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Banking News: November 28, 2016

Here is an endeavour to bring you in one folder all banking related unedited
news/columns/articles/opinions/analysis etc appearing in major business dailies
The compiler assumes no responsibility for the authenticity and reliability of the
news. Readers are requested to go through the official instructions before acting
upon any news articles and views appearing herein.

Compiled by: Anup Sen


Salt Lake City, Kolkata 700 064

From E-Group, Banking-News

Incremental Cash Reserve Ratio (CRR) is 100%. RBI asks


banks to set aside deposits garnered due to demonetisation

Joel Rebello & Saikat Das,


The Economic Times
Published on November 27, 2016

Banks will get negative returns for deposits


mobilised during the stipulated fortnight

Mumbai, November 26: Reserve Bank of India (RBI) has asked


banks to keep all incremental deposits garnered between
September 16 and November 11 with the central bank as it seeks to
absorb the avalanche of liquidity in the banking sector since the
government asked people to deposit all their high value Rs 500 and
Rs 1000 notes in their bank accounts.

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Banks have to park these deposits with the RBI from the fortnight
beginning November 26 as incremental cash reserve ratio (CRR).

CRR is the amount of deposits banks have to compulsorily park with


RBI without earning any interest. RBI however clarified that this is
just a temporary measure and the CRR on total banking deposits will
remain unchanged at 4% of total bank deposits.

The government announced


of the high value currency on
November 8 and latest numbers on the RBI website shows until
November 11 commercial banks had Rs 101 trillion of total deposits.

Based on the latest numbers available about Rs 3.24 trillion of


deposits will have to be parked with the central bank starting from
Saturday. In other words banks will pay a savings account rate of at
least 4% on these deposits and get nothing in return impacting
income. "Banks will get negative returns for deposits mobilised
during the stipulated fortnight, said NS Venkatesh, executive
director, Lakshmi Vilas Bank.

Karthik Srinivasan, senior vice president at ICRA said banks will


collectively lose close to Rs 700 crore in the next 15 days. "While
lenders can earn 5.75% from reverse repo, CRR yields no interest
income," he said. Banks can also park excess deposits with RBI
through the reverse repo window in exchange for government
securities.

Expectations are that overnight bank borrowing rates which had


fallen below the 6.25% repo rate over the last one week will inch
up.

This means that the extraordinary drop in rates will correct to


some extent. Even three months money was available at less than
6% which will now correct. These are immediate measures but we
should expect more in the coming monetary policy, said Ashish
Parthasarthy, treasurer at HDFC Bank. RBI will announce its rate
decision on December 7.

In a press release the RBI said that the new measures have been
announced to deal with excess liquidity. The magnitude of surplus
liquidity available with the banking system is expected to increase

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further in the fortnights ahead. In view of this, it has been decided


to absorb a part of this surplus liquidity by applying an incremental
cash reserve ratio (CRR) as a purely temporary measure, RBI said.

The central bank hopes to absorb a part of the surplus liquidity


arising from the return of high denominated notes through this
measures while leaving enough in the system for banks to meet the
credit needs of the productive sectors of the economy. This
temporary measure will be reviewed at the end of the current
fortnight which is December 9 earlier, RBI said.

From E-Group, Banking-News

RBIs diktat for retro CRR


puts banks at risk of default

Mayur Shetty
The Times of India
Published on November 28, 2016

Mumbai, November 27: The RBI diktat to banks on Saturday to


maintain an incremental cash reserve ratio (CRR) requirement on
deposits with retrospective effect has rattled lenders. Banks are
hoping the RBI would on Monday clarify on the retrospective aspect
of the CRR requirement. If the central bank fails to issue the
clarification, banks would default on their CRR obligations, which
would invite penalty from the regulator.

Even if the central bank clarifies on the retrospective impact of its


notification, lenders will come under pressure as they will get no
interest on the Rs 3.2 lakh crore that will be impounded under CRR.
However, they would have to continue to pay interest to savings
account holders.

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The current CRR is just 4%. The RBI on Saturday issued a circular
stating that effective from November 26 banks must set aside an
incremental CRR of 100% on the increase in deposits between
September 16 and November 11, nearly eight weeks before the
demonetisation decision of November 8.

The problem was that the notification hiking CRR came on a


non-working Saturday which means that banks would be in default
over the weekend.

The effective date of September 16 for calculating CRR factors in the


Rs 2.87-lakh-crore surge in deposits. The bank balance sheets had
bloated around this date due to payments of arrears related to the
seventh pay commission and the fact that repayment of bulk
deposits raised under a special NRI scheme had not yet kicked in.

