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posted by on Thursday February 16 2017, @09:23AM   Printer-friendly
from the invest-in-gold dept.

[Ed note: Updated to include actual examples of how some Indians dodged the clampdown. --martyb]

On November 8, 2016, India's Prime Minister Narendra Modi in a shock decision declared all 500 and 1,000 rupee notes to be "worthless pieces of paper" from midnight onwards. This surprise demonetisation sucked out 86 percent of cash from circulation, ostensibly in an attempt to flush out unaccounted wealth, or "black money".

More than one billion Indians had less than eight weeks to return all of their old notes. For the nation's largely cash-based society, this unprecedented move induced a period of chaos. Banks scrambled to keep up while lines trailed out their doors and around street corners. Life's basic daily transactions screeched to a standstill as people struggled to withdraw cash, causing immense stress and even death in some cases.

[...] "As far as my business is concerned, we were never affected, nor are we going to be affected," says Sunil*, a young businessman with garment factories on the suburb outside of New Delhi. Though he had stored hundreds of thousands of rupees in untaxed cash, he claims demonetisation left him without any significant losses.

[...] He contacted his suppliers and purchased fabrics in advance, all in 500 and 1,000 rupee notes worth $7.4 and $14.8 respectively. He said that for him, this was "the main source of getting rid of old currency notes".

Of Sunil's 400 employees, many are low-paid tailors and labourers that normally receive cash payments. He decided to give them all hefty cash advances, also in old notes.

[Continues...]

[...] Uraaj*, a casino manager who was sitting on a substantial stack of untaxed cash, says he paid the trusted members of his house staff six months in advance as one way to dispose of his money.

In situations where there are pronounced power dynamics between employers and employees, it can be difficult for a labourer to refuse advance payments. "It’s actually like indentured servitude. You are kind of sugar-coating it when you say, I’m paying you in advance for three months," says Udayan Baijal, a Delhi-based filmmaker.

[...] Some people seized the opportunity to pay off debts in cash. Ramya Pothuri, a 20-year-old singer-songwriter from Mumbai, had not received payment for months from the restaurant where she performs weekly. After demonetisation, the restaurant manager "dumped 40K on [her]" in old notes.

"At first, I was like, no," she says, "because I didn’t want to go to the bank and stand in that line. But I knew that if I didn’t take that cash then, it would take ages for me to get paid".

Other black money hoarders paid professionals to change their currency. Ashish*, who works for a political party, claimed he sent 3 million rupees to his contact within a bank, who exchanged the currency for a 35 percent commission.

*Names have been changed to protect identities.

Could a better designed demonetisation tactic help elsewhere?


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  • (Score: 0) by Anonymous Coward on Thursday February 16 2017, @02:08PM

    by Anonymous Coward on Thursday February 16 2017, @02:08PM (#467779)

    Trying a stupid idea? See it more as an economic experiment by the western banks and Neoliberal politicians. I guess you also believe the austerity measures in Greece were to really help them, yeah right. That's also an economic experiment, which seems to fail now... well at least our banks were saved by socializing the private debts.

  • (Score: 0) by Anonymous Coward on Thursday February 16 2017, @02:47PM

    by Anonymous Coward on Thursday February 16 2017, @02:47PM (#467799)

    The biggest hypocrisy in a long time... "Damn socialist hippies! Now pay off our debt from bad business decisions, we're too big to fail!"

    • (Score: 0, Troll) by khallow on Thursday February 16 2017, @03:47PM

      by khallow (3766) Subscriber Badge on Thursday February 16 2017, @03:47PM (#467828) Journal

      "Damn socialist hippies! Now pay off our debt from bad business decisions, we're too big to fail!"

      Let us keep in mind that the bad business decisions here were lending to said "socialist hippies".

  • (Score: 1) by khallow on Thursday February 16 2017, @03:52PM

    by khallow (3766) Subscriber Badge on Thursday February 16 2017, @03:52PM (#467832) Journal

    Trying a stupid idea? See it more as an economic experiment by the western banks and Neoliberal politicians.

    Who had nothing to do with this failed experiment in India.

    I guess you also believe the austerity measures in Greece were to really help them, yeah right. That's also an economic experiment, which seems to fail now... well at least our banks were saved by socializing the private debts.

    The "private debts" were owed by Greece. Funny how states don't need to pay back money when it's owed to people you don't like.

    • (Score: 1) by j-beda on Thursday February 16 2017, @04:27PM

      by j-beda (6342) on Thursday February 16 2017, @04:27PM (#467851) Homepage

      The "private debts" were owed by Greece. Funny how states don't need to pay back money when it's owed to people you don't like.

      But they were owed to non-public institutions, at least until they were bailed out by various public bodies. Those institutions set their rates in part on Greece's ability to repay them. That's part of the job of lenders, deciding how likely the borrower is going to be able to pay them back. Sometimes a business makes a bad decision and gives a loan to someone who can't pay it off.

      In the olden-days the lender would break the kneecaps of the borrower who couldn't pay back the loan as a lesson to others. More recently, the borrower declares bankruptcy and the lender may get a bit of their money back, and the borrower can start over again at close to zero. Policies to put the borrower further into debt while not having much negative impact on the lender do not seem like the best long-term system for a society to put into place. If a lender becomes too-big-to-fail then probably the state should take over and remove the ability of the owners to have a business with now "downside risk".

      • (Score: 1) by khallow on Thursday February 16 2017, @09:59PM

        by khallow (3766) Subscriber Badge on Thursday February 16 2017, @09:59PM (#467980) Journal

        But they were owed to non-public institutions

        So what? There's two things to note here. First, there shouldn't be a distinction between public and non-public. Second, bankruptcy is for entities which no longer have ability to pay. Sorry, Greece still has ability to pay.

        If a lender becomes too-big-to-fail then probably the state should take over and remove the ability of the owners to have a business with now "downside risk".

        How about countries? Should other states step in and remove the ability of Greece and other such states to do the things they do?