Demonetization 11-19-2016 v5

DEMONetization:
Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared
Partha Sarathy
November 2016
THE MODI GOVERNMENT ANNOUNCED
DEMONETIZATION ON NOVEMBER 8, 2016
Currency notes of Rs.
500 and Rs. 1,000
denomination would
cease to exist as valid
currency (legal tender)
Deposit your old Rs.

500 – Rs. 1,000 notes
into the bank by
December 30, 2016, or
you lose all of it
Withdraw a maximum
of Rs. 4,000 per day, or
Rs. 20,000 per week
DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 2

DEMONETIZATION HAS BEEN A DISASTER
FOR SIX REASONS
1 Ineffective
DEMONetization has
2 Improper
been a disaster for 3 Unwise

these six reasons, as
we see in the rest of 4 Cruel
this presentation
5 Unjust
6 Unprepared

DEMONetization: Ineffective, Improper,
Unwise, Cruel, Unjust, Unprepared
SECTION INEFFECTIVE
Improper
1 Unwise
Cruel
Unjust
Unprepared

THE GOVERNMENT’S GOAL OF CURBING
BLACK MONEY IS COMMENDABLE
Let’s start with the stated goal of the
monetization exercise.
Prime Minister Modi says Rs. 500 and

Rs. 1,000 notes are being withdrawn
as part of the effort to eliminate black
money, corruption, and counterfeiting.
These are excellent and laudable

goals.
Everyone agrees that we should

eliminate black money, corruption, and
counterfeiting.

BLACK MONEY IS BIG IN INDIA, ALMOST
50% – 100% OF THE “WHITE” WEALTH
“Black money” is money that has not been
reported to the government, on which tax has White money:
not been paid. Black money is bad because – (1) $3.4 trillion
it reduces government’s tax revenue; (2) it puts
honest tax-payers at a disadvantage.
How big is India’s black money problem?
According to the Central Bureau of Investigation

(CBI), Indians have $500 billion of black money
stashed abroad, including in Swiss banks. We
don’t know the amount of black money in India,
but let us assume that overseas funds are 16%- Black money:
25% of the total. So the total black money $2 - $3 trillion
(domestic and overseas) may be $2 - $3 trillion.
Total wealth held by all Indians is $3.4 trillion.

That means black money could be 50% - 100%
Data source:
of the “white” money of all Indians. https://en.wikipedia.org/wiki/Indian_black_money
https://en.wikipedia.org/wiki/National_wealth

BUT DEMONETIZATION WILL ELIMINATE
BLACK MONEY BY ONLY 5%
According to press reports, most of the
existing stock of black money is in real estate
(50%), gold, and foreign investments. Very
little is held in Indian currency notes.
Total stock of currency in India is Rs. 17

trillion or $240 billion. About 85% is in 500 –
1,000 notes, i.e. Rs. 14 trillion or $200 billion.
Let’s say half of this is black money, about

Rs. 7 trillion or $100 billion. Let’s say
demonetization causes all of this $100 billion
in 500-1,000 notes to become worthless. http://indianexpress.com/article/india/india-
news-india/the-un-real-estate-demonetisation-
So demonetization eliminates just 5% of the process-100-500-rupee-note-narendra-modi-
total $2 trillion black money held by Indians. black-money-4372286/
So if the govt. wants to eliminate the existing www.hindustantimes.com/business-

news/demonetisation-won-t-eradicate-black-
black money, demonetization is not the
money/story-f30rYaKrslitmQnkGzC5pN.html
answer. The benefit is tiny (5%), at best.

BUT DEMONETIZATION WILL REDUCE
FORMATION OF NEW BLACK MONEY
Cash is needed to create black money.
Think of people taking suitcases of
black money to buy land or gold.
By eliminating high-value notes, there

will be less black money created in
future. Tax evaders will have to carry
truckloads of low-value notes to buy
land or gold, which is difficult.
In the long run, demonetization will

indeed shrink the stock of black
money. But that process is gradual
and will take decades. It does not
happen in a few weeks or months. It is
not a “surgical strike”, as some people
claim.

