Tag Archives: Rs500

Demonetization: A monumental disaster

James Wilson is a Member of the Mullaperiyar Special Cell, Government of Kerala, India. Who is a civil engineer by profession has presented an extremely detailed and meticulous calculations and inferences on the Demonetization of Indian Currencies.

Just go through the full article brought here , for the  knowledge of the subject is best expressed through a clear and concise presentation by Mr. James Wilson.



A monumental disaster in offing!

Currency in Circulation 

High denomination notes of ₹500 & ₹1000, which is 86.4% of the total currency in circulation ceased to be legal tender due to the demonetisation. RBI denotes these demonetised notes as “Specified Bank Notes” (SBN). As per RBI Annual Report 2015-2016, as of 31/03/2016, the value of the total SBN is ₹14.18 lakh crores. Volume wise it consists of 15707 million ₹500 notes and 6326 million ₹1000 notes, ie, a total of 22033 million notes. Meanwhile, the total currency in circulationvalue wise increased to ₹17.975 Lakh crores (4/11/2016) from ₹16.415 lakh crores (31/03/2016)

Exact information of the amount of SBN as on 8/11/16 is now in public domain, thanks to a question-answer in the Rajya Sabha, which shows 17165 million pieces of ₹500 (₹8.582 lakh crores)and 6858 million pieces of ₹1000 (₹6.858 lakh crores) in circulation (Total Value: ₹15.44 lakh crores Total Volume:24023 million pieces) [So my assumptions in my earlier post  of value of 15.5 lakh crores and volume of 24000 million is almost in the target]. To print and replace 24023 million (24.023 billion) notes is an enormous challenge considering this sheer volume of notes to be printed and capacity of our printing presses.

Capacity of Printing Presses

How can RBI achieve this target with resources at their disposal? 

How much time RBI will take for to print and replace SBN with new notes? 

To understand this, in a pure resources management perspective, we have to examine the output capacity of our currency note printing presses. We have two currency printing presses under Security Printing and Minting Corporation of India Limited (SPMCIL), one at Nashik in Maharastra and the other one in Dewas in Madhya Pradesh. Nashik Press was established in 1928 and Dewas was in 1974. Also two more modern currency printing press were added later to augment the printing capacity, one in Mysore in Karnataka and the other at Salboni in West Bengal under the Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), which were established by Reserve Bank of India (RBI) in 1996.

First look at the capacities of Nashik & Dewas presses under SPMCIL. I have relied the Annual Report of the SPMCIL as well as a presentation available on the internet by the Currency Management Wing of the RBI. From the above records, it is inferred that Nashik Press capacity is 5800 million notes per year and Dewas capacity is 2620 million pieces. 

Meanwhile, BRBNMPL’s Mysore & Salboni together can print 16000 million notes in 2 shifts in a year. See the screenshot of BRBNMPL website. So all these four presses can together print 24420 million currency notes in a year and this is closer to the supply RBI getting for last 3 years too. 

So all four presses together having a printing capacity of 66.90 million/day. If we take Mysuru and Salboni alone, this will be 43.84 million/day.

Please note that latter in this discussion, it is using billion instead of million as the volume unit since I made references to the statement given by RBI in billions. 

  • For your understanding please note that:

            1 billion = 1000 million = 100 crores

Printing aborad is out of question

My next exercise was to understand whether we can outsource this currency printing to any high quality security presses abroad. That research lead me to the Report of Committee on Public Undertakings (2012-13) which deliberates “outsourcing of printing of currency notes” as recommendation serial no.14. Selected extract from the above report is reproduced here:

“The Committee also find it pertinent to point out that during printing of currency notes worth 1 lakh crores in three different countries, there was always a grave risk of unauthorized printing of excess currency notes, which would have been unaccounted money. The Committee simply wonder how come a decision was taken to have the currency notes printed by above mentioned companies in three different countries. Logically speaking since all the said three countries are well developed, each country certainly had the capability of undertaking the entire printing assignment. In any case the very thought of India’s currency being printed in three different countries is alarming to say the least. During that particular fateful period our entire economic sovereignty was at stake.

The Committee is concerned of the grave implications of such a move as it has wider ramifications in a multi faceted angle. The danger of destabilizing the economy by the agencies of authorities who could have misused our security parameters vis-à-vis printing of currency notes, the use of such notes which could have been printed in excess could easily have fallen in the hands of unscrupulous elements such as terrorists, extremists and other economic offenders, looms large in our minds. The Committee expresses its strong resentment over such an unprecedented, unconventional and uncalled for measure. The Committee while recommending that SPMCIL be strengthened to undertake the printing and minting of the required currency notes/coins fervently emphasise that outsourcing of printing of currency notes/minting coins should never be resorted to in the future.”

Reply of the Government

Since corporatisation, SPMCIL and BRBNMPL have been meeting the requirement of coins and currency and no import has been resorted to. The concerns and recommendations of the Committee have been carefully noted for future guidance.

[Ministry of Finance, Department of Economic Affairs]

( O.M. No.3/8/09-SPMC dated 3rd January, 2013 )”

So this assurance rules out the very question of outsourcing of the currency printing abroad. I don’t think RBI will violate an assurance given to the Committee of Public Undertakings of the Parliament. Hence RBI has to depend on the four presses in our country to meet this enormous demand.

Comparison with demonetisation done in 1977-78

In this context, we have to note that during the demonetisation exercise in 1977-78 only less than 5% of the high value notes were demonetised. It is also important to note that ₹100 note, which was 50.1% of the total currency in circulation was not demonetised during 1977-78. Contrary to the above, this time RBI and Government decided to demonetise ₹500 note, which consists of 47.8% of the value of the total currency in circulation. They also demonetised ₹1000 notes in circulation, thus made 86.4% of value of total currency in circulation redundant, which choked and paralysed the entire cash based economy with a whimsical direction overnight!

₹2000 note – a short shrift solution

Now look at the ₹1000 notes, volume wise its quantity is 6858 million notes. If convert the entire ₹1000 notes to ₹2000 notes, keeping the same value, then the volume will be halved to 3429 million notes to facilitate quick printing and disposal. But there is a catch, RBI has to tweak the ratio between ₹500 and ₹2000 to provide easy change and mobility between these two notes. So obviously, there should be less  volume of ₹2000 notes and more volume of ₹500 notes is mandated to keep the equilibrium of the system. For the time being, let us assume that RBI has gone with a complete swap of ₹1000 with ₹2000 notes totally discarding the mobility in the system.Definitely this is a short shrift exercise without considering the much needed mobility and velocity of the demand of thes various denominations of the currency notes in circulation. In that scenario too, RBI has to print at least 20594 million notes (17615 million ₹500 &+ 3429 million ₹2000) in a short span of time.

Higher denominations will aid hoarding – RBI Study

The elimination of ₹1000 note and introduction of ₹2000 note is really perplexing and the RBI’s explanation made themselves a joke. In this context, invite your attention to RBI Study No. 39 “Modelling Currency Demand in India: An Empirical Study” to see how RBI and Government of India all along resisted to issue high denomination notes even when warranted in a short time to meet the inflation to control, considering the chances of this high denomination currency will be used for hoarding purpose by the black money holders.

The irony is now a high value currency note of ₹2000 is introduced in the guise of controlling hoarding of the very black money, but at the end of the day help the hoarders in transporting and hoarding! This haste and irrational decision was taken without considering the statistical principles of distribution of various denominations in the currency in circulation and also fully side lining the prudent decision to eliminate the chances of hoarding. This short shrift route of going for ₹2000 by RBI without considering any of the above consequences into account and only taking the ease of printing, is a telling reflection of how an Institution like RBI let itself to erode its independent stature to please the political masters!

Printing target – An estimation

I discarded here the essential tweak required for maintain the equilibrium between ₹500 and ₹2000 notes and also the increase of currency required to meet the demand of cash in the economy in the coming months till this disaster is mitigated. Many of Government sympathisers may definitely point that the entire ₹15.44 lakh crores of SBN will not return into the system and there is no need to replace the entire currency. My opinion is that these two factors balance and neutralise each other. Hence for the time being, I decide to go ahead with the figure of 20594 million new notes as our target for printing.

In the initial days, the WhatsApp army were busy in forwarding daring claims that only 50% of the SBN will return into the system. Even our Attorney General told to the Supreme Court that RBI & Government expects only a maximum of ₹12 lakh crores of SBN will be return to the system. Today we are hearing from the media quoting Ministry of Finance sources that around ₹14 lakh crores worth SBN is already returned to the system. Remember that we are still 13 more days away from the date set by Government to deposit the SBN at banks. So its time for RBI & Government to eat the humble pie. It is important to understand that the above cut-off date will not set free RBI’s responsibility to exchange the rest of the currency in circulation at their counters, it only limits the option of depositing/exchanging at banks. That is a detailed matter as it entangled in legal provisions and other issues and hence will be discussed in a future post.

