First let’s break the headline down into right context so we start off on a right foot.
For Nation, freedom, democracy, soldiers guarding our borders, god and religion.
The pain we are ready to take and sacrifices we are willing to make, to protect, preserve and nurture everything we love and care.
Wise men have related three very strong emotions “Lobha, Moha, Krodha” (Greed, Attachment, Anger) that can come with strong love.
Dhoka is when someone invokes these three emotions to tax you in the name of things which matter the most to you (love). And then corners the gains, leaving you and your love battered and your tax (efforts, hardships) squandered.
“Demonetization” exercise to phase out and reprint Rs. 500 and Rs. 1000 currency notes, about 86.4% of all the currency notes in circulation, would cost around 15,000 to 20,000 Crore just to print (P. Chidambram, ANI).
Love – The tremendous proposed gains India will achieve after this.
- Create a perfect cashless system.
Would take three problems head on and destroy
- Black Money in vast amounts allegedly stashed in cash.
- Terror Networks, Mafias, Drug Dealers and all the evils forces.
- Counterfeit Money.
Tax - The efforts and effects in our unique circumstances and if we can detect “Dhoka”(open to debate) in it.
Taking the topics one by one.
Cashless Economy – Every monetary transaction is done electronically. Every penny is accounted for, easy for everyone. Tax collection is optimal, No Black Money, No Counterfeits, will curb illegal trades, drugs, terrorism. Great for people and the nation.
Curious Case of Sweden - Sweden is now getting close to a cashless society and given as an example of the promised wonderland behind current exercise by certain proponents. Let’s talk about the tax or the hard work behind this.
- Sweden has been running world’s best government run schooling and higher education system in the world.
- Sweden established Swedish Data Protection Authority in 1973 to oversee any personal data abuse of government power, any mass surveillance. It was world’s first national data protection law.
- 85% of Sweden’s population lives in urban areas, as per European standards.
- Population is only 9.1 million i.e. 91 lacks. Less than half the Delhi’s population.
So a developed European country is going cashless after building a strong foundation of highly educated urban population with mature laws on personal data protection. And has a very small diversity among a very small set of citizens.
Let’s try to find the Dhoka (Treachery) In Indian Context
The treachery - Right after the announcement around midnight on 8th November a mobile payment network PAYTM started newspapers front page adverts on 9th November promoting private mobile cashless transactions with prime minister’s face on the advert.
There was a direct benefit to a Chinese backed corporation which very suspiciously seemed to know about this very material announcement and made a killing out of it. Mobile deposits skyrocketed by 1000% as per company’s statements following demonetization. To this date there is tireless targeting of people standing in cash starved bank lines to start using this “cashless” mode of payment.
As an official position, we have opposed PAYTM(or similar) as one of the biggest sustainability hazard India faces and is a face of crony capitalism as it gets. Masquerading as a FINTech company it operates more as a funnel for discounted Chinese products into Indian markets. Previously they have used affiliations discounts, incentives and coercion techniques to lure consumers into paying with mobile, leaving seller with no choice but use the virtual money to buy affiliate products with high barriers to cash conversion. India with its dismal solid and e-waste management systems, just came out of the worst smog and air quality in 17 years- partly attributed to its smoldering dump yards.
This is one statement about crony capitalism at play and should be investigated thoroughly on any linkages. Hopes of which are slim considering dismal state of transparency laws in India.
Another point is data security. Yes it’s very easy to pay cashless, but in India in the absence of any personal data security laws, or ignorance in judiciary and public on requirements, existence of any such law, consumer data can be used by political interests to target citizens for consent manufacturing and intimidation. Mr. Donald Trump used this kind of data to win presidency, are Indian incumbent lawmakers quickly trying to replicate the same model?
Specially in Indian context, where technology, media and intimidation machines are heavily used to polarize voters, it’s scary to think that a choice of shoe color by someone may make him a target of - at best pestering and at worst a lynching campaign.