BUT THEN WHY DID THE GOVERNMENT
CREATE RS. 2,000 NOTES?
Let’s consider the government’s claim
that demonetization was intended to
reduce cash transactions and
encourage use of formal banking
channels.
If that is the case, why did the govt.

create new Rs. 2,000 notes?
Wouldn’t Rs. 2,000 notes actually make

it easier for people to store and
transport black money?
Why demonetize 500 and 1,000 notes if

you will then monetize 2,000 notes?
This is absurd and comical.

BASED ON GLOBAL DATA, RS. 500 NOTE
SHOULD NOT HAVE BEEN SCRAPPED
As I wrote in esSENSE e-magazine, data
from 20 countries suggests that the
largest currency is usually between 50%
to 250% of the average daily income.
Until recently India was outside this range

since the Rs. 1,000 note was 335% of
average daily income, which means Rs.
1,000 note was not needed.
With the Rs. 2,000 note, India has become

even more of an outlier at 670%, and the
largest in this sample, suggesting that it
is not needed. For more information on this study, including its data
collection, analysis, findings, and limitations, please see
my article in the esSENSE magazine at
The Rs. 500 note is within the 50%-250% http://essense.club/indian-500-1000-rupee-currency-
demonetisation/
range at 167%, suggesting that it could
have been retained.

POPULAR JUSTIFICATIONS FOR THE 2,000
NOTE ARE NOT CONVINCING
Indian Express carried a story on a This Surat CA’s open letter to Kejriwal
Surat CA justifying the Rs. 2,000 note. explaining how Rs 2,000 will curb black
money is going viral
The CA apparently claims that if the government had introduced
new Rs. 1,000 notes, and if a tax evader were to deposit old Rs. In an open letter to Kejriwal, a Surat-based
1,000 notes and withdraw new Rs. 1,000 notes over several CA explains the PM's demonetisation move
days, the tax department would not be able to catch him/her. using two imaginary, but interesting
He/she can claim that the cash deposited each day is what was
withdrawn the previous day (peak theory). But with the new Rs. scenarios.
2,000 note, the tax evader has to deposit old Rs. 1,000 notes
and withdraw new Rs. 2,000 notes. He/she cannot pretend that “This Modus operandi is called Peak theory
it’s the same cash, so the tax department can catch him/her.
i.e. theory of rotation of same money which
is accepted by most of the High Courts and
This justification for the Rs. 2,000 note Tribunals. Revenue is also helpless to catch
is nonsense. New currency notes are Mr. X because the above scenario can also
introduced with a long-term (10-20 year) occur in genuine cases …”
perspective. The government can’t / http://indianexpress.com/article/trending/trending-in-
won’t introduce a new Rs. 2,000 note india/letter-by-gujarat-ca-explaining-to-kejriwal-how-rs-
2000-note-will-curb-black-money-is-going-viral-on-the-
just to catch tax evaders during the internet-4375090/
brief window for withdrawals.

INDIA TRIED DEMONETIZATION ONCE IN
1978, AND THAT WAS A FAILURE
Former Reserve Bank of India governor I G
Patel wrote in his book, “GLIMPSES OF
INDIAN ECONOMIC POLICY: AN INSIDER’S
VIEW” –
“Most people who accept illegal gratifications or

are otherwise the recipients of black money do not
keep their ill-gotten earnings in the form of
currency for long. The idea that black money or
wealth is held in the form of notes tucked away in
suitcases or pillow cases is naïve. And in any case,
even those who are caught napping — or waiting —
will have the chance to convert the notes through
paid agents as some provision has to be made to
convert at par notes tendered in small amounts for
which explanations cannot be reasonably sought.”
http://indianexpress.com/article/explained/demonetization-rs-500-rs-1000-how-nda-under-vajpayee-saw-high-value-notes-4377627/lite/
https://mostlyeconomics.wordpress.com/2016/11/11/digging-through-india-demonetization-history-12-jan-1946-saturday-and-16-jan-
1978-monday/