The 100% reserve requirement on incremental deposits would


require banks to park around Rs 3.2 lakh crore more with the central
bank this fortnight. This helps the RBI in managing liquidity as
another Rs 2 lakh crore is expected to flow into the banking system
in coming days as a result of demonetisation.

Bond dealers who were expecting a 50-basis-point cut in lending


rate describe RBI's decision to impound incremental deposits as a
sledgehammer move. Expectations of a sharp rate cut have got
tempered as banks will see their cost of funds rise.

Some lenders are now wondering if this is a move by the RBI to


reduce its own cost of funds or whether the central bank is running
out of government bonds, which are needed to absorb surplus
liquidity in the markets.

According to Pranjul Bhandari, chief economist, HSBC, so far the RBI


had been relying solely on the reverse repo window for absorbing
liquidity and over Rs 5 lakh crore was borrowed from banks through
the repo window. "But this window would have run out of fuel soon.
RBI's stock of government bonds that can be used for such
transactions are worth only Rs 7 lakh crore," said Bhandari.

"With the CRR move, the RBI has bought itself room to suck out
about Rs 10.2 lakh crore (Rs 3.2 lakh crore through CRR and Rs 7

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lakh crore through government bonds) from the banking system.


According to our calculations, this should suffice for now, but if
additional need arises, the RBI can resort to fresh measures like
issuing special bonds," said Bhandari in a report on Sunday.

According to Ashish Vaidya, head of trading at DBS India, whenever


there has been a need to impound liquidity in the past, the cost has
been shared by all three players the government through the
issue of short-term bonds, the banks via CRR and the RBI through
reverse repo. Harihar Krishnamoorthy, treasurer at FirstRand Bank,
said, "The money markets were looking forward to a more
permanent form of liquidity management measures such as cash
management bills or issue of bonds under market stabilisation
scheme." He added that such a step would have helped banks
manage their deposit liabilities better by investing in instruments
that match the tenure of their deposits.

From E-Group, Banking-News

RBI committed to easing Genuine pains of citizens


at the early as possible: RBI Governor Urjit Patel

The Press Trust of India


Published on November 27, 2016

Breaking Silence:
v

First-ever interview as RBI Governor by Patel

v Taking all necessary actions to ease the genuine pain of


citizens
v Asked the people to start using cash substitutes like
debit cards and digital wallets
v

40-50,000 people were deployed to refit the ATMs

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Mumbai, November 27 (PTI): Breaking his silence over the


demonetisation issue, RBI Governor Urjit Patel today said the
central bank is monitoring the situation on a daily basis and taking
all necessary actions to ease the genuine pain of citizens with a
clear intent to normalise the things as early as possible.

Patel also said the RBI has announced an incremental CRR (Cash
Reserve Ratio) of 100 per cent because of the large increase in
deposits of banks on account of the return of Rs 1,000 and Rs 500
notes and the decision would be reviewed immediately once the
government issues adequate quantum of MSS (Market Stabilisation
Scheme) bonds which they have promised to do.

In an exclusive interview to PTI, Patel said the situation arising out


of the decision to withdraw Rs 500 & Rs 1,000 notes is being
monitored on a daily basis and the printing presses have started to
rebalance the production of new notes towards Rs 100 and Rs 500
bills. He also urged the people to start using cash substitutes like
debit cards and digital wallets, saying it will make transactions
cheaper and easier and in the long term, it will help India leapfrog
into a less cash-use economy at par with more developed nations.

We are also urging banks to make a big push with PoS (Point of
Sale) machines with traders so that debit card use becomes more
prevalent, he said. Giving details of the steps being taken by RBI,
he said, Both RBI and government have been getting the printing
presses to work at capacity to get the new notes available to meet
demand. The RBI is interacting with the banks every day. They are
telling us that the situation is gradually easing. The queues in
branches and ATMs are shorter and the markets are starting to
function, and there are no reported shortages of daily items of
consumption.

Also, about 40-50,000 people were deployed to refit the ATMs.


Currency is available and banks are working in a mission mode to
lift currency and take them to their branches and ATMs. The staff
members of all banks have worked very hard, and we all owe them
our gratitude, Patel said. Having said that, it is important to
regularly review the situation, and taking the required decisions to
ease the genuine pain of citizens who are honest and who have been
hurt. There are no precedents on this subject at this scale and we
have to be reactive to the situation.

People have asked why the new currency introduced was different
in size and thickness from the old. This is because the new currency

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has been designed to make it hard to counterfeit. When you are


going to make a change of this magnitude, you need to get the best
standards in place, Patel said. This is the first-ever interview as
RBI Governor by Patel, who is known to keep a low profile.