Demonetisation Planning – Rajan or Patel?

To understand the currency printing schedule, first see the letter of transmittal dated 29th August 2016 of the RBI Annual Report 2015-16 signed by Former Governor Raghuram G. Rajan. Kindly note the above date, it is very important. We know that the present Governor Urjit R. Patel assumed office on 4th September 2016.

Now look at the same Annual Report again. Look at Table VIII.4, “Indent and Supply of Bank Notes by BRBNMPL & SPMCIL”. Look at the indent for the year 2016-17, RBI has given an indent for 5725 million ₹500 notes & 2200 million ₹1000 notes along with other lower denomination currency notes. If there was a plan in advance to demonetise these denominations, then why did RBI print and disburse such large quantities of SBN in to circulation? This is nothing but sheer wastage of exchequer’s money.

Moreover, if RBI had such an advance plan to replace the above SBN, they should have devoted their time and energy to print lower denominations notes instead of SBN. Hence it is beyond doubt that the entire demonetisation plan was come into picture after Urjit Patel taken charge. The new denomination note of ₹2000 bear the signature of the new Governor Patel, not of Governor Rajan, which also another explicit evidence to prove that these notes were introduced after Governor Rajan left RBI.

When new currency printing started?

So what is the possible date of starting the new currency printing, yes, after this so called meticulous planning, selling an amazing idea and getting a nod from high echelons to go ahead with the ‘surgical strike’? Many theories are floating in the air about this meticulous planning in the initial days by a certain section of cheerleader media and court jester journalists. I am not ready to buy any of those theories. We learnt from media reports that the printing of the new notes were confined to RBI’sBRBNMPL presses at Mysuru & Salboni. Neither Nashik nor Dewas of SPMCIL were on the loop, may be due to the secrecy of the mission involved. Another reason may be both these presses were already assigned with printing of the lower denomination notes (from ₹100 downward), which is already intended in huge quantities by the annual indent of RBI for FY 2016-17.

Considering all these constraints, let me put a rational date before you considering the resources planning angle. RBI disclosed that they have 2473.2 million ₹2000 in stock for disposal as of 8/11/2016 in response to a RTI query. With the printing capacity of 43.84 million/month of Mysore & Salboni together in 2 shifts, it will take 57 days to print the 2473.2 million notes, that means it started on 12th September 2016. Take another possibility, that RBI took an effort to enhance printing to 3 shifts from 2 shifts, then they can print 65.76 million/month, ie, means it will took 38 days, that means printing started on 1st October 2016 only.

I was really shocked to find that there was not a single ₹500 note was with RBI when they unleashed this demon over the nation! That means RBI unleashed demonetisation with just 32% of the total SBN in circulation, that too a less mobile ₹2000 note stock! They themselves will be aware that within the 50 days window period, they can’t print the rest of the SBN too!

Disbursal of Currency

Then, I look for patterns of disbursal of currency at various dates, which was inferred from the data provided through the press releases by RBI. Look at the table below:

We can see that there was a substantial increase of disbursal of currency between 27/11/06 and 05/12/16 from ₹12589 crores/day to ₹20548 crores/day, this is definitely due to the disbursement of salaries on the first of December. Thereafter, the disbursal drying up substantially in the succeeding period to ₹16000 crores/day. If we take the entire 31 days of demonetisation, the average daily release from 10/11/2016 to 10/12/2016 is ₹14871 crores/day. If the money is disbursed in the above daily average rate, between next 20 days a further ₹2,97,420 crores can be disbursed. Hence Government may be able to disburse a total of ₹7,58,420 crores or a maximum of ₹8,00,000 crores by 30/12/2016. That means just 52% of the total SBN going to be disbursed to us. But even this quantity is doubtful with the present printing woes, which is going to be examined in the subsequent paragraphs.

There is some serious cash delivery issue in the system due to inferior planning and poor judgement from the part of RBI as well as Finance Ministry. Otherwise what is the justification of various new restrictions unleashed day to day basis by RBI without respecting the notification dated 8/11/2016? It is quite depressing to see that even the address to the nation by the Prime Minister is not honoured!

RBI deleting information – why?

While looking for these data, I met with a really shocking finding. RBI published a transcript of the statement given by R. Gandhi, Deputy Governor on 07/12/2016 at its webstie under the title “press releases”. But later it is seen as purged from the RBI website! Meantime, the video of the press conference is still available in the internet (https://www.youtube.com/watch?v=IuSzeRX31ms). This really made me curious. What information was there in the above transcript, which forced RBI to delete it from the website, even sacrificing the very institutional credibility? What is there to hide from the public which was not there in the full video coverage of 5th bi-monthly monetary policy press conference 2016-17? Interestingly the RBI which deleted the transcript of R. Gandhi forget to wipe out that from the cache, so one of my friend in twitter grabbed the information from there and shared with me. See that transcript of R. Gandhi here!

It is quite an irony that the very RBI, which now exhorting us to go cashless by embracing digital mode of payment, did not even know the primary lessons of digital literacy of how to purge a document from their system! Look at the highlighted information – this is not available in the video but provided in the transcript, which RBI deleted. What is the relevance of this information? It cna lead you to the printing volume of new notes disbursed by RBI as of 10/12/2016, which they refuse to divulge so far. 

Disbursal of currency denomination wise

Look at the total value of the lower denomination notes of 19.1 million disbursed by RBI from the above. It comes only to ₹1.059 lakh crores! That means the higher denominations notes are ₹3.81 lakh crores minus ₹1.059 lakh crores = ₹2.75 lakh crores. As RBI has not given the volume of high denomination notes, I was not able to decipher the possible numbers of them.

But in the next press conference on 13/12/2016, RBI provided the numbers to decipher the new currency notes in the system. Look at the statement of R. Gandhi, Dy Governor.

Here Gandhi claimed that 19.1 billion notes of lower denomination on 5/12/16 was increased to 20.1 billion on 10/12/16 meanwhile claimed that RBI disbursed 1.7 billion higher denomination notes of ₹2000 & ₹500 notes. As the amount of the total cash disbursed is ₹4.61 lakh crores, it turned out to be a simple mathematical problem to solve. There is a limit for the lower denominations to fluctuate, as we know the denomination wise quantity of 19.1 billion notes in circulation. Then if 19.1 billion lower denominations increased to 20.1 billion notes, two borderline scenarios emerges:

  • If the entire 1 billion volume increase are of ₹100 notes, then total value will be increased by ₹1.159 lakh crores
  • if the entire 1 billion volume increase are of ₹10 notes, then total value will be increased by ₹1.069 lakh crores.
  • That simply means that the value of higher denominations notes will be in a range of ₹3451 crores to ₹3541 crores.
  • This means if the entire higher denomination notes are of  ₹2000 and its volume will fluctuate between 1.7 billion to 1.8 billion.

If Gandhi would not have given the exact volume wise distribution of each lower denominations in that 07/12/2016 in the transcript, we will not be able to emulate these scenarios. My strong feeling is that it is the very reason why RBI later deleted the said transcript from its website.

You can’t introduce more than a couple of million ₹500 notes into this equation, in that case the volume of higher denomination notes will go up from the 1.7 billion! Even after a month after unleashing the demonetisation on our heads RBI was not able to disburse any substantial quantity of ₹500 notes in the circulation, which are the most essential denomination for the reasons I cited in my previous blog post. That is why we are not seeing these notes in the market and feel the burn of cash crunch so badly.  Its shame on RBI to flash a couple of million notes of this ₹500 notes in metro cities and major urban centres for a limited purpose of optics management before the 24×7 electronics media and to flaunt in WhatsApp forwards & re-tweets on social media! It is really sad to see that a reputed professional organisation like RBI is letting down the nation with these type of cheap tricks of optics management rather meeting the pressing demands!

Lower denomination disbursal – a record??

Gandhi told on 7/12/2016 press conference that RBI has provided 19.1 billion lower denomination notes after demonetisation, which is a record as it is more than what reserve bank provided in last 3 years to the system. If we look at indent & supply for last FY year, from the above table, we can see that around 16 billion lower denomination notes were printed then. This FY year also RBI given an indent to print 16.6 billion lower denomination notes and if the presses print according to their capacity, there will be new 12.5 billion notes till 10/12/2016. Along with this quantity, there will be soiled notes which are being collected to dispose during this FY(Kindly note that, last year alone around 13 billion lower denomination soiled notes were disposed off), which are also pushed back to circulation as we see lots of old soiled notes back. Also note that the total number of lower denomination notes in circulation as  on 31/03/2016 was 56.6 billion. It is interesting to note that Gandhi never claimed RBI has printed 19.1 billion notes, instead he only made a tall claim that these notes were a record volume! Media never asked any questions to him and Gandhi barked in glory! I am sorry to say that I can’t digest this all-time record claim of attention diversion by twisting the facts!

Where is that ₹500 note?