Ineffective
SECTION
IMPROPER
2 Unwise
Cruel
Unjust
Unprepared

WITHDRAWING “LEGAL TENDER”
VIOLATES YOUR RIGHT TO PROPERTY
Like in any other country, India’s
currency is “legal tender”, or the legally
authorized way to settle all payments.
Indian currency is backed by the

sovereign authority of the government
of India. All notes carry the words “I
promise to pay the bearer the sum of
…”, which means the government
guarantees the note. It does not say “I
promise to pay the bearer if he/she can
prove that he/she paid tax”.
How can the government tell you one

fine day that the currency note you hold
in good faith, which was guaranteed by
the government, is now worthless?

CURRENCY SHOULD NOT BE RECALLED
WITHOUT PARLIAMENTARY APPROVAL
Since the currency note has been
guaranteed by the government of India,
anyone who possesses the note has a
right to property of that note’s value.
That right cannot be extinguished by a

government’s executive decision, i.e.
order of a secretary in the ministry of
finance, or the PM’s announcement.
Only parliament (the people’s

representatives) has the right to create
new government debt, raise taxes, or
decide how much money to spend.
Without parliament approval, the

currency ban is improper.

NATIONS THAT PROTECT RIGHTS ALSO
VALUE THEIR CURRENCIES
Some of the most developed economies
of the world, such as UK and USA, have
strong legal systems that protect
citizens’ fundamental rights. They also
respect the people’s right to property in
their currencies.
They recognize that the government

cannot legally extinguish its legal
obligation in the currency. They treat
their currencies as valid forever.
The govt. does not say that a certain

currency note is worthless from a
certain date. On the contrary, they say
their notes hold value forever. Let’s look
at a few examples.

UNITED KINGDOM – CURRENCIES ARE
ALWAYS VALID, EVEN CENTURIES LATER
According to the Bank of England (the
central bank in UK), all currency notes,
are always valid, even withdrawn notes,
and even centuries later.
“Genuine Bank of England banknotes retain

their face value for all time and can be
exchanged at the Bank of England in London.
Banknotes of this type can be exchanged
either by post or in person. This service is
free of charge.”
“All withdrawn Bank of England banknotes

remain payable at face value for all time …”
www.bankofengland.co.uk/banknotes/Pages/abo
ut/exchanges.aspx
www.bankofengland.co.uk/banknotes/Pages/with
drawn/default.aspx

UNITED STATES – CURRENCY IS ALWAYS
VALID, REGARDLESS OF ITS AGE
According to Federal Reserve (the
central bank of the US), American
currency notes always valid. They never
lose their value, even if the government
has stopped printing that note decades
ago. The notes are valid even if they are
a century old.
This is what the US federal reserve

website says -
“All U.S. currency remains legal tender,

regardless of when it was issued.”
www.federalreserve.gov/faqs/currency_12768.ht
m

CANADA – CURRENCY NOTES SINCE 1935
ARE ALWAYS VALID
The Bank of Canada (the central bank of
Canada) says that all their currency
notes since 1935 are always valid -
“All notes issued by the Bank of

Canada since 1935 have legal tender
status and retain their full value.”
www.bankofcanada.ca/banknotes/bank-notes-faq/

SWEDEN – WITHDRAWN NOTES CAN BE
REDEEMED ANY TIME
The Swedish government allows people
to redeem (get new currency in place of
old currency) old, invalid, withdrawn
banknotes at any time. This is
regardless of when the notes were
withdrawn from circulation.
“The Riksbank redeems all Swedish

banknotes that are invalid, as long as there
is no suspicion that they may be linked to a
crime, for instance a cash-in-transit
robbery.”
www.riksbank.se/en/Notes--
coins/Banknotes/Redeeming-invalid-banknotes

Ineffective
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Cruel
Unjust
Unprepared

DEMONETIZATION HAS FAILED IN ALMOST
EVERY COUNTRY THAT TRIED IT
Experience of several nations in the last
half century clearly shows that
demonetization does not work.
We consider six countries that

implemented demonetization –
Myanmar, Soviet Union, Zaire, Ghana,
Nigeria, and North Korea
We find that in all of these countries,

the result was chaos, inflation,
economic decline, riots, coups, and
murders.
Given this history, it was very unwise

for the Indian government to try
demonetization.