With a heavily overburdened judicial system, it can be disastrous for any social fabric left in India.
A cashless economy needs a very strong societal, technological and judicial system in place, without it, will vest a very powerful and sophisticated technological system with solid behavioral data in the hands of a ruling few, rendering any opposition obsolete and general population too dis-empowered to resist.
Any such cart before the horse phony baloney model of development peddled by crony few would bring about the demise of democracy and freedom as we see today.
Cashless systems should only work and be provided by electronic means supported by banks under direct supervision of RBI, with very strong data security authorities under a strong RTI and redressal law.
A mandatory campaign about rights of customers should be carried. Cashless should be promoted under no duress and an informed consent basis only.
Banks should follow stringent audit and compliance rules like BASEL II so NPAs are under check and public money is not under any danger.
Now lets discuss about biggest targets of Demonetization exercise in India.
Black or Un-Accounted Money.
Black money is a problem to any society, it has a multiplier effect on inequality, and feeds onto itself to support illegal trades and activities.
Here are the hosts of this black money as per conventional beliefs.
Mafias, Drug Traffickers, Bandits.
Historically be it Pablo Escobar the narco-terrorist in Columbia who brought down governments, supreme courts and presidents in his time or Veerrapan in India or for that matter any bandit in hinterlands, a big component of their operations theoretically has depended on cash.
Reality- In the age of heightened surveillance how many such mafias, mobs, bandits we hear about now a days.
Secondly these mafias, drug traffickers or similar- are we sure they deal in plain old cash like old days?
To traffic their produce, they go to any heights with authorities always catching up.
Ever heard of Silk Road, Silk Road2.0, Cryptocurrency? They are not only protecting their money from Government, but from competition.
Civil world is thinking about going cashless, these creatures are already cashless and entrenched deep. Remember
Illegal goods were the first few items transacted over the internet as early as 1970.
Bitcoins and the whole dark-net is built and operating since decades over the concepts PAYTM(or similar) is trying to deploy in the bright world now.
So, to believe that killing cash of certain denomination printed before November 2016 and that too in this globalized world with free exchanges, will make a dent in this- is some serious baloney or ignorance of troubling proportion.
Terrorists and Maoists-
In today’s India, you name Pakistan and everything, every action is legitimate. Yell Pakistan and terrorists in one sentence, and Indians are ready to take any pain, somehow, we have attached our national pride with Pakistan and terrorism.
Do you seriously believe terrorists are roaming blowing themselves for money? These are brainwashed crazies and their leaders motivated by ideologies and geo politics. If we believe they keep hordes of cash, and move a lot of cash God bless you.
Every government in the world knows what part of land under their jurisdiction or borders (without naming any) hosts terrorist.
These areas are always under high guards, law enforcement, intelligence. Boots on the ground are at the maximum and there is a constant war going on and there is a whole different economy, any interaction with this economy and our economy can be traced with lesser efforts.
If you think villagers in certain communities are coming out on streets and throwing stones at armed soldiers for money and taking the consequences, being hit by pallet guns, tear gas?
then for humanity sake, do what Buddha did- sit under a tree and think.
Arguments like Stone pelters have their brains fried or are lowly educated brainwashed bums are more valid.
Conclusion – This exercise has virtually no effect on Mafia, Mobs, Terrorists and Stone pelters.
Now let’s move to the other section of society – Indian businesses, including Real Estate.
Going back to the basics, why businesses horded cash and kept them un-accounted?
Well, have you known any business owner in India? I know a few in Western U.P.
See with our countries law and order situation and hyper local way of living and doing business, people know or at least have some idea on who is making money in the community. Having cash and dealing in cash is a hazard if you think from the point of an entrepreneur who wants to run a for profit business.
So why do they keep cash? Well to run your business you need to keep certain people happy that includes politicians and government officials, ever been raided by tax folks? You will get the point.