Let us come back to the figure of 1.7 billion high denomination notes disbursed by 10/12/2016. This information is quite perplexing when we compare the printing press capacities. We have seen that RBI had a stock of 2.473 billion ₹2000 notes as on 8/11/2016 itself. So if these printing presses working at least 2 shifts/day, there would have been another 1.4 billion pieces of ₹2000 & ₹500 with RBI by 10/12/2016 (32 days x 43.84 = 1403 million). To completely replace, the ₹1000 notes by ₹2000 notes, RBI needed to print 3.429 – 2.473 = 0.956 billion pieces. So RBI should have by 10/12/2016 printed the entire ₹2000 notes to replace the ₹1000 notes. I hope and pray that RBI did not go ahead with another short shrift solution of printing more ₹2000 notes to replace ₹500 notes after done with ₹1000 notes, which will completely disrupt the mobility and balance of the currency in circulation. Why RBI holding the rest 1.729 billion of ₹2000 notes (3.429-1.7=1.729) without disbursing to public?

Also from the above we can find that a quantity of 0.444 billion ₹500 notes (1.4-0.956=0.444) printed after are with RBI, but a few millions are only disbursed to public. It is really perplexing that why RBI is not distributing these ₹500 notes in substantial quantities? This is quite baffling because RBI through its press releases informed that they disbursed ₹500 notes with the following series numbers:

·       without inset

·       with E as inset

·       with L as inset,

·       E and star as inset and

·       with R as inset.

This indicates that various printing presses are put to the task of printing the ₹500 notes, but as we are not seeing much of ₹500 notes in circulation, it is feared that some issues crop up during its printing. Recollect the media reports of two different design ₹500 notes crop up and RBI’s bizarre explanation. RBI informed that up to 10/12/16, they have disbursed 1.7 billion high denomination notes. This will definitely be 1.7 billion ₹2000 notes and a few million ₹500 notes, as I shown above. Also relying above printing calculations & RTI disclosure, we can very well conclude that RBI may have a stock of at least 1.7429 billion ₹2000 notes and  0.444 billion ₹500 notes as of 10/12/2016.

In the above context, let me put some questions to RBI:

  • Why you are not disbursing sufficient ₹500 notes to circulation to ease the mobility crisis?
  • Why you are not disbursing enough ₹2000 notes and imposing unreasonable restrictions on withdrawal for our money deposited in banks? 
  • Inform us whether the above stock of  notes is having any relation with the hoarding of huge quantity of currency notes seized from various parts of the country?
  • Exact quantity of ₹2000 notes and ₹500 notes printed and disbursed so far  
  • Or your printing systems faced any unexpected failure & you are struck?
  • Exact schedule and output of printing of various denomination of notes at various presses under RBI and SPMCIL

When we will get back our currency?

Now we have to consider when we will get back the ₹500 notes demonetised from the system back. As we seen from above that 0.444 billion ₹500 notes would have been printed up to 10/12/16, then how much time RBI will take to print remaining 16.721 billion pieces (17.165-0.444=16.721).

In this context, I am giving you three possible scenarios considering the printing capacity of our four currency printing presses. I have not considered certain constraints here, like additional skilled manpower needed to introduce a 3rd shift for a prolonged period, raw material supply constraints, machinery maintenance, forced plus routine shutdowns and other surprises which can crop up anytime. Then I have not considered additional output (?) possible with the reduced size of new notes too as someone argues. I gone ahead with a perfect printing mechanism with sufficient manpower and resources at disposal. So take this estimation and earliest possible dates with a pinch of salt.

First Scenario

Mysuru & Salboni (3 shifts/day) AND Nashik & Dewas

@88.82 million/day needs 188 days – 16thJune 2017

Second Scenario

Mysuru & Salboni (3 shifts/day) AND Nashik

@ 81.64 million/day needs 204 days – 2nd July 2017

Third Scenario

Mysuru, Salboni (2 shifts/day) & Nashik

@ 59.73 million/day needs 280 days – 16thSeptember 2017

These are the earliest possible dates to replace SBN with new currency in a pure resources management angle.

Looking at the above earliest dates will make anyone shudder, I don’t know when the normalcy of the system can be restored! Remember, our Prime Minister on 8/11/2016 sought us a couple of days to restore the normalcy  This will give you an idea about the planning prowess of the mandarins in RBI and Finance Ministry. Ask ourselves whether we have fallen into a rabbit hole? We Indians still believe in magic and we bear all subjugation as our bad karma or destiny. But here no magic wand is left to create miracles, we are destined to silently suffer this onslaught for half a dozen months too.

Estimation of possible return of SBN

Now look at the way SBN is coming back to the banks. This table extracts information from various press conferences.

This table will explain you why Government & RBI are getting panic and imposing new restrictions like deposits up to ₹5000 to non-KYC accounts and questioning people depositing more than ₹5000 into their KYC accounts. Why we are treated like criminals? Under which legal or constitutional provision Government and RBI arbitrarily gives this police power to the bank authorities to abuse us?

This is becoming a theatre of absurd when the very Government, who is reluctant to reveal to public the names of celebrities and big shots who keep thousands of crores of black money abroad arm twisting the common man and honest tax payers!. Tell us what is the crime committed by us? Are you intimidating and insulting us for believing the Prime Ministers address to the nation on 8/11/2016??

Look at various possibilities on 30/12/2016 (20 days from 10/12/2016)

  • With an average daily inflow of ₹15000 crores, entire SBN valued ₹15.44 lakh crores will return to banks
  • With an average daily inflow of ₹12800 crores, total SBN valued ₹15 lakh crores will return to banks
  • With an average daily inflow of ₹10300 crores, total SBN valued ₹14.5 lakh crores will return to banks

My strong belief is that SBN valued around ₹15 lakh crores will most probably return to the system, rest of the SBN will be trapped in Nepal & Bhutan and other countries for the time being. If ₹15 lakh crores of SBN return, then it will totally shatter and tear away all mighty claims by the Government and RBI that a maximum of ₹11 lakh crores to ₹12 lakh crores of SBN will only return to banks.

Then the entire demonetisation hungama will fall apart as a monumental disaster, yep, its now just a matter of time.. Now the deadline set by our Prime Minister in his 08/11/2016 speech has already expired.

 The above presentation is the hard work of Mr. Member of the Mullaperiyar Special Cell, Government of Kerala. A civil engineer by profession. Associated with construction & management of various hydro electric projects & thermal power projects of KSEB Ltd between 1994-2001. Since 2001, shfited to water resources management & inter state water disputes with special emphasis on the techno-legal aspects. Now working in a consultant role to provide the techno-legal inputs on various inter state water dispute issues & water policy related matters to Kerala State Government.



Read further:

The Trouble With India’s Demonetization Gamble


Demonetization and Freakonomics


Indian Government has No Clues of Black Money in India


Cashless Monetary System means Absolute Power over you


India Came First




Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015


Where you can deposit Old Currencies after 50 Days

Where you can deposit your Old Currencies After 50 days


The central government of India will stop the deposit of old notes of Rs 500 and Rs 1,000 at banks and post offices from 30 December 2016.

However, citizens can still exchange their old notes for new ones at the offices of the Reserve Bank of India (RBI). The apex bank announced that citizens can deposit their old notes of Rs 500 and Rs 1,000 at the RBI counters.

Citizens can still deposit their old notes in their bank accounts via RBI and withdraw money under the guidelines issued by the government.

Here is a list of RBI offices in six metro cities that people can visit to exchange their old notes for new ones:


Reserve Bank of India

10/3/8, Opposite Saint Martha’s Hospital,

Nrupathunga Road, Ambedkar Veedhi,

Sampangi Rama Nagar,

Bengaluru, Karnataka 560001

Office Timings:

Monday to Friday : 10 am to 5:30 pm

Saturday : 10 am to 1:45 pm


Reserve Bank of India,

Fort Glacis, Rajaji Salai,

P.B. No.40,

Chennai-600 001.

Office Timings:

Monday to Friday : 9:45 am to 4:45 pm

Saturday : 9:45 am to 1:15 pm


Reserve Bank of India,

Main Building, P.O.Box 901,

Shahid Bhagat Singh Road,

Mumbai-400 001.

Office Timings:

Monday to Friday : 10:15 am to 5:15 pm

Saturday : 10:15 am to 1:45 pm


Reserve Bank of India,

15, Netaji Subhas Road,

P.B. No.552,

Kolkata-700 001

Office Timings:

Monday to Friday : 9:35 am to 5:05 pm

Saturday : 9:35 am to 1:20 pm

Ads by ZINC


Reserve Bank of India,

6-1-56 Secretariat Road,

Saifabad, P.B.No.1,

Hyderabad-500 004 (A.P)

Office Timings:

Monday to Friday : 10:15 am to 5:15 pm

Saturday : 10:15 am to 1:45 pm


Reserve Bank of India,

6, Sansad Marg,P.B.No.696,

New Delhi -110 001.