MYANMAR – DEMONETIZATION LED TO
RIOTS, COUP, AND THOUSANDS KILLED
In September 1987, the Burmese government
demonetized the 25-, 35-, and 75-kyat notes
without warning or compensation, rendering
some 75% of the country's currency
worthless. Banknotes for 45 and 90 kyats
were introduced.
The resulting economic disturbances led to

serious riots that peaked on 8-8-1988 (called
the 8888 Uprising). It eventually led to a coup
d'état in 1988 by General Saw Maung.
Thousands of deaths were attributed to the

military during this uprising, while the
government put the figure at 350 killed.
http://articles.latimes.com/1987-09-12/news/mn-
1980_1_worthless-currency
https://en.wikipedia.org/wiki/8888_Uprising
https://en.wikipedia.org/wiki/Burmese_kyat

SOVIET UNION – CURRENCY BAN LED TO
INFLATION, CHAOS, AND COUP
On January 22, 1991 Mikhail Gorbachev signed a
decree withdrawing from circulation all 50- and 100-
ruble banknotes. The goal was to combat
speculation, unearned income, counterfeiting,
smuggling, and corruption. (Do you see a parallel?)
The old 50- and 100-ruble notes could be redeemed

for other currency at specific locations subject to
these limitations: (1) Deadlines for exchange – for
three days from 23 to 25 January. (2) Only 1,000
rubles could be withdrawn per person.
Government plans had tremendous negative effect. It

resulted in a loss of public confidence in the govt.'s
actions. In April, consumer prices increased 3-fold.
Gorbachev faced a coup attempt that August, and
the USSR broke apart the following year.
https://en.wikipedia.org/wiki/Monetary_reform_in_the_Soviet_Uni
on,_1991

ZAIRE – CURRENCY REFORM LED TO
INFLATION, DEVALUATION, AND CIVIL WAR
Zaire’s Mobutu government in 1993 withdrew
old bank notes from circulation, and
launched a new currency in an effort to solve
its chronic liquidity crisis.
The tactic backfired, as the new currency

plunged against the dollar and sent prices
sharply higher. It threatens to plunge the
nation into its gravest crisis. In four months,
the currency zaire collapsed from 8 million
per $ to 110 million per $.
After a civil war, Mobutu was ousted in 1997.
www.nytimes.com/1993/12/12/world/zaire-is-in-turmoil-
after-the-currency-collapses.html

GHANA – DEMONETIZATION LED TO
INFLATION AND RETURN OF BARTER
In 1982 Ghana demonetized the ₵50 note to
attack the black market. People could exchange
₵50 notes for coins or other banknotes.
Many Ghanaians who were hoarding large

amounts of currency feared reprisal if they tried
to convert all of it, and so simply burned their
money. Many other Ghanaians received
promissory notes from banks, but were not paid.
The move reduced available cash in the
economy and slowed the rate of inflation. Fears
existed that govt. could also confiscate ₵20 or
₵10 notes. Inflation ran at 100% annually,
causing Ghana to lose its faith in its currency.
Some transactions could only be done in foreign
currencies (although illegal), and other
transactions reverted to a barter economy.
https://en.wikipedia.org/wiki/Ghanaian_cedi