And do you think entrepreneurs making profits in such a tough Indian business environment have no idea on handling cash?
They are entrepreneurs each connected to another, it’s the collective jugadu(crafty) set of brain available in India with deep inroads into our financial systems and actors who control them. They are way ahead of a regular Joe in financial management, includingdiversifying their assets with the right balance to hedge against all the possible outcomes.
To good credit, India has made dealing in cash very tough in recent past- KYC norms, PAN Card requirements, scrutiny on property transactions and real estate’s construction (VAT accounting), Income Tax systems getting automated and very vigilant on business compliance.
We are in 2016 and believing business keep large part of unaccounted cash buried under somewhere and will come out or get wasted bringing equality etc. is the kind of dream you get when you fill up on a load of sattu(state food of Bihar, where writer comes from) and sleep under mango tree after watching a Bhojpuri flick.
There is cash, but that’s for survival and contingencies and you bet its accounted for knowing the chartered accountants in my country, or will be soon, remember they are the craftiest one our society has and all connected with same goal -survival.
Do you know in 2014 Forbes reported a collective wealth of about $346 Billion among top 100 richest individuals in India? It comes to be Rs. 20778 Billion. With a very conservative capital gain of about 10% income from this wealth should be somewhere around Rs. 207780 Crore.
Do you know the declared income of top 354 earners in India?
A measly Rs. 17390.22 Crore which comes at about 8% of what a very conservative estimate should lead to. Every economist knows more money you have the rate of return goes high, since you have the financial resources and managers at disposal.
And it’s all in the plain sight, have no effect from any demonetization.
Conclusion - The exercise has virtually no benefits coming out of businesses. Losses? Keep reading.
Now let’s talk about the unaccounted cash with politicians and political parties.
In 1990s I had a friend with a politician uncle working with a state level political party in U.P. One day I found him sitting with a few others with a voters list in hand and a lot of receipts. They were going over the list and signing names sometime with right or left hand, sometime thumb impressions, filling in arbitrary amounts in the receipts.
Any guesses what they were doing?
Well his politician uncle could find financiers (a couple of businesses) who were ready to pay the price tag of Rs. 10, 00000 for him for a seat in working committee of the state political party. And they were converting that cash into small donations for party funds. Phew that was in 1990s.
World has evolved a lot since then and politicians have the power and are privy of anything that might come their way of smooth operation of clout and strength.
Amid the tyranny of demonetization, a ruling party leader just concluded a Rs. 500 Crore daughter’s wedding. Weddings costing over 100 Crore in politician families, or attended by politicians are common in India and are widely covered, with no eyebrows, who matter, raised.
Is this money legitimate? From moral point of view no, from legal and accounting point of view yes, give your best shot to even make a F**ing dent.
Politicians in hinterlands need cash money just to keep alive from rivals, everyone in this close-knit community knows where money resides, where it comes from and what are the “Silk Roads” to spend them.
Political parties small or big are part of a system, competing may be, they all have their infrastructure and unique channels. In an unlikely case of one state fully owned by a competing system, there is another state which will have their friendly system in place to make the money kosher.
A small shock of course, when some of these “out of power” giants will scramble to minimize the losses.
But if you think any money will come to the system from these mega giants sitting on mountain of cash (accounted, unaccounted, legit, illegal) you really need a crash course in Politics before you vote next time.
Money might move from one political system to another, smaller and weaker will merge with bigger systems, and political brokers will make hay.
Another thing worth noting is – In this age of Consent manufacturing why deal in petty cash to bribe voters, when you can have mega accounted budget and future business cash flow going into new and old media lords?
It is much easier to work out an affiliation with major media house, or silicon valley lords sitting on foreign shores and operate propaganda cells. It is much less risky and cheaper than distributing cash and TV to regular Joe on street, especially when election commission has evolved a lot.
You can always distribute laptops, phones, cash, jobs, projects later with tax payer’s money.