Office Timings:

Monday to Friday : 9:45 am to 4:45 pm

Saturday : 9:45 am to 1:15 pm

Even though, the India Public will have to wait and watch as what will be the actual outcome after 30th December.. They are reluctant to believe anything by the present situation.




Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015


Demonetization Demonetization… The poor will suffer the most

Demonetization is a foolish step… The poor will suffer the most: Prof Arun Kumar


Economics professor ARUN KUMAR is one of the most widely quoted authors on black money. He has authored The Black Economy in India (Penguin, 1999) and Indian Economy since Independence: Persisting Colonial Disruption (Vision Books, 2013).

In an interview to India Legal’s Editor-in-Chief, INDERJIT BADHWAR and Associate EditorMEHA MATHUR, Prof Kumar describes how this hasty drive will adversely impact demand, employment and investments. Excerpts:

When and under what circumstances is demonetization used as an economic tool and how common is this practice worldwide?

As a tool for economic surgery it has been used elsewhere, but not in the context it has been used in India. Where it has been used largely is where currency has totally lost its value, like the Soviet Union or Weimar Republic—where you had to carry sackfull of currency to buy your daily supply. There the currency was abolished and new currency created. But India is not in that situation.

Was the Indian economy facing a crisis that needed such a swift and heavy surgical strike?

Not at all. In fact, our macro-economic indicators were reasonably good. But the real point is, what does this move achieve? According to the prime minister, there are two objectives. One is (curbing) terrorist financing and counterfeit currency—and the second is that the black economy has become very large and it is the source of poverty and all the problems in India so we need to get rid of the black economy.

The question is—does demonetization overcome these two problems. As far as counterfeit notes are concerned, they are only 400 per million, which is very tiny. And according to RBI, there is only Rs 400 crore worth of counterfeit currency.

Total currency in circulation is Rs 17.5 lakh crore. It’s not even “oont ke muh me zeera”, as they say in Hindi. It’s negligible.

Terrorists need financing. So they print these fake notes and circulate it. But once they have given the money to another person, it’s circulating within the economy. So they have to print more and more money. That is what you have to stop. And how do you stop that? Not by demonetization, because there are state actors involved in counterfeiting. They can counterfeit the new currency notes also.


If you take out 85 percent blood from somebody’s body and then put five percent into it, what will happen to that person? He will die. Similarly, when you take out 85 percent liquidity from the economy and slowly replace it by five percent, then the circulation of income goes down.

India’s growth rate, trade, GDP and forex reserves have been relatively steady. Why meddle so drastically with a system that seemed to be producing results?

This is a complete miscalculation that you have to overcome black economy through this measure. Understand the meaning of this. First you earn income, out of which you save and you create wealth. Whatever income you have, you consume a part, you save a part of it, and that saving you invest in various assets. That gives you your wealth. Wealth is held as a portfolio—you can put it in real estate gold, share market or cash. Cash is only one component of your wealth— possibly one per cent of your wealth. The black economy, which, according to my estimate is 62 percent of GDP, for the current GDP of Rs 150 lakh crore, we are generating Rs 93 lakh crore this year as black income. Black wealth could be three times more so about Rs 300 lakh crore. Out of that, rupees three lakh crore would be held as cash which we can call black money.

So there is a difference between black wealth and black income?

Yes, black income, black money and black wealth, all three are different.

This is the common mistake that people make. They think the three are same. Black money is only one percent of your black wealth. So suppose you are completely successful in eliminating three lakh crore, you are only eliminating 1 percent of your black wealth and three percent of your black income.

The next point is, will you be able to eliminate even rupees three lakh crore? People have found ways of recycling this. On the day this announcement was made, jewelry shops were reported to be open till 3 am, issuing backdated receipts for purchase of gold, etc. One businessman said he had Rs 20 crore rupees and he gave four months’ advance salary to his workers. They will deposit it in their banks. So your black gets utilised. Then, the Jan Dhan Yojana is being used in large amount in rural areas. The landlord can tell, say, 100 people to take Rs 20,000 each from him, deposit, and return it to him later. So you won’t be able to demobilize even rupees three lakh crore, at best you may demobilize Rs 50,000 to Rs 70,000 crore, so neither of the two objectives that the PM has stated will be fulfilled.

Further, you are only demobilizing rupees three lakh crore at the most for one year but black income generation will continue as before. Say, by selling spurious drugs, narcotic drugs, charging capitation fee, under-invoicing and over-invoicing in business and trade and so on. Therefore, cash will again be generated here. And you are introducing Rs 2,000 notes so storage of black will be even more easy. Therefore, you are defeating your own logic that large denomination currency is used to stash black money so it needs to be demonetized.

In fact, 97 percent are already the sufferers due to the black economy and now another burden is placed on them, without solving the problem of the black.

We all know India has a huge and thriving parallel economy. Perversely, this parallel economy, run entirely on cash, has produced results in terms of employment, consumer demand, rural credit, informal “banking,” and money-flow. How will demonetization hit/hurt this sector? This is also being projected as a Robin Hood kind of measure—taking it from the rich and giving it to the poor. That is the political message going out. Is this a pro-poor measure?

No. basically, it’s not a parallel economy. Black economy and white economy are largely intertwined in India. So when you sell your real estate property you generate black and white income simultaneously. When you produce sugar, you don’t show 10 percent and show 90 percent of the output. That’s why when the black economy is affected the white economy is also affected. This move, which is supposed to impact the black economy, is affecting the white economy terribly. Demand is going down.

As someone gave a very good analogy, if you take out 85 percent blood from somebody’s body and then put five percent into it, what will happen to that person? He will die. Similarly, when you take out 85 percent liquidity from the economy and slowly replace it by five percent, then the circulation of income goes down. Footfalls in malls are falling, charging of mobile phones is declining, the balloon seller is not able to sell balloons, the small trader is not able to sell goods. Even the large trader is not able to sell produce because discretionary expenditure has slowed down. For example, instead of buying a shirt I decide to buy it next month. So circulation of income is slowing down, leading to a decrease in demand. When demand slows down, production slows down, employment drops and investment falls. And when investment falls it will have long-term consequences.

If this goes on for a month or two, investment will decline and, the impact will persist for more than a year. Anyway the cash shortage will not be sorted out very quickly so demand will be affected for much longer than 50 days.

You have to replace the Rs 500 and Rs 1,000 notes worth Rs 14.5 lakh crore that you printed over 15 years and you have to replace it very quickly. That is not possible because you need paper and ink which are largely imported. And ink is in short supply, which is why they floated a tender a few days back. According to Business Standard, it will take 108 days to replace the old currency, provided there is no shortage of ink or paper. And if you are printing Rs 100 notes, then you need to print 10 times more notes than for a Rs 1,000 note and that will take a lot more time.


Circulation of income is slowing down, leading to a decrease in demand. When demand slows down, production slows down, employment drops and investment falls. And when investment falls it will have long-term consequences.

The next point is, people are hoarding currency because they are not sure when the supply will be normalized. As a result, the demand for currency will be 50 percent more. The people who will suffer the most are those in the unorganized sector, as they don’t have credit or debit cards or card readers. They are the ones who need more currency in circulation. The entire agriculture is unorganized sector. This sector is also a major component of manufacturing and services.

Is there the danger of a huge chunk of people being left “economically disabled” for a long time to come?

That’s what is happening. So the balloonwala’s earning has dropped sharply. A beggar complained that people are not giving alms now and she had four children and one of them died for lack of food. Even those who don’t deal with Rs 500 and Rs 1,000 notes are being impacted. In rural areas, farmers are not able to buy seeds and fertilizers. Arhtiyas (rural commission agents) don’t have money to lend. So, sowing next season may also be affected. Money is what you don’t eat. With money you buy food, clothes and services. So money is for circulation. It’s like the blood flow of the body, which keeps everything going. If there is a shortage of that then there is a problem.

At the moment we are feeling the discomfort. When do you think will real pain start?

The real pain for the poor is already on. Real pain for the middle classes is less because we can use credit cards, etc. It will start when our income gets affected. When production slows then middle class people will face lay off. And they will begin to feel the pain. When truckers go on strike, which is a possibility. If the government had prepared properly and managed to create enough supply of new currency then possibly this pain would have been less.

The other option would have been benign neglect.

Coming to options, this move does not sort out the black economy but creates problems for the whole economy. The point is that black economy has not been created yesterday. It has been growing for 70 years. So this problem can’t be solved overnight. There is no magic wand. What you could have done immediately is to appoint a Lokpal to bring about accountability in the system; one of the key ways of tackling black money. Businessmen, politicians, bureaucrats, police and judiciary are not accountable. So how do you bring about accountability? That’s the key. If you can bring about accountability of these sections then you can solve the problem of black money. So RTI for political parties is essential but they do not agree. Whistleblowers are very important because they are the ones who expose the scams—be it Vyapam or Adarsh etc. But instead of strengthening the Whistleblowers Act it is sought to be diluted.