NIGERIA – CHANGE IN CURRENCY WAS
FOLLOWED BY ECONOMIC COLLAPSE
In 1984, the Nigerian govt. made a change in the
colors of the currency, and forced the people to
replace their currency within a limited period.
The aim was to render useless the money
allegedly stolen by previous political leaders.
In a matter of months, mothers were selling their

jewelry to send children to school. Thieves were
stealing food at gun point. Within months, there
simply was no food. Every household had a card
with which to buy rationed commodities.
The Buhari government was ousted in a coup the

following year.
www.vanguardngr.com/2015/08/trapped-dollars-in-nigeria-
money-nobody-wants
http://breaking.com.ng/nigeria/buhari-economy-recession-
this-is-1984

NORTH KOREA – CURRENCY REFORM LED
TO INFLATION, STARVATION, EXECUTION
North Korea revalued its currency in 2010. It
was aimed at reasserting state control, curbing
inflation and tackling corruption.
People were allowed to exchange currency – at

a rate of 100 to one – but only a small amount
could be changed. That wiped out the savings
of slightly better off North Koreans who had
managed to put aside money through trading.
Food prices soared as uncertainty over

contradictory policies led to hoarding. There
were reports of rising deaths from starvation.
North Korea’s finance chief Pak Nam-gi was

executed by firing squad for the botched
reform.
www.theguardian.com/world/2010/mar/18/north-korean-
executed-currency-reform

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THE WORLD’S MOST DEADLY GOVT.
POLICY IN THIS CENTURY, WITH 30+ DEAD
www.huffingtonpost.in/2016/11/15/33-demonetisation-deaths-in-7-days-hospital-casualties-suicide
 Four days before his daughter's wedding, Sukhdev Singh died of heart attack in Tarn Taran, Punjab.
 Sumit, 17 year old in Bulandshahr, UP, committed suicide as his mother won't give him small notes.
 2-year-old child died in Sambalpur, Odisha, as auto drivers refused to take the family to hospital
 Lakshminarayana, 75, died while waiting in a queue for two hours in Secunderabad, Telangana.
 In Aurangabad, Bihar, an elderly man, Surendra Sharma, died while waiting in a bank queue.
 Halke Lodhi, farmer in Chhatarpur, MP, committed suicide as he couldn’t buy fertiliser and seeds
 Aziz Ansari, 60 year old factor worker in Meerut, died of a heart attack in a bank.
 Raghunath Verma, a retired school teacher in Jalaun, Uttar Pradesh, died at a bank queue.
 In a hospital in Bulandshahr (UP), a child died because the parents had only old currency notes.
 Rizwana, 24 year old in Delhi hanged herself as she was not able to exchange currency for 3 days.
 In Surat, Gujarat, a 50 year old woman committed suicide because she wasn't able to buy ration.
 Shabana, 20 year old in Shamli (UP) committed suicide as her brother failed to exchange currency.
 In Chikballapur, Karnataka, a woman committed suicide, as her money got lost or stolen at the bank.
 In Raigarh, Chhattisgarh, a farmer committed suicide, upset at not being able to exchange money.
 In Surendranagar, Gujarat, a 69 year old died of heart attack waiting in a queue to exchange notes.
 In Kanpur, a young man died watching Modi's announcement, he had just sold his land for cash.
 In Mumbai, a newborn died after a hospital refused to admit it because parents didn't have cash.
 In Vizag, a baby died as the parents didn't have money to buy medicines.
 In Mainpuri, UP, a child died after doctors stopped treating it since the parents didn’t have money.
 In Pali, Raj., a child died after an ambulance wouldn't take it to hospital, parents only had old notes.
 In Kushinagar, UP, a woman died of shock after trying to deposit two Rs.1,000 notes she had saved.
 A woman in Mahubabad, Telangana, committed suicide as she thought her cash savings were gone.

