill, the government has ensured that they've been signed into law by Modi's partymen in just one house.

The larger trend here is what should worry us. India has worked as a democracy and as a slowly liberalizing economy precisely because there are at least some checks on government power. Already, anyone doing business in India knows that half your time -- perhaps more -- is spent getting on the right side of the government. But the courts, the tribunals and the upper house of parliament have all acted as constraints on the executive. Modi, empowered by his huge victory in recent local elections, is trying to reduce the power of these checks. Together with his decision to turn hard right on social policy, and left on economic policy, this expansion of his government's power suggests Modi's chosen path for India is far less liberal than earlier hoped.

[citizen k]

India going to get Venezuelaed or Turkified?

[Admiral Yi]

India going to get Venezuelaed or Turkified?

Neither I would think.  Dealing with tax evasion is a grown up issue.

[The Minsky Moment]

The Indian court system is notoriously and clogged.  The tribunals were supposed to help with that but as the article implicitly concedes the rules governing the tribunals are themselves a confusing hodgepodge.  Effective tax collection and rationalization is also as Yi alludes a policy goal of great significance.

Modi has been lambasted for the drastic currency reform but the economic statistics do not demonstrate harm to the formal economy, on the contrary the markets are up.  It may be the informal economy has been hurt but that would be kind of WAD since the reform was in part designed to make the informal economy more formal.  It's a very debatable policy but IMO kind of a ballsy move to leverage India's relatively under-developed position by leaping directly into a cashless economy.

There is disturbing stuff here like the changes to corporate donations to party - and disturbing stuff not here like the Hindu nationalist tendencies, but not everything in the article screams EVIL

[MadImmortalMan]

What's wrong with having a chunk of the economy that transacts in cash or goods/services and isn't "formal"?

American businesses often trade in kind because our taxes are awful. I'll fix your computers if you unclog my toilets. No big deal.

[Admiral Yi]

What's wrong with having a chunk of the economy that transacts in cash or goods/services and isn't "formal"?

American businesses often trade in kind because our taxes are awful. I'll fix your computers if you unclog my toilets. No big deal.

The problem with cash transactions is the ease of avoiding taxes.

The problem with a barter economy is you can't compare prices and search costs may be prohibitive.

[citizen k]

What's wrong with having a chunk of the economy that transacts in cash or goods/services and isn't "formal"?

Can't track, control and NIRPify.(negative interest rate)