Then we are not doing much about simplifying direct tax. There is GST but more important is the Direct Tax Code Bill. You have to simplify your direct taxes. Intelligence agencies tab Hawala on daily basis but you are not doing anything about that. So, there are many things you can do immediately because you have the laws. That shows the intention is not there. If you had taken recourse to these laws, you could have targeted the three percent of people who indulge in black money without adversely affecting the 97 percent not generating black incomes. In fact, 97 percent are already the sufferers due to the black economy and now another burden is placed on them, without solving the problem of the black.

And you have not offered carrot to those who have by default become part of the black economy.

No, the Income Declaration Scheme (IDS) was there till September 30, wherein you could disclose the black amount for 15 percent penalty. The FM said: “Please come clean, then you can sleep in peace.” But as long as you say we will not take steps against the corrupt businessman he is happy. So wherever amnesty has been given that has not worked.

Voluntary disclosure scheme (VDS) has been implemented six times in India. The government gave an undertaking in the Supreme Court in 1997 that we will not have this scheme ever again, the reason being that it’s unfair to the honest person. The honest businessman’s capital is rising slowly because he is paying full tax. The dishonest businessman’s capital is rising fast. So the honest one says let me also become dishonest. The CAG report on voluntary disclosure scheme in 1997 said two things. People have become habitual tax offenders. Those who declared in the earlier five schemes also declared in the sixth scheme. They think another scheme will come, let me generate more black income today. Therefore after 1997 they have not done a VDS, although the IDS of 2016 was also like VDS.


The balloonwala’s earning has dropped sharply. A beggar complained that people are not giving alms now and she had four children and one of them died for lack of food. Even those who don’t deal with Rs 500 and Rs 1,000 notes are being impacted.

The Mauritius route is also like a VDS. You take the money out, bring it back through round tripping and so you don’t pay tax. So the system has created these easy ways of generating black income. We have wonderful laws. But we don’t implement them. Political will is needed to implement laws.

Another thing, cash does not necessarily mean black. So of the Rs 17.5 lakh crore, Rs 14.5 lakh crore is in Rs 500 and Rs 1,000 notes. Out of that, at least 50 percent would be with businesses. If you go to petrol pump or shops you see wads of currency notes with the cashier at the end of the day. Railways, airport—everywhere it’s needed. Companies have petty cash. Bulk of the cash is white which has to be used for circulating the economy. As to households, an ordinary peon generating Rs 10,000-20,000 of black is nothing compared to the size of the black economy. One Madhu Koda generating Rs 6,000 crore of black is more than the entire black income generated by all class C and D employees.

The misnomer is that black economy means cash. That is where the understanding of Modi is lacking. He thought that if he demobilizes the cash the black economy will collapse.

But that sounds more like a self-serving political ideology….

The political ideology is that I will be the hero of the poor, that I have eliminated the black economy that was affecting the poor. What he might do if that Rs 2 lakh crore doesn’t come back is to say I am giving 10 crore families Rs 20,000 each. These rich people had stolen this amount, so I have taken it back from them and distributed it to the poor. But it can fall flat for the following reason: while they may get Rs 20,000 one shot, if they lose their employment, they will lose far more over the year.

So as you are saying its very basic genetic structural reforms and which means gradualismBecause reforms can’t come without gradualism. Like Chandrashekhar had to mortgage gold as that was a crisis situation. Even to some extent wheat control orders of Indira Gandhi in 1972 were passed during shortage times.

But the point is that those (measures) were affecting where the crisis was. This is affecting everything.

So it is a billion dollar political blunder.

The trading community will desert him as far as I can tell, because traders are very upset. Farmers are upset, workers are upset.

What they will do is to restore money supply to Delhi, Mumbai, Kolkata and Chennai so that the national press says the queues are dwindling. But there will be little money in villages. They have to walk long distances to get to the bank for money and often return empty handed. And there’s little money in Tier-2 and Tier-3 towns.

Now they will go after lockers….

No, that will affect only the middle class. The poor doesn’t use lockers.


Black economy has not been created yesterday. It has been growing for 70 years. So this problem can’t be solved overnight. There is no magic wand.

But you get money for political parties from this three percent.

But if you have the political will to do this you should also have had the political will to do that. Like, a UP leader is reported to have told funders to take back old notes and give new notes. So, political funding won’t stop. Now it will be easier with Rs 2,000 notes. They won’t be harmed. I was talking to a commissioner who said we don’t touch those cases where we know there is political backing. Anyway, Income Tax department doesn’t have the capability to handle so many cases.

It’s just one man’s mind at work….

He just didn’t consult anyone. In his address he said that the departments of government and bankers are hearing this for the first time.

We have to look at Article 21 of the constitution. Property right has been granted by the constitution. Your job has been recognized as a fundamental right.

He is not doing that. He is replacing old currency with new currency. He is not depriving you of your property.

But he is taking away livelihoods.

That’s the consequence of this move. As far as property is concerned, he is not taking away your property. It’s a legal tender saying “I promise to pay” and government is paying with new currency—of equal value. But it creates recession. It’s a foolish step. Any policy can go wrong.

The SC can condemn you for the process.

The SC is a responsible institution. It can say anything orally, scold, but when it comes to judgment it is circumspect. PILs have been filed and government wants them consolidated in the Supreme Court but the court has refused that till now. But ultimately it is quite likely that the court will say it’s a policy issue and therefore we can’t do anything.

One man is trying to deliver on something that is undeliverable, against the advice of everybody else. 

That’s not how you run such a complex country like India. If I were there I would have asked 100 people. He didn’t trust his own cabinet and took away their mobiles and confined them to a hall till 8 pm. Urjit Patel called all bankers and told them to watch an important announcement. This is absolutely not the way to make such a complex policy in a complex country like India.

Lead picture: Professor Arun Kumar is regarded as an authority on the black economy of India. All Photos: Anil Shakya



Read further:

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Why BJP Govt’s Demonetization Move Is An Absolute Disaster


Demonetisation Loot And Plunder Says Manmohan Singh


The cash crunch may paralyse economic activities in India


Demonetization may leads to Riots On The Streets in India


Rupee Falls To Near Record Low


Supreme Court of India To Hear Challenge To Demonetization On December 2




Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015

Rupee Falls To Near Record Low

RBI Intervenes As Rupee Falls To Near Record Low

The rupee has been hit hard this month by a rally in the dollar and outflows from emerging markets, as well as worries about the country’s demonetisation drive.


The Reserve Bank of India (RBI) intervened to steady the rupee as it neared a record low on Thursday due to broad strength in the U.S. dollar, capital outflows from emerging markets, and worries about India’s demonetisation drive.

The rupee has fallen around 3 percent so far this month, its biggest fall against the dollar since August 2015, though it has fared better than many other emerging market currencies have done since Donald Trump’s shock win in the U.S. presidential election.

Traders spotted the RBI intervening when the rupee fell to around 68.83 per dollar and more heavily later in the morning, sending the rupee sharply higher to 68.74. The central bank likely sold around $500 million so far in the morning, the traders said.

At its weakest, the rupee reached 68.8375, putting it within sight of the all-time low of 68.85 that was struck in 2013. 

Back then, pressure on the current account plunged India into its worst currency crisis in more than two decades, but this time India is seen as being far better positioned to resist outflows from investors attracted by higher U.S. interest rates. 

Expecations that President-elect Trump will pursue an expansionary fiscal policy that will drive inflation higher and lead to higher U.S. interest rates, are behind rising U.S. yields that have attracted investors to the dollar. 

Although foreign investors are pulling money away from Indian bonds, analysts say India’s strong economic growth should sustain investor interest in equities, while foreign exchange reserves are at a near record high while inflation remains low. 

There are worries, however, that Prime Minister Narendra Modi’s shock move this month to ditch higher-denominated banknotes could dent the growth rate. 

India is also still seeing outflows tied to the redemptions of dollar deposits, or foreign currency non-resident accounts (FCNR), that were raised from Indians living abroad to help pull the rupee out its crisis three years ago. 

“The rupee is weakening due to a combination of three factors – dollar strength globally, FCNR outflows and the impact of demonetisation on GDP,” said a trader at a domestic bank. 


There are fears that Prime Minister Narendra Modi’s shock move to remove 500 and 1,000 rupees notes from circulation will dent consumer demand and economic growth in the near-term.

Read further:

Demonetisation Loot And Plunder Says Manmohan Singh


The cash crunch may paralyse economic activities in India


Demonetization may leads to Riots On The Streets in India




Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015

Demonetisation Loot And Plunder Says Manmohan Singh

Demonetisation Monumental Management Failure, Organised Loot And Plunder, Says Manmohan Singh

Criticising the Narendra Modi government for demonetisation, former prime minister Manmohan Singh called the process of demonetisation “organised loot and legalised plunder” and also said that it was a “monumental management failure.”