DEMONETIZATION IS CRUEL TO THE TENS
OF MILLIONS THAT WORK ON CASH
Millions of people in India do not have credit cards or e-banking. People in
rural areas still rely on cash to sell farm products, buy groceries, and so on.
Millions of farmers legally pay no tax since farm income is exempt from
income tax, so all the 5,00 – Rs. 1,000 notes they keep are “white”.
Millions of craftsmen and traders legally pay no tax since their income is
below the Rs. 250,000 standard exemption, so all their cash is “white”.
Millions of urban poor legally pay no tax since they have low incomes, so all
the 5,00 – Rs. 1,000 notes they keep are “white”.
Demonetization does not change this economic reality. It will take years,
perhaps decades, for everyone to move to a cash-less economy.
To abruptly withdraw currency notes is to inflict cruelty on these people,

deprive them of their livelihoods, and impose extreme hardship on them.
DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy

92% OF THE INDIAN WORKFORCE IS
INFORMAL AND DEPENDS UPON CASH
These are mostly honest workers who legally do not pay tax because they
earn less than the standard tax exemption of Rs. 250,000. They mostly earn
in cash and spend in cash, for no fault of theirs. These are not tax evaders, or
black money holders, or corrupt anti-nationals.
To punish them for legally holding Rs. 500 – Rs. 1,000 notes is cruelty.
www.ies.gov.in/pdfs/CII%20EM-october-2014.pdf

DEMONETIZATION IS CRIPPLING THE
ECONOMY IN RURAL AREAS
Farmers don’t have the Farmers don’t have the

Traders and farmers
money to buy seeds money to hire trucks to
depend upon local
and fertilizers to plant take their products to
money-lenders for
their winter crops. We the market, which
funds, but they don’t
could see crop failures causes ripple effects
have the money to lend
and inflation in 2017. across the economy
Demonetization will eventually be remembered less for the long lines in front
of ATMs in cities, and more for the utter havoc it causes in the countryside
where few people have credit cards and most people have to use cash
Transporters don’t
Farm workers and Retailers are unable to
have cash to buy fuel
casual laborers don’t buy from wholesalers,
or even pay octroy (to
get paid on time, so so the distribution
the govt.), so they have
they struggle to meet channel for most
to refuse trips and lose
expenses products gets clogged
income

CONSULTING FIRM DELOITTE WARNS OF
DISRUPTIONS IN THE ECONOMY
Global audit and consulting firm Deloitte
published a report on India’s demonetization
which contained the following warning –
“There will be a disruption in the current liquidity

situation as households are likely to get affected …
Though clarity is unfolding on this, commodity
transactions and general cash market transactions are
likely to feel an immediate impact. … Unorganised
sector proceedings including small trade market
activities will remain volatile in the short term. … a
significant percentage of the Indian workforce,
employed in this sector, is likely to be affected by
immediate liquidity issues. Overall, a likely negative
impact on disposable income is expected along with
disruption in the consumption patterns of the general www2.deloitte.com/in/en/pages/tax/article
populace. … there may be a negative GDP impact in s/economic-implications-ban-on-500-and-
the current quarter as consumption shock gets 1000-notes.html
transmitted in the system. However, the quantum and
degree of this impact cannot be ascertained at this
time.”

Ineffective
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DEMONETIZATION HURTS ALL WHO HOLD
LARGE NOTES, WHETHER GUILTY OR NOT
The cornerstone of our justice system
is the idea that everyone is presumed to
be innocent unless proven guilty by a
court of law. You can be punished only
if the evidence proves your guilt beyond
reasonable doubt. The legal maxim is
that even if a thousand guilty escape,
not even one innocent should suffer.
This is the principle of justice that every
country in the world follows.
Unfortunately, demonetization goes

counter to this basic notion of justice,
and hurts the innocent as well as the
guilty. It inflicts certain and intense pain
on the innocent majority to impose
uncertain punishment on an unknown
minority. This is unjust and absurd.