Conclusion – Nothing will come out from political parties. No one will cower and shake in fear and leave his own disingenuous ways in the fear of a “masterstroke”.
Now let’s take on the argument about counterfeit money.
In Absolute terms Rs. 400 Crore in India vs. Rs. 500 Crore (Dollars in Rupee term) in USA.
USA’s reaction “Meah, we will destroy as we see them, will do surveillance, have a department, print currency as we need them” Its same as installing a traffic light, or any business as usual activity.
Read the writing on the wall - Notes will be counterfeited, and there would be always a small amount of such currency in circulation. In India, even a small vegetable seller sitting in local mandi, or a hawker on street checks the note under a light before accepting it.
Every bank has money counting and processing machines which can catch these with a decent precision. The situation can improve with more surveillance, remember every counterfeit note is a lead to its source, all it needs is some effort.
Now if someone says let’s burn 87.6% of all the currency in circulation to destroy this 0.025% of currency notes with them - Can lead to loss of faith in any wisdom left in the collective humanity of earth.
If as per Government own submissions these 0.025% currency notes are all coming from high flying, sophisticated printing presses in Pakistan run by ISI and are a major part of their operations in India building a ring of terror around all of us. Aren’t they changing their dye and already on the way to print the next shipment of terror reigning currency notes on us. As I write this paragraph.
So, what’s the point?
And now what is happening on ground and why this order should be taken back ASAP.
India has been a cash society, small farmers, businesses, households everyone have been living on cash, and its ideal for our unique situation of local economics. Rural areas have access to state owned banking systems providing basic facilities and governments are trying to get people in through various schemes through awareness and consent basis. Still in local economies there is a big interdependence on cash. Readily available and evolved banking systems need certain amount of money in the local economy and that's the reason a cluster of villages have a single bank. Imposing such a hasty and drastic measure has made lives really difficult for everyone.
Visit any PNB or government run bank’s branch in India, people still use old format passbooks and go to the teller to get their cash. They need help even with smaller things like stamping their passbooks. There are a lot of daily wage workers, pensioners in line who need a lot of hand holding.
ATMs are a bit tough for them to operate even after around a decade of their existence, leave alone any other sophisticated modes. Fear of technology is another factor in using these systems. They like cash, it gives everyone in India security, and our opinion financial freedom too.
Small businesses with all their backward and forward linkages including their work force mostly un-organized are mostly adept to cash. They earn small amounts and utilize them in this system of cash, credit, cash based system.
Housewives – India is a unique country, we call our homemakers or fairer halves “Ghar ki Laxmi” or “Goddess of Wealth” for a reason. See I grew up in a very moderate income family, I have seen the panic in family when anything out of budget comes. Have seen mom taking out (after much negotiations) a small amount from her secret stash to sail the family over the tide. This money and habit of keeping a small amount somewhere hidden is evolved in India as a unique practice, based on our unique situation.
In a low-income society as ours, leave alone a drunkard husband, or out of hand son, the concept of STREE DHAN which works in family and health emergencies can vanish, there are so many consumer pulls that if money is in plain sight of the whole family. There will always be something to do, something shiny, something the children would want to do just once, the tired husband might like a small luxury may be occasionally. The lady in the house has always made sure things are in control, and it has kept our family systems alive for so long.
Today this system is in danger, effects in future can be immensely devastating for our societal fabric.
Today everyone who is not getting paid in the organized services and manufacturing sector of India (about 98% of the population, as per 2014 Taxation data) is in immense pain, waiting in line still hoping they might get some justice and vengeance as promised - against a painted monster of terrorist, mafia, money hoarding business owner, corrupt politician.
Cost of this exercise
- Rs. 15,000-20,000 Crore of printing cost.
- 200,000 ATM recalibrated across India.
- Immense loss to productive man-power standing in line. India’s GDP (2013) was 1.877 Trillion USD which comes to Rs. 344.14 Billion per day as a crude estimate.