“It is monumental management failure. It is a case of organised loot and legalised plunder. It is not my intention to pick holes. I sincerely hope prime minister, even at this late hour, will find a solution,” the former prime minister said.

Listing out the pitfalls of the demonetisation process, Singh said, “The GDP of the country can decline by two percentage point, this is an under estimate not an over estimate. It is no good that everyday the banking system comes up with new rules, it reflects very poorly on the PMO and the RBI.”

“It is important to take note of the grievances of the ordinary people who have suffered. I say so with all responsibility, we do not know what will be the final outcome. The prime minister says we should wait for 50 days. Fifty days is not a long time. But for the poor even a short period of 50 days can be disastrous. Till now 60 to 65 people have lost their lives,” Singh added.

“I would like to know from the prime minister, in which country where people have deposited their money in their banks but have not been allowed to withdraw,” Singh said, adding, “Would further like to point out that, in my opinion, this scheme of demonetisation will hurt agricultural industry and small industries.”

Dismissing the government’s defence that in the long run demonetisation is good for the country, Singh said, “For those saying this is good in the long run, it reminds me of John Keynes’ words, ‘In the long run we are all dead’.”

Fifty days is not a long time. But for the poor even a short period of 50 days can be disastrous.

However Singh also said that he was not against demonetisation. “I do not disagree with objectives of demonetistion. But in the process of demonetisation monumental mismanagement has been undertaken,” said.

Urging the prime minister to take action he said, “I urge upon the prime minister to find practical ways and means to release the distress of the people, who happen to be the great majority of our people.”

This comes after the Rajya Sabha was adjourned on Thursday again because of the ruckus created by the Opposition parties, demanding PM Modi to speak.

I would like to know from the prime minister, in which country where people have deposited their money in their banks but have not been allowed to withdraw

While Singh had earlier in the day asked the Speaker of the House to speak on demonetisation, he was not allowed to do so by Finance Minister Arun Jaitley.

“If it is on the demonetisation issue let the opposition resume the debate and let Dr. Manmohan Singh speak. If there is no debate, nobody from the opposition is going to be allowed to speak,” Jaitley said.

Later when the House was resumed at 12 noon, Congress leader Ghulam Nabi Azad also criticised the prime minister’s silence saying, “Democracy means dialogue not monologue. We have heard the prime minister’s thoughts from Japan and in Parliament. He is the prime minister of the entire country not just BJP. We are not against demonetisation, we are against the problems people are facing, you went ahead with the plan without preparations.”

Both Houses of Parliament had been adjourned till noon as a united opposition continued its tirade against the government over demonetisation.

The opposition in the Rajya Sabha has insisted that it would allow no discussion on the ban on high-value currency without Prime Minister Narendra Modi’s presence.

The Prime Minister told his Cabinet last evening that a survey conducted on his app saw record participation and proved that people back his effort to crackdown on black money and corruption by removing the old high-denomination notes.

The opposition, however, said the survey excludes lakhs of people, who live in rural India and don’t have access to smartphones.

The opposition has also alleged that the questions were framed in a manner to ensure a positive response for the government.

Watch Manmohan Singh’s full speech at the Parliament below.


Read further:

Gods get richer


Why BJP Govt’s Demonetization Move Is An Absolute Disaster




Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015

Why BJP GOVT’s Demonetization Move Is An Absolute Disaster

Why BJP’s Demonetization Move Is An Absolute Disaster


The Prime Minister’s announcement of the withdrawal of ₹1000 and ₹500 notes ranks amongst the most significant economic measures taken by his government. The audacious move has given birth to wild hopes of a decisive blow to the black economy and counterfeit currency. It is also being lauded for its potential to convert India into a cashless economy. However, the disruptive impact of this decision is only now becoming clearer and dampening the celebratory mood that followed the announcement.

The government has rushed into a decision that is poor economics and may ultimately prove to be poor politics too.

While many are still hopeful that this “landmark initiative” will reap dividends eventually, upon deeper analysis I have come to the conclusion that it is nothing less than an unmitigated disaster. Here are 10 of the most prominent reasons why I say so.

1. Cash is an insignificant component of black assets

The effect of this move on the black economy will be limited because cash comprises only a tiny part of black assets. This is borne out both by facts and reasoning.

Cash recovery has been only 6% of the undisclosed income seized from income tax evaders, according to data from tax raids from 2012-13 onwards.

This fact only affirms what is already apparent upon the application of reasoning. Opening foreign accounts anonymously is child’s play today and given the anonymity it provides, it is a widely preferred option for those holding black money. Investments in gold and property are also preferred for a variety of reasons. Firstly, wealth stored as cash decreases in value with inflation while other types of assets appreciate with inflation. Secondly, storing large sums of cash is much more problematic (occupies more space, vulnerable to hazards) than storing the same value in gold. Finally, security problems with cash are much greater.

Thus, illegitimate cash is just the tip of the iceberg and dealing with it does not mean taking down the mammoth black economy.

2. Counterfeit currency is more molehill than mountain


Much has been made of the “fact” that taking out higher denomination notes will render worthless the bulk of counterfeit currency in circulation today. But contrary to popular perception, the value of counterfeit currency is quite insignificant.

According to a study done by the Indian Statistical Institute, Kolkata, in 2015, the only reliable and comprehensive exploration of the subject, at any given point of time ₹400 crore worth of fake notes were in circulation in the economy. This is merely 0.025% o f the total budget outlay of ₹19.7 lakh crore as announced this fiscal.

In comparison, just the printing cost of notes being taken out of circulation is approximately ₹12,000 crore. Is it sensible public policy to flush ₹12,000 crore down the drain to purportedly remove about ₹400 crore of fake currency?

3. Information may have leaked—rise in bank deposits

While the news of the withdrawal of notes caught most people by surprise, leading many to hail the government’s success in keeping it a closely guarded secret, it is now emerging the information—or at least a rumour of what was to come—had already reached several ears. Firstly, in April this year, SBI had said that people were withdrawing cash in large amounts in smaller denominations due to rumours of demonetization of ₹1000 and ₹500 notes. Secondly, in the past few weeks, local dailies in Gujarat and elsewhere had also reported that such a move might be in the offing. Thirdly, the BJP’s West Bengal unit deposited an unusually large cash amount of Rs 1 crore just before the move’s announcement. All these factors indicate that information of the action may well have leaked.

Is it sensible public policy to flush 12,000 crore down the drain to purportedly remove about 400 crore of fake currency?

While those who don’t have black money may not have paid attention to rumours and speculations, those that did have something to hide probably took action right away to protect their spoils, thereby reducing the efficacy of the eventual demonetization.

What most strengthens the suspicion that many with black money were warned in advance is the sudden spike in bank deposits in the last quarter. Data from different banks shows that last quarter most of them reversed the trend of declining deposits and witnessed healthy growth. This rise in bank deposits happened despite the decline in industrial production and in the absence of any facilitating factors in the economy. In the absence of an upturn in economic parameters, the sudden rise in deposits just before demonetization decision is definitely fishy.

4. Whitewashing of whatever little black cash there is

Even the insignificant black assets in cash that remain with people (even after prior information) are likely being whitewashed through various loopholes. Backdated buying of gold and exchanging through the new black market for exchange of notes are prominent ways in which those with black cash are getting it laundered or changed to smaller notes.

5. The root problem of black money generation is untouched

The move is also questionable as it does little to address the root problem of black money generation. The annual black economy is conservatively over 20% of our GDP. This means that the annual generation of black money is over ₹30 lakh crore which is greaterthan the entire amount of ₹17.77 lakh crore of cash in circulation (86% of this cash is in the form of withdrawn ₹500 and ₹1000 notes). So, even if half the value of the withdrawn notes was black wealth and none of it was whitewashed, the black money destroyed would still be much less than the amount of black wealth generated yearly. It’s clear from this that demonetization cannot do any long-lasting damage to the black economy since the roots of it remain untouched.

6. The government’s politically motivated sensationalism has spread panic

In a bid to derive maximum political mileage out of the move, BJP sensationalized the move and announced with great drama for maximum impact. Many myths were spun around it, which made people panic. This panic is leading to untold miseries with ATMs reporting long lines and various establishments refusing to offer change; some hospitals are even denying treatment. Had the BJP been more sombre and pragmatic in its narrative and execution, rumour mongers would not have had such a field day and the move’s implementation would have been less painful for the people.


7. In poll-dictated hurry, government was woefully underprepared

The government is visibly unprepared for the move.

Firstly, the RBI didn’t have enough supply of smaller denomination notes and is supplying soiled 100 notes to meet the demand. Secondly, the new ₹2000 notes being released are smaller in size than the old notes and ATMs have not been modified to dispense them. Thus, ATMs are storing less cash and thus running out faster as they can only dispense ₹100 notes.