IT IS ORDINARY PEOPLE, NOT BLACK
MONEY HOLDERS, WHO HAVE BEEN HURT

IF THE GOVT. CAN WITHDRAW NOTES,
WHAT ELSE CAN THEY TAKE FROM YOU?
If the government can arbitrarily take
away your money, think of what else
they can take away from you.
What if the govt. says a lot of land

records are fake, so all property deeds
are now invalid, including the homes
that most people purchased legally?
What if the government says there are

many fake cars, so all car purchase
deeds are now invalid, including those
that most people purchased legally?
What if the government says many

wedding certificates are fake, so all
weddings are invalid, including those
that were conducted legally?

Ineffective
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UNPREPARED

WHY DID THE GOVT. LAUNCH A MASSIVE
NATIONAL PROGRAM IN SUCH HASTE?
Large, complex, national projects typically
require years of planning and preparation.
The government has armies of bureaucrats

and specialists with experience in managing
large, complex, logistically-challenging
projects such as Lok Sabha elections,
census, Kumbh Mela, and polio campaigns.
And yet the demonetization drive – which

impacted the pocket books of each and every
citizen of India – was poorly planned, poorly
executed, and poorly communicated.
Let’s look at some large govt. programs to

see how much of planning and preparation
goes into those programs, so we can see how
poorly organized demonetization was.

COMPLEX PROJECTS TAKE TIME:
(1) BASEL-3 NORMS TAKE 9 YEARS
The implementation plan for
Basel-3 banking norms
involves many steps that are
expected to take 9 years.
Basel-3 is a global regulatory

mandate that requires banks to
increase their quality of capital
by focusing on liquidity and
common equity; improve
supervision of firm-wide risk
management; and provide
detailed reporting on regulatory
capital and the calculation of
capital ratios.
This is a complex project, not a

“surgical strike”! www.cognizant.com/InsightsWhitepapers/Gearing-Up-For-Basel-III.pdf

(2) HEALTH MISSION TAKES 4 YEARS
Under the National Health Assurance
Mission, PM Modi's government
would provide all citizens with free
drugs and diagnostic treatment, and
insurance cover for serious ailments.
The proposed plan would be rolled

out in phases from April 2015 and will
cover the entire population by March
2019, according to C.K. Mishra, Addl.
Secretary at the health ministry.
When the entire population is

covered, it would cost an estimated
$11.4 billion annually.
http://in.reuters.com/article/uk-india-health-
idINKBN0IJ0VN20141030

(3) GST ROLLOUT TAKES MANY MONTHS
Govt. created detailed plans to implement the
goods & services tax (GST) over many months:
 IT infrastructure framework ready by March 2017

 Massive outreach and industry sensitization program
 60,000 revenue officials (central and state) will be trained
 Goods and Services Tax Network (GSTN) will train them on IT
infrastructure by March 2017
 Testing of the software starts by Oct 2016
 Beta launch of the GST portal is in Feb 2017
 Infosys will run GSTN project worth Rs 1,380 crore
 Revenue dept. has started stakeholder consultations
 IT network of the Central Board of Excise and Customs,
banks, RBI will be ready by December 2016
 Integration of IT backbone of all stakeholders by March 2017.
 Existing VAT/ service tax/ central excise dealer data are to
migrate to the GST architecture
 Tax dept. has retained key functions such as audit and
enforcement, adjudication, and recovery
http://finmin.nic.in/press_room/2016/GST_nextstep_04082016.pdf
www.firstpost.com/business/gst-bill-explained-how-govt-is-preparing-
groundwork-for-smooth-rollout-2936768.html

BY CONTRAST, DEMONETIZATION WAS
POORLY PLANNED AND BADLY EXECUTED
Why do we have ad-

Why don’t the new
hoc decisions on
Rs. 2,000 notes fit
How could you take allowed transactions?
into existing bank
out large notes Petrol pumps allowed
ATMs? Banks need
representing 85% of to dispense Rs. 2,000
weeks or months to
the total cash in from debit cards.
modify ATMs to
circulation, and not Farmers allowed to
accept these notes.
have enough notes of withdraw Rs. 50 K per
Why was this not
other currencies week. Families can
foreseen and
readily available to withdraw Rs. 250 K
addressed? And why
replace the withdrawn for weddings. Why
is there a big gap
notes? did the PM go to
between the Rs. 100
Japan when this
and Rs 2,000 notes?
crisis was unfolding?