From E-Group, Banking-News

No improvement in cash inflow at banks, ATMs

The Business Line


Published on November 26, 2016

People wary of spending and money is


not getting circulated, say bank officials

Mumbai & Hyderabad, November 25: Bank branches and ATMs at


many locations in the country did not see much improvement in
terms of inflow of currency due to a host of factors, such as not
enough cash in currency chests and people withdrawing money but
not spending it.

A senior public sector bank official said: The demand for currency
is outstripping supply. Though people are withdrawing money from
banks/ATMs, they are not spending it. So, the currency is not
getting circulated. Despite an assurance from the RBI about
sufficient supply of notes, currency supply from the currency chests
is only so much. However, the supply situation is expected to
improve over the next few days.

He added that in rural areas, where the branches/ATMs are usually


located far away from the currency chests, the supply of new notes
could be a bit of a hassle due to logistical issues involved. An ICICI
Bank branch official said since his branch did not receive any cash
from the currency chest over the last two days, they tapped other

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branches of the bank for cash.

An Andhra Bank branch manager in Hyderabad said: We have been


given just 2 lakh in the form of 100 notes and 10 coins which got
exhausted in no time. Our average deposit size is 50 lakh. Now,
how do I answer my customers?

The pressure is so much that Andhra Bank has passed informal


orders to down the shutters of those branches which have no cash.
The same situation is noticed in some branches of other banks too.
Only a few ATMs were seen dispensing cash. Meanwhile, there was
heavy pressure on currency exchange counters at RBIs regional
offices in Mumbai and Hyderabad, following the RBI notifying
members of the public that exchange of banknotes in 500 and
1,000 denominations will continue to be available at its counters
up to the current limits (of 2,000) per person.

Police were seen regulating the crowds and turning away children
standing in queues with Aadhaar cards in Hyderabad.

Crunch may continue

The situation will not ease soon, say bankers. The total capacity of
the four currency printing presses in the country is only 300 crore
notes of higher denomination per month while notes being
withdrawn is approximately 622 crore of 1,000 notes and 1,530
crore of 500 notes, said BS Rambabu, a functionary of the All
India Bank Employees' Association.

The currency crunch will continue as public sector banks were not
being given adequate cash, he added,

From E-Group, Banking-News

Trade unions demand use of

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banned notes till crisis eases

The Business Line


Published on November 28, 2016

The unions called the Prime Ministers prescription


of using plastic currency a cruel joke

New Delhi, November 27: Expressing grave concern over the death
of 74 persons, including a number of bank employees, after the
Centres demonetisation move, 10 Central trade unions, barring the
RSS-backed Bharatiya Mazdoor Sangh, have demanded continuation
of banned 500/1,000 notes till the currency shortage eases. They
have also sought compensation for those who have died.

At a joint meeting last week, the unions flayed the poor


implementation of the move for sudden cancellation of 85 per cent
currency in circulation, causing huge loss of livelihoods to
self-employed street vendors, small traders and daily wagers who
are an integral part of the vast informal sector workforce in the
country, and also non-payment of wages to workers of small
factories owing to the currency problem.

Noting the unimaginable stress and long hours of work for bank
employees attending to people in long queues, the unions said the
government should take concrete and effective action against
black money, which is being generated through evasion and
non-payment taxes, unfair and speculative business practices,
including money created in the country stashed away in foreign
banks.

Nothing has been done yet in that direction, said the unions,
including INTUC, AITUC, CITU, SEWA and HMS.

Condemning the insulting and insensitive comments by some Union


Ministers, including the Prime Minister, the unions termed the
governments prescription for using credit card and other forms of
plastic currency to the suffering millions as a cruel joke.

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They called for country-wide protests on the issue.

From E-Group, Banking-News

India's rural economy hit hard as


informal lending breaks down

The Reuters

Published on November 27, 2016

Mumbai, November 27 (Reuters): Life was good for Mitharam Patil,


a wealthy money lender from a small village in Maharashtra.

Small-time financiers like Patil would typically lend cash to farmers


and traders every day, providing a vital source of funding for a rural
economy largely shut out of the banking sector, albeit at interest
rates of about 24 per cent.

All that came crashing down on November 8, when Prime Minister


Narendra Modi banned 500 and 1,000 rupee banknotes, which
accounted for 86 per cent of currency in circulation.

The action was intended to target wealthy tax evaders and end
India's shadow economy", but it has also exposed the dependency
of poor farmers and small businesses on informal credit systems in
a country where half the population has no access to formal
banking.

Patil was stuck with 7,00,000 rupees of worthless cash. He can also
only withdraw up to 24,000 rupees from his account every week,

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barely enough for his own personal needs given he also works as a
farmer.

