Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Denouement awaited – India demonetization

with 2 comments

On Day 1 nearly all investors (including myself) hailed Modi’s scrapping of notes – cited concerns were black money and militant sponsored by Pakistan.

Its day 4 and I have had a lot of material to absorb and I strongly feel that Modi has done more harm than good. Although both harm and good is transient without any legacy and lasting effect. Good for RBI, good for villagers with corrupt Sarpanch, good for Jewellers, good for tax payers, bad for 65% population who had to queue up and has never visited the bank.

Verdict is still awaited, read the previous post where I calculate that Modi has only managed to cancel only 10% of annual income of black economy. I don’t think it was a good idea to inconvenience a large number of people, for a cause that does not have lasting effect.

One thing Modi could have done to avoid backlash is use large defence sector and train them up in evaluating currency and set up temporary branches connected to central bank servers for KYC checks so that people could replace notes in a day or two instead of a month.

This bold move can backfire on Modi. I am not sure that at the end of it there will be a net gain other than one time item mentioned above (10% of annual income of black money). What will certainly happen is 31,000 INR gold coin which CANNOT be demonetized by a Govt, Indian or other. You see my point?

Written by amitdipsite

November 12, 2016 at 2:40 am

Posted in Uncategorized

2 Responses

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  1. Very good Idea but badly executed.
    My 2cents as follows:
    They should have given immunity for people to deposit money or declare black/illegal money and should have taxed them at 30% this would have increased coffers of governments tax intake for the financial year which in terms should have been spend on infrastructure project to increase GDP.
    I understand that this was also to do wealth redistribution from rich to poor but the inconvenience that it has caused to large number of lower to middle income families is significant.
    This is not going to reduce corruption because all it will do is corrupt politicians/officers will take a hit but they will be back to there merry ways in next 6 months when new money come in circulation and they will be even more corrupt to cover the lost ground. No one like to have less money then they previously had and from now onwards they will be investing money in assets that can be liquidated when required rather then holding cash. My dad use to say once some goes corrupt/compromised they will never go back to being honest in most cases unless something changes drastically so it is very hard to change behavior. Already in black market US dollar can be exchanged at Rs75 if you are ready to accept 500 or 1000rs notes and if you have mechanics to deposit that money or exchange notes without coming in income tax bracket or are exempt from it.
    Some the big corrupt politicians and industrialist with large amount of black money keep there money in overseas tax havens and don’t pay tax on it or show it in there income asset. That should have been the target audience for this and all the benamie properties and land they own through out county.
    This is going to bring unorganized sector mostly small retail and R/E into organized sector. But I don’t see this bringing down corruption in any way.

    Aaki

    November 14, 2016 at 1:15 am


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