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[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?
(Score: 2, Interesting) by j-beda on Thursday February 16 2017, @04:34PM
Well, anyone who used unaccounted money to pay off or prepay business debts could have a problem if they ever get audited in explaining where the money came from and/or explaining why they suddenly have multple months of no labour costs if they never book the expenses.
The whole exercise might have had the effect of getting a whole lot of cash out of the box-under-the-bed and into the banking system where it might have positive effect by now being able to be loaned out to others. Sitting under the mattress, it does nothing for the economy, but in the bank it can be loaned out to people who start new businesses, etc.
(Score: 1) by khallow on Thursday February 16 2017, @10:06PM
The whole exercise might have had the effect of getting a whole lot of cash out of the box-under-the-bed and into the banking system where it might have positive effect by now being able to be loaned out to others. Sitting under the mattress, it does nothing for the economy, but in the bank it can be loaned out to people who start new businesses, etc.
I would side with Indian people versus their banking system. If they were putting it under the bed, then they had a good reason for doing so.
(Score: 0) by Anonymous Coward on Friday February 17 2017, @02:26PM
They did have a good reason - No taxes then. That's really all it is. They didn't want to pay taxes.
(Score: 1) by khallow on Friday February 17 2017, @02:36PM
They did have a good reason - No taxes then. That's really all it is. They didn't want to pay taxes.
Why don't you see that everywhere in the developed world?