GOVT. COULD HAVE PLANNED AND
IMPLEMENTED THIS MUCH BETTER
Allow people to deposit Allow all retail outlets, Prepare large

old 500-1,000 notes restaurants and others quantities of Rs. 100 -
into their bank for 2 to dispense cash from 2,000 notes before
years, so money can customers’ bank debit demonetization, to
be tracked, tax payers cards, so people don’t avoid cash shortage.
don’t need to worry, need to stand in line Ensure that Rs. 2,000
and there is no panic for ATMs notes fit all ATMs.
Allow more outlets to Appoint certain shops

Interest-free loans for
accept old notes where as franchisees to
shops to purchase
there is less risk of accept old 500-1,000
machines to accept
money laundering, e.g. notes from people with
payment from credit
hospitals, schools, the amount marked on
cards, mobile phones,
movie theaters, places their passport, so tax
PayPal, and so on
of worship, buses dept. can check later

DEMONETIZATION IS ONE OF THE WORST
ECONOMIC PROGRAMS OF THE GOVT.
 Reduces black money by only 5%, so it
does not really hurt big tax evaders Middle class, the
 Global experience shows that Rs. 500 poor, and villagers
note was necessary
 Launches Rs. 2,000 note that will
increase, not curb, black money
 1978 demonetization was a failure
 Improperly extinguishes “legal tender”
that the govt. guaranteed
 Demonetization has failed in every
country that tried it
 Extreme hardships to villagers, middle
class, and urban poor
 Cash shortage is crippling the economy,
especially in rural areas
 Hurts the many innocent, while barely
impacting the guilty Rich tax evaders
 Poor planning, preparation, and with black money
communication

IN SUMMARY, DEMONETIZATION HAS
BEEN A DISASTER FOR SIX REASONS
1 Ineffective
DEMONetization has
2 Improper
been a disaster for 3 Unwise

these six reasons, as
we saw in this 4 Cruel
presentation
5 Unjust
6 Unprepared

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DEMONetization:

Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared

Deposit your old Rs.

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 2

been a disaster for 3 Unwise

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 3

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 4

Prime Minister Modi says Rs. 500 and

These are excellent and laudable

Everyone agrees that we should

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 5

How big is India’s black money problem?

According to the Central Bureau of Investigation

Total wealth held by all Indians is $3.4 trillion.

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 6

Total stock of currency in India is Rs. 17

Let’s say half of this is black money, about

So if the govt. wants to eliminate the existing www.hindustantimes.com/business-

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 7

By eliminating high-value notes, there

In the long run, demonetization will

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 8

If that is the case, why did the govt.

Wouldn’t Rs. 2,000 notes actually make

Why demonetize 500 and 1,000 notes if

This is absurd and comical.

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 9

Until recently India was outside this range

With the Rs. 2,000 note, India has become

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 10

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 11

“Most people who accept illegal gratifications or

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 12

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 13

Indian currency is backed by the

How can the government tell you one

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 14

That right cannot be extinguished by a

Only parliament (the people’s

Without parliament approval, the

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 15

They recognize that the government

The govt. does not say that a certain

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 16

“Genuine Bank of England banknotes retain

“All withdrawn Bank of England banknotes

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 17

This is what the US federal reserve

“All U.S. currency remains legal tender,

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 18

“All notes issued by the Bank of

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 19

“The Riksbank redeems all Swedish

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 20

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 21

We consider six countries that

We find that in all of these countries,

Given this history, it was very unwise

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 22

The resulting economic disturbances led to

Thousands of deaths were attributed to the

DEMONetization: Ineffective, Improper, Unwise, Cruel, Unjust, Unprepared Partha Sarathy 23

The old 50- and 100-ruble notes could be redeemed