- Loss to the economy, due to spiraling down of the local and small businesses, immense.
- “Unaccounted” money leaving local economies, moving into the hands of middlemen and may be politicians.
- Loss of faith, irreparable.
- Proponents use the argument of a multiplier effect of 3-4 in Indian economy. Counter is – There is no such calculation on the multiplier effect of our local cash based economy. Considering the NPAs our banks hold on their books and crony businessmen getting away so easy.
- Will keep adding as we go, including cost to political fights, parliament time wastage etc.
- PAYTM and similar systems. Pushing consumerism to new heights using advance marketing techniques, and hastening India's sustainability problems out of control. Working on the principal of profit maximization, most of the time for foreign investors, at India's cost.
- Political Gains, new alliances, middlemen.
- Marketing agencies, Cyber Cells, Old and New Media lord’s sitting in India or abroad- paid to firefight and fight from both the political sides.
Another very important point is even if tax bounty increases need to understand how the tax money is used. Based on our experiences researching around systemic issues plaguing India we have found a very disturbing trend. Below are a few examples.
1. Transparency Laws – As per BallotboxIndia's latest research on Right to Information Act in India. Even after more than a decade India doesn’t have a coherent, seamless, transparency system implemented. The system is mostly manual and plagued with in-efficiencies, more catering towards deflecting information than providing in a timely manner. Its huge problem considering the way political campaigns and money is used for power. We have plenty of examples including the expensive and disastrous Gomti Riverfront project in Lucknow, and similar popping up all around India. Lucknow High Court case, where to protect builders encroaching over a pond land, a new mega high court building is now being built over another pond, with nothing in public domain.
2. Environment and Natural Resources – India is facing tremendous crisis be it
- So, while excesses of Green revolution dried our underground water reserves. All around encroachments on water bodies, and flood plains has dried up rivers. Most of the drainages and rivers in India are either polluted or heavily polluted with receding and unpredictable flood behavior.
Instead of working on holistic solutions and waking up to the situation, current central government and now many state governments are wasting money in cosmetic but costly projects ranging from massively concretized river fronts and lake fronts, to disastrous river linking projects with impunity.
We are yet to find an expert or scientist who approved of such actions but huge tax payer money is allocated. Leading to self-propelling cycle of water related woes across the country. Its tough to believe, instead of taking over simple eco friendly projects on drainage systems in India like Kukrail example, authorities all over India are spending tremendous amount of money on breaking the natural systems, covering and patching over and then running expensive infra systems to contain the outcome. 3. India signed agreement in Paris to cut down emissions and reduce pollution – Well what is happening on ground, let’s talk about smog. Farmers burning stubble is sighted as a main reason, but another major reason is India’s smoldering waste dump yards. COP22 or Global Goals preach less consumerism to ward off sustainability problems India and the world faces. There is a massive institutional push in India towards tremendous commercialization. Be it supporting platforms like PAYTM which are marketing funnels of low life cycle cheap Chinese produce in India, building a system of big e-commerce Industry which is portrayed as face of prosperity in India. 4. Health and Education systems are getting more and more privatized by every passing year, with measly budget allocations followed by inefficiencies in the system leading to the wastage of any hope of revival.
5. 100 smart cities are launched in remote corridors but existing cities are facing existential crises. Starting with non-existent piped water, to urban floods, top soil erosion, faulty drainage designs, poor quality roads. Horribly slow pace of development even after taking every penny of external development charges and taxes. All this aided by minimal transparency amazes, why government needs more money?
We have started a research on Demonetization exercise in India. We have a lot of questions and would seek answers from relevant departments and build a report so things can start make any sense.
Any suggestions, inputs, insights are welcome. please write to email@example.com.
About the author.
Rakesh Prasad comes with more than a decade of financial technology and economics background. With a strong interest in researching on sustainable economics employing local Indian practices and societal behavior, supports local vs global and has center left leaning.