The annual generation of black money is over 30 lakh crore which is greater than the entire amount of 17.77 lakh crore of cash in circulation…

Thirdly, the new ₹2000 notes are being released without any additional security features as the hurried decision by the government didn’t allow for the provision of such features. It is reported that the government pushed through the action in six months, although over three years or so are usually needed to introduce new notes. Perhaps as a result of such haste, many errors are being reported in these notes. Because of the absence of additional security features (and presence of mistakes), the task of counterfeiting will become easier. Also since now there is a higher denomination, it is more profitable to counterfeit. Thus despite spending so much of public wealth, the hasty manner of the move will deprive us of any benefit in reducing counterfeit currency which would have occurred if the new currency had additional features.

So, why did the government act in such a rush despite knowing the associated downsides? My theory is that as the Uttar Pradesh elections and the model code of conduct are round the corner, the government decided to implement the move so as to milk the issue before the polls.

8. Reintroducing higher denominations facilitates future hoarding of black cash

Another pitfall of rushing through the decision is that it left government with no choice other than to reintroduce higher denominations as today India doesn’t have the infrastructure for a primarily cashless economy. Doesn’t it make more sense to first focus on transitioning to a cashless economy and then completely withdrawing these larger denominations?

By introducing ₹2000 notes, the government has made it easier for those who want to hoard black money in cash as they will need only roughly half the space they needed earlier for their ₹1000 notes. Thus, in this sense this move will give a boost to black economy.

9. Where is the infrastructure for a cashless economy?

The argument that the move will spur a cashless economy is flawed . First, how does replacing ₹1000 notes with ₹2000 ones help make the economy cashless?

How does replacing ₹1000 notes with ₹2000 ones help make the economy cashless?


Secondly, merely depriving people of cash doesn’t make an economy cashless. With only 46% banking penetration, only 22% internet connectivity, 19% of population without electricity connection (and others with unreliable connection) and only 1.2 million of 14 million merchants having point of sale devices, India simply doesn’t have the infrastructure for a cashless economy. Another problem is the low level of digital literacy in India. Unless these real challenges are addressed, withdrawing the bulk of cash only creates chaos as we can now see.

10. Economic activity is taking a beating

The gross under-preparedness of the government, the sensationalism of the move and it being inherently economically imprudent, have all lead to the move creating extreme chaos.


Firstly, the people are desperate for cash, so much of the workforce that should be productively working is wasting long hours in unending queues at the banks and ATMs .

Secondly, the abrupt call-back of 86% of cash, has brought the informal economy to a standstill—this sector is the worst affected, with the most marginalized suffering the most.

Thirdly, the wide speculation on property and gold pricing will also undermine economic stability and reduce investors’ confidence in India.


Thus for the variety of reason discussed above, I have no hesitation in calling the move an unmitigated disaster. It’s simply a case of headline management trumping sound economics. The government in its attempt to win brownie points on the black money issue has rushed into a decision that is poor economics and may ultimately prove to be poor politics too.

Article by Apoorva Pathak (Huff Post)

Via http://www.huffingtonpost.in/apoorva-pathak/10-reasons-why-bjps-demonetization-move-is-an-unmitigated-and/

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New Indian currencies FAQ


Gods get richer




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Say Hello to the Fake notes of New Indian Currency 


The Indian Prime Minister’s announcement of the withdrawal of ₹1000 and ₹500 notes ranks amongst the most significant economic measures taken by his government. The audacious move has given birth to wild hopes of a decisive blow to the black economy and counterfeit currency.

Henceforth on 10th of November Modi, the Prime Minister of India and it’s Intelligence agencies claimed the security features in the new Rs 2,000 and Rs 500 notes make them impossible to replicate.

They also state that the govt had been informed of a mint in Peshawar where only fake Indian currency notes are printed every year, also Pak pushes Rs 70 crore worth of fake currency into the Indian economy.

Next: RBI displays the newly issued Rs 500 and Rs 2,000 notes.


NEW DELHI: Intelligence agencies vetted the new denominations of Rs 2,000 and Rs 500 notes asserting that its security features will be next to impossible to replicate for Pakistan and organised criminal networks in India.

A top government official without going into the details, told TOI, New Delhi that external intelligence agency Research and Analysis Wing, Intelligence Bureau and the DRI examined the features on the notes being secretly printed for the past six months. The official refused to reveal the number of security features on the notes but said they were difficult to forge.

But you didn’t have to wait for the Pakistan or Terror groups printed high standard fake Indian currencies draining into our economy,(which reportedly uses ink from Frankurt and Switzerland.),

So like so many busted out claims or reasons made and given by Indian Government at the time of announcing the demonetisation of Rs 500 & Rs 1000 currency notes, this one also busted into cold flames or say “Tayen Tayen Phiss” (a popular Hindi idiom).

Fake notes are popping up all across India.

Within a fortnight five separate incidents have been reported in India, And the best quality of fake notes are reported in the state of Odisha. Odisha Police arrested a youth on charge of circulating fake Rs 2,000 notes and recovered Rs 2,45,000  stocked in the newly-introduced denomination post the Centre’s demonetisation move.

Meanwhile in Bolangir district, police seized over Rs 12 lakh from the house of a recruitment agent of migrant labourers skilled in Brick molding, professionally called as ‘Dadan Sardar’ on charge of stashing huge amount of cash.

The police raided the house of a dadan sardar at Tingra village under Saintala police station limits and seized Rs 12,75,900, Bolangir District SP Asish Singh said.

SP said they raided house on a tip-off about fake notes. Out of the total amount recovered, Rs 2,000 notes were also stored which totalled upto Rs 4,80,000, he said. “The police were investigating as to how a dadan sardar could arrange so many Rs 2,000 notes.


The Police first suspected that the man was using local people to get demonetised notes exchanged for the new Rs 2,000 notes in different banks. But was amazed to find that the notes are sophisticated looking fake currencies.  however, Police could not arrested the accused as he absconded before the raid took place, police said.

Earlier, the Odisha police had arrested another youth in Khurdha district while depositing counterfeit currencies worth Rs 42,000, that’s too in a bank (look at the confidence) .

In the state of Gujarat A paan shop owner found a forged Rs 2,000 currency note in his till, featuring the Gandhi watermark, the national emblem and a fake security thread. It was later on, when he wondered how the recently launched note could look so soiled and faded in color, so he suspected it could be a fake and reported the case.

Although Fake notes of the new currency made their first debut In Chikkamagaluru, in the state of Karnataka two days after the notes went into circulation. A local trader approached police to inform them he was handed a photocopy counterfeit note.

Mumbai’s first incidence of fake new notes was recorded in Andheri, when a wine merchant was duped by a customer, who bought liquor with a fake Rs 2,000 note.

A small-time computer operator in Punjab, and his 2 accomplices managed to produce counterfeits using everyday scanners and printers.

One Shopkeeper told “I still cannot differentiate between a fake and real Rs500 and Rs2,000 note. So I have stopped taking these notes”.



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The cash crunch may paralyse economic activities in India

The cash crunch arising out of demonetisation is expected to paralyse economic activity in the short-term, and the 2017-18 GDP growth is likely to take a hit

Out od service ATMs

According to a report by Ambit Capital, GDP growth is likely to decelerate from 6.4 percent in first half of this fiscal to 0.5 percent in the second half with a distinct possibility of GDP growth contracting in third quarter of this fiscal.


From October-December 2016 until October-December 2019, Ambit Capital expects a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40 percent share in GDP) become unviable and cede market share to their organised sector counterparts.

“We expect this dynamic to crimp GDP growth in India in FY18 as well and hence we cut our FY18 GDP growth estimate to 5.8 percent (from 7.3 percent),” the report said.

The demonetisation move is expected to disrupt economic activity in the short term, especially those segments where cash-based transactions are the norm like real estate, unsecured lending, real estate construction services and building materials.

“Whilst in the near-term, we expect these businesses to suffer, over the next couple of years the strongest players in these sectors will gain market share as competition from unscrupulous/unorganised players reduces,” the report added.

A report by Care Ratings titled ‘Impact of demonetisation on GDP growth in FY17’, said, the services sector is expected to be affected the most in these economic activities. Importantly, these losses, due to their inherent nature, can’t be recovered in the next quarter. For rest of manufacturing, demand side issues would exist till such times conditions stabilize and could get reversed in Q4. Hence, Industry is also expected to be impacted which will be more significant in the first 2-3 weeks post the announcement.

While consumer goods’ companies are also feeling the impact right now, with tight liquidity in the markets, the demand is likely to come back by next quarter. “Losses incurred would be recovered in the next quarter, particularly for consumer goods where there would be only deferment of purchase.

Even the SMEs industry will have a major problem in adjusting production schedules as both payments and receipts flow in cash given their structures.

According to the Care Ratings’ report, as per initial estimate, overall GDP growth would be affected by 0.3-0.5 percent.

“As a response to the slowing GDP growth, we expect the RBI to consider rate cuts of 25-50 bps over the second half of FY17 itself,” the Ambit said.

