Demonetisation

An anonymous person sent this piece to me. Below it I have included an article from the Wall Street Journal, "India's Demonetisation Debacle", by Sadanand Dhume.

First, the anonymous piece:

People are saying what's the problem with a 4500/- daily ATM limit and 24,000 per week limit?

I say, no problem, I don't even require so much cash every week.

My problem is that the limit takes away my freedom to deal with my own money.

 It is not the RBI's money, it is not the Governments Money, it is my own money which is in the bank because the representative currency was made illegal and my money captured into a bank account.

My problem is that I no longer have access to something I own.

My problem is that the banks have proven to be reckless with my money and their non-performing assets are rising by the day.

As of yesterday their non-performing assets were reported to have risen by 4,40,000 Crores! 

How do I trust such banks, bankers and the banking system loosely regulated by the Reserve Bank of India?

What if somebody took away your car and told you that you can drive it for 20 kilometers only every day and 200 Kilometers in a week and made changes in the fuel tank in such a way that you can not exceed those limits? 

That the car will not move an inch on a daily basis if you drove it for 20 Kilometers?

Would that not take away your freedom?

My money is my freedom and an attempt at taking away my money by a force of law is an assault on my freedom.

In other words this government has encroached on my fundamental right to freedom.

And that is my real problem. Is it not yours?
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Please Spread my concern!

Anonymous

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Wall street journal article:  India's Demonetisation Debacle

By SADANAND DHUME
Dec. 15, 2016 8:18 p.m. ET

Nearly six weeks after India abruptly scrapped high-denomination banknotes accounting for about 85% of its currency by value, the economy continues to slow. Poor and middle-class Indians are still suffering from the shortage of new bills. But the most significant casualty may well be Prime Minister Narendra Modi’s reputation as a sound economic manager.

On Nov. 8, Mr. Modi announced that India’s two highest-denomination currency bills—1,000 rupees ($14.84) and 500 rupees—would immediately cease to be legal tender in most places. Holders have until the end of the year to deposit these bills into bank accounts. As replacements, the government has slowly rolled out a redesigned 500-rupee bill and a new 2,000-rupee bill.

The long-term effects of India’s demonetization gambit remain unclear, largely because no other major economy has attempted such an experiment except during a crisis. But with growth slowing and job losses rising, the short-term prognosis appears grim.

Instead of factory openings or large new investments, the images that tell India’s current economic story include snaking lines outside banks, distressed workers migrating back to their villages, and tax raids on jewelers and officials caught with hoards of allegedly illicit cash.

The policy’s shabby implementation—through an avalanche of amendments, rollbacks and patchwork fixes—undercuts Mr. Modi’s reputation for quiet efficiency. It also underscores his overreliance on India’s notoriously heavy-handed bureaucrats.

Demonetization has resurrected fears that the ruling Bharatiya Janata Party takes policy advice from quacks. It damaged the credibility of India’s central bank. And it forced many of the country’s ostensibly right-of-center intellectuals to perform advanced mental gymnastics to defend the prime minister. Though a few economists have applauded Mr. Modi, the weight of informed opinion leans heavily against his decision.

Not surprisingly, shock waves from the announcement continue to crash through the economy. The Asian Development Bank cut its growth estimate for India for the financial year ending March 31 to 7% from 7.4%. JP Morgan expects growth to decline by half a percent to 6.7%.

Meanwhile, falling sales have begun to translate into layoffs spanning various sectors, including construction, textiles and jewelry. The Centre for Monitoring Indian Economy estimates the transaction costs alone of swapping out an estimated 14.2 trillion rupees’ worth of currency to be 1.28 trillion rupees, or about $19 billion.

India’s economy will eventually recover from this self-inflicted wound, but there’s no question that demonetization has created doubts about Mr. Modi’s competence. The decision, reportedly hatched in secret with a coterie of trusted bureaucrats, showcases the prime minister’s faith in the command-and-control ethos of the civil service rather than in the “minimum government” he once promised.

It also shows how susceptible Mr. Modi and his aides are to the unorthodox ideas of assorted cranks and oddballs from the Hindu nationalist movement to which the BJP belongs. The loudest backers of demonetization include a telegenic yoga guru, a chartered accountant best known for propounding the homespun economic philosophy of “swadeshi,” or self-reliance, and a nongovernmental organization that wants almost all taxes to be replaced by a single levy on bank transactions.

Already, a flurry of commentary by well-regarded Indian and global commentators has tarnished the prime minister’s image. The business journalist T.N. Ninan calls demonetization “a bad idea, badly executed on the basis of some half-baked notions.” For Morgan Stanley’s Ruchir Sharma, Mr. Modi’s “clumsy exercise of state power” won’t achieve its ostensible aim—cracking down on so-called “black money” salted away by tax dodgers. Kaushik Basu, a former chief economic advisor to the government of India and former chief economist at the World Bank, calls the policy “poorly designed, with scant attention paid to the laws of the market.”


To be sure, not everyone thinks demonetization is a disaster. Columbia University’s Jagdish Bhagwati calls it “a courageous and substantive economic reform” whose potential benefits include shrinking the shadow economy, hurting terrorists and counterfeiters, and expanding the tax base by digitizing many economic transactions.

Others argue that this is likely only the first of a series of reforms that will eventually simplify tax administration, root out corruption and make campaign finances more transparent. Some supporters view demonetization as a quick way to invigorate a sluggish banking sector with cheap funds.

Perhaps the optimists will be proved right, but at this point their gauzy hopes of future benefits must be weighed against the present pain. Even if demonetization ends up producing some gains, the question of whether it was worth its considerable costs will linger. Moreover, the simple fact that no credible expert suggested such a drastic policy before Mr. Modi announced it makes many arguments in its support look like belated apologia.

Two and a half years ago, based on his record as the business-friendly chief minister of Gujarat, Mr. Modi stormed to national power as India’s great economic hope. At least for now, the demonetization debacle has shaken this assumption to its foundations.

Mr. Dhume is a resident fellow at the American Enterprise Institute and a columnist for WSJ.com.

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All Indian news channels are covering demonetisation heavily. For example, see  NDTV.com videos on the subject. The link below is up to date as of 1930 hours on 7 January 2017:

http://www.ndtv.com/topic/demonetisation