That is bad news for farmers and traders who had come to depend
on Patil, despite his high interest rates, given that bank branches
are located far from the village, while the process to obtain loans is
long and cumbersome.

It may also hurt India's economy, as the informal sector accounts


for 20 per cent of gross domestic product and 80 per cent of
employment. The country is due to report July-September GDP on
Wednesday.

Sowing of winter crops has been started and farmers badly need
money. But I couldn't lend (to) them due to restrictions on
withdrawal, Patil said.

Borrowers Can't Pay Money Back

Some farmers and small businesses say India's informal credit


system has ground to a virtual halt, despite government measures
to steer more funds to them, including 230 billion rupees in crop
loans.

Not only are money lenders struggling to lend, they are also
struggling to get paid.

Saumya Roy, CEO of Vandana Foundation, a micro finance firm, said


it has encountered difficulties in collecting payments from
borrowers, which will have a knock-on effect on how much they can
lend to others.

We can't go on lending and suffer losses, she said.

How can we force people to pay back when they don't have money
to buy food. How will they pay us?"

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The paralysis exposes the slow progress India has made in


extending banking to wider segments of the population, a key
initiative under Modi.

The government has taken steps, including announcing zero balance


accounts for poor people, but growth of bank branches have been
low as margins are slender for most lenders.

In 2001, India had 5.3 bank branches per 1,00,000 people in rural
areas. Today that stands at only 7.8 branches, according to Reserve
Bank of India data.

Even if farmers or small businesses are willing to go through the


process of obtaining a bank loan, which includes filling out forms
and several visits to the branch, bank officials say they are too
focused now on getting cash out to devote time to small loans.

We can't allocate manpower to scrutinize farm loan documents,


said a manager in a rural branch of State Bank of India.

For some analysts, the breakdown in the informal credit sector


points to a government that has failed to grasp how the cash
economy impacts ordinary Indians.

It is this lack of understanding and not appreciating the importance


of the cash economy in India on the part of the government that has
landed the country in such an unwarranted situation today, said
Sunil Kumar Sinha, an economist and director of public finance at
India Ratings.

From E-Group, Banking-News

Demonetisation move declares all Indians as possible


crooks, unless they can establish otherwise: Amartya Sen

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Seema Chishti
The Indian Express

Published on November 27, 2016

Good policies sometimes cause pain, but whatever causes


pain no matter how intense is not necessarily good policy.

New Delhi, November 26: Bharat Ratna and Nobel laureate,


Professor Amartya Sen, who is currently Thomas W Lamont
University Professor and Professor of Economics and Philosophy at
Harvard University spoke to The Indian Express on demonetisation
and said, that both, the idea and the way it was implemented, was
akin to a despotic action and betrayed the authoritarian nature of
the government.

He said: Telling the public suddenly that the promissory notes you
have, do not promise anything with certainty, is a more complex
manifestation of authoritarianism, allegedly justified or so the
government claims because some of these notes, held by some
crooked people, involve black money. At one stroke the move
declares all Indians indeed all holders of Indian currency as
possibly crooks, unless they can establish they are not.

Speaking about the difficulties faced by the common Indian in


getting their own, white money out of banks, he said: Only an
authoritarian government can calmly cause such misery to the
people with millions of innocent people being deprived of their
money and being subjected to suffering, inconvenience and
indignity in trying to get their own money back.

Asked if the move could cause any good as the Prime Minister
claims, Sen said; It is hard to see how. This will be as much of a
failure as the governments earlier promise of bringing black money
stacked away abroad back to India (and giving all Indians a sudden
gift what an empty promise!). The people who are best equipped
to avoid the intended trap of demonetisation are precisely the ones
who are seasoned dealers in black money not the common people
and small traders who are undergoing one more misery in addition
to all the deprivations and indignities from which they suffer.

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Reacting to the governments claim that pain would result in


eventual gain, Prof Sen made it clear that it was wrong to think that
all things that are painful, are good. Good policies sometimes cause
pain, but whatever causes pain no matter how intense is not
necessarily good policy.

From E-Group, Banking-News

SBI records of loans to Adani firms


cannot be disclosed under RTI Act: CIC

The Business Standard


Published on November 28, 2016

New Delhi, November 27: Records related to loans given to


industries promoted by Gautam Adani cannot be disclosed as these
are held by State Bank of India in fiduciary capacity and involve
commercial confidence, the Central Information Commission has
held.

The order of the Commission came on a plea by Ramesh Ranchordas


Joshi who wanted to know from State Bank of India "the basis of
giving huge loans to Gautam Adani Group along with the evidence
that the loan was connected to the coal mines of Australia".