The Monetary Policy Committee headed by RBI Governor Urjit Patel last month cut benchmark interest rates by 0.25 percent to 6.25 percent. The next RBI policy review is on 7 December.

Foreign brokerage Bank of America-Merrill Lynch sees the demonetisation exercise impacting the country’s growth in the next two quarters, and estimates GDP to fall by 50 basis points.

“The economy has had a heart attack this quarter. We expect the impact of this to resonate for at least two quarters, impacting GDP by 50 basis points for the fiscal year,” The Economic Times report said quoting Indranil Sen Gupta, chief India economist at Bank of America-Merrill Lynch.

Rating agency ICRA has cut GDP forecast by 40 basis points, while HDFC Bank trimmed growth estimates to 7.3 percent from 7.8 percent earlier. Another credit rating firm Crisil, which earlier estimated GDP growth at 7.5 percent, now sees downside risk from the demonetisation move.

In between:

Congress leader P Chidambaram on Saturday attacked the Narendra Modi government for obliterating everything about India before it came to power and said it believes there was no civilisation prior to that.

P Chidambaram. PTI

“As far as the present government is concerned, India began, civilisation began only on May 26, 2014,” Chidambaram said at the Tatas-run Mumbai LitFest today while addressing a panel discussion on Banking for the bottom billion.

The former finance minister was referring to the NDA government not adding the 13 crore no-frills accounts, opened during the UPA regime, with the Jan Dhan ones that were opened during the present government’s financial inclusion drive.

While the UPA government had opened these accounts between 2004 and 2014 under its financial inclusion drive,Prime Minister Modi had relaunched this under the Pradhan Mantri Jan Dhan Yojana on 28 August 2014, under which around 25.51 crore accounts have been opened so far.

Chidambaram noted that as many as 13 crore no-frills accounts were opened under the UPA rule, but are blacked outnow.

“These 13 crore accounts which we opened between 2004 and 2014, under the guidance of C Rangarajan, as far as the (present) government is concerned, they don’t exist, they are blacked out,” he said, adding that “Jan Dhan is only another name for no-frills accounts”.

The Congress leader praised the government’s efforts for this financial inclusion drive, but said by simply opening an account, one’s behaviour can’t be changed.

“People must have money to deposit in the account, they must have a need to borrow from that account, otherwise account will remain dormant.

“So, how does our bankers jugaad sense work? The government pulls them up for saying dormant accounts, they put one rupee from their pockets in those accounts,” he said.

Earlier in the day, he had said the after-effects of the demonetisation will last longer than expected as it was carried out without much thinking and he also doubted if the government had consulted its Chief Economic Advisor Arvind Subramanian on this before taking the decision.

“You are seeing the first-order effect of withdrawing, sucking out 86 percent of the currency in circulation from the market. The first order will continue for several weeks now. Then, you will see the second-order effect,” he said.

“My suspicion is the only knowledgeable economist in the government Arvind Subramanian was not consulted,” he said.






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Demonetization may leads to Riots On The Streets in India

“We Will Have Riots On The Streets” Supreme Court Warns Government On Demonetisation For the second time in a week, the Central Government in India has faced tough questions on the notes ban from the Supreme Court, which cautioned on Friday: “We will have riots on the streets.”

We Will Have Riots On The Streets Supreme Court Warns Government On Demonetisation

For the second time in a week, the Central Government in India has faced tough questions on the notes ban from the Supreme Court, which cautioned on Friday: “We will have riots on the streets.”

The Supreme Court today declined the request of the central government that it stay all petitions against demonetisation pending in various high courts and other forums stating that people have a right to approach courts when they have grievances.


Chief Justice of India TS Thakur said petitions challenging the ban on Rs. 500 and Rs. 1,000 notes indicate the magnitude of the problem.

“You have scrapped 500 and 1,000, but what happened to the 100 rupee note?” the Chief Justice asked the government, referring to the daily scramble for cash across the country and the punishing queues outside banks and ATMs.

ATMs, the government replied, need to be recalibrated because they have a “single drawer” for Rs. 100 notes. For thousands, this has meant that cash dried up long before they could reach the top of the line after several hours.


The court had more questions on the currency ban announced suddenly by Prime Minister Narendra Modi on November 8 to check tax evasion and black or untaxed money. In the past 10 days, there have been several additional announcements to ease the crisis for people.

“The last time you said you are working out relief but you have reduced the withdrawal amount to 2,000. What’s the problem? Is it a printing problem?” Justice Thakur asked the government.
The government earlier this week reduced the Rs. 4,500 limit for the exchange of notes at banks to Rs. 2,000, saying it would enable more people to get cash.

Attorney General Mukul Rohatgi said: “Not only printing… it has to be transported to lakhs of branches across the country and ATMs have to re-calibrated.”

Mr Rohatgi added that the government did grant relief to farmers, families planning weddings and small traders.

Representing one of the petitioners, senior lawyer Kapil Sibal, a senior Congress leader, alleged that people in villages and in the northeastern states are unable to withdraw money.


The government lawyer retorted: “Mr Sibal is making a political issue here. You can’t convert this court into a political platform. Let him go outside and address people as a Congress person.”

There was a verbal duel between Rohatgi and Kapil Sibal, who represented one of the several petitioners. While Sibal said that the ordinary people have been put in miserable situation, the Attorney General alleged that Sibal was politicising the issue for the benefit of his party.

“This is very serious. This will require great consideration. People have become frantic for money, people are affected. We will have riots in the streets

The court then asked both parties to submit data justifying their claims — that the situation was easing as claimed by the government and it was as bad as ever as claimed by the petitioners. The court will examine the data next Friday.


via Demonetization may leads to Riots On The Streets in India — SHANEPEDiA




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Gods Get Richer as Black Money Pour in

Gods Get Richer as Black Money Hopes for Rebirth Through Temple Hundis


When in crisis, fold your hands. Temples and temple trusts are emerging as a new vehicle for those stuck with unaccounted cash to bypass the new demonetization scheme.

News18 spoke to a range of players for this story, and predictably, all of them chose to remain anonymous fearing action from enforcement authorities.

One of the most brazen efforts at lending a divine hand to whitewash money was reported from Karnataka where a religious head has spread the word that unaccounted money can be deposited in his mutt’s cash collection box. The sum would later resurface in official documents as donation from an anonymous donor and will be deposited in banks, and will eventually make its way back to the “donor” after a handsome commission to the mutt head.

In some cases black money hoarders are getting rid of their wealth at a steep discount and in some cases the commission is up to 50%.

The temples managed by the private persons are also being used to convert substantial amount of black money into white. The managements offer to return 50%-70% of the money to the “donors” after a few months.

Rural and urban cooperative banks and non-banking financial institutions too are being pressed into service to bring the worthless currency back to life across India.

In one instance that News18 independently verified in Kolar, Karnataka, more than Rs 5 crore was divided into a bundle of Rs 2.5 lakh each – villagers were given individual bundles that were later deposited in cooperative societies.

According to a PTI report, hurried donations made to nearly 100 temples and trusts. Sudden spurt in cash reserves in nearly 1,000 cooperative banks and credit societies were noticed in Maharashtra after Centre’s decision to scrap Rs 500 and Rs 1,000.

“The suspicious part of the whole rush for temple donations and opening six deposit accounts is that they were triggered immediately after Prime Minister Narendra Modi made the announcement of demonetising currency notes of Rs 1,000 and Rs 500 denomination,” PTI quoted a senior minister as saying.

The minister, who did not wish to be named, said officials have apprised the state government that there has been a surge in donations to temples immediately after the announcement. “Some people have tried to secure their unaccounted cash by donating it to temples by taking its management into confidence and making receipt of such donations as anonymous donors,” he said.


A similar pattern was seen in some cooperative banks that are associated or directly controlled by politicians, he said.

“Some people having unaccounted cash in lakhs of rupees have managed to secure receipts of opening of fixed deposit account. It was possible because these (cooperative) banks operate locally with handful of branches and cater to local banking needs,” the minister said.

“In such cases, the unaccounted cash will turn into white money, if people manage to produce all valid documents. We have asked officials from departments concerned to keep a tab on any suspicious transaction, donations or deals,” he said.


“In most of these banks, works, including issuing receipts, is done manually. As a result, some people managed to get the date of opening of the FD account, as prior to the PM’s announcement. 

To counter such frauds, government will check the unnatural rise in the cash reserves in these banks. They will be under scanner,” the minister added. 

Such fraudulent transactions have taken place in over 100 temples and trusts in the state, he said, adding, action will be initiated against those guilty of colluding with the fraudsters. The government will also monitor the sudden spurt in cash reserves in the nearly 1,000 cooperative banks and credit societies in Maharashtra. Some temple managements are “close to political parties, making such transactions possible,” he alleged.

All this clearly points towards ill managed demonetization step undertaken by the Indian Government.. looks like decision taken under hurried situation.




Read further:

New Indian currencies


New Indian currencies FAQ




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