"The CPIO informed the appellant that the information being sought
was commercial information and held by them in trust for the third
party, therefore, it could not be provided and denied information
under section 8(1)(d)(commercial confidence) and (e)(fiduciary
capacity) of the RTI Act," Information Commissioner Manjula
Prasher noted in the order.

During the hearing before the Commission, State Bank of India


claimed that Joshi had sought information of the Gautam Adani

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Group.

The Central Public Information Officer (CPIO) of State Bank of India


claimed Joshi had not mentioned any larger public interest in the
matter in his RTI application which was brought in at the stage of
first appeal only.

According to the RTI Act, the information, which is otherwise


exempted from disclosure, can be disclosed if there is larger public
interest involved.

"Therefore, even though the CPIO and the FAA (First Appellate
Authority) had denied information taking exemption u/s 8(1)(d)
and (e) of the RTI Act, Section 8(1)(j) also became applicable in the
matter as the information sought was about third party's loan
account. The appellant was not present to point out any
shortcoming in the decision," Prasher pointed out in the order.

The Information Commissioner said that the appellant had sought


information on the basis of giving loan to the Gautam Adani Group
and information regarding the proof of the loan being connected
with the coal mines of Australia.

"He had not mentioned any larger public interest in the matter, let
alone substantiate in his RTI application. Further he had not
requested for any copies of documents while seeking information
which was added in his second appeal," she said.

Prasher said Joshi had sought third party's personal information


held by the bank in fiduciary capacity involving commercial
confidence.

"The Commission, therefore, holds that the information sought is


exempt under Section 8(1)(d), (e) and (j) of the RTI Act," the
Information Commissioner said.

From E-Group, Banking-News

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Black money: The elephant in the room

Debashis Basu
The Business Standard
Published on November 28, 2016

Cashless economy, black money, political gain, economic pain, too


few data points and too many anecdotes have all combined to create
enormous confusion about demonetisation. After three weeks, here
is my sense of where we stand including the biggest source of
continuous black money generation extortion of all kinds. It is the
elephant in the room which nobody is interested in discussing.

1. Losers: Demonetisation is really aimed at those who have large


stacks of old notes that they cant declare. This will trap many
professionals holding cash. However, two sets of people would still
escape. Current accounts are allowed to deposit up to Rs.12.50 lakh
and there are already stories of many businesses acting as cash
coolies. Besides, I have heard of reports of a senior IT officer telling
a businessman, The government may threaten with penalties and
jail terms but we dont have the resources to monitor. A second set
of people who could get away are political parties or government
officials. While their current stacks of notes will turn useless, they
have the ability to extort take back these old notes and get us
new ones. It is already happening, according to some reports.

2. Gainers: Two of the biggest gainers are PM Narendra Modi and


the government. My own informal survey in Mumbai and Kolkata
shows an overwhelming support for Mr Modis move among the
lower middle-class and poorer people. This could translate into
votes for Mr Modi wherever he personally campaigns. The
government gains in two ways: Bringing more people into the tax
net and from the notes that are not tendered back. Even if the
second figure is Rs.1 lakh crore, its a great number to throw in
election rallies. Consider: First we have got Rs.30,000 crore as tax
under the disclosure scheme and now have got Rs.1 lakh crore of
black money. We will now spend this money on the poor. No
government in 70 years has done this.

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3. Tax terrorism: For the past year, the discourse about governance
has changed from philosophy (minimum government) to lofty
schemes (Clean India, Startup India, Stand Up India, Make in
India) to coercion. In tune with this, on November 16, the
government inserted Rule 12E of the income tax Act which states
"The prescribed authority under sub-section (2) of section 143 shall
be an income-tax authority not below the rank of an Income-tax
Officer..." Section 143 covers underreporting of income (or what is
known as the scrutiny section). Earlier, cases under this were picked
by a computerised system or needed the okay of an IT
commissioner. It now gives powers to the lowest rung of IT
administration, with enormous scope for misuse.

4. The old, new normal: Demonetisation will put only a temporary


pause on generating black money which arises from two main
sources: Undeclared earnings and extortion. There will be some dent
on the first, with some doctors issuing receipts to patients. But what
about the latter, such as the hafta collected by a combination of
police, underworld and local netas? What about government officials
who refuse to clear files without bribes? What about the widespread
practice of buying postings? These people have extortive capabilities
and will simply go back to their old ways.

5. The mirage of a cashless society: Demonetisation is not designed


to turn us into a cashless society. If that was the goal, the
government would not have issued a higher-denomination note and
issued a newly designed Rs.500 note. If a cashless society was the
idea, the government would have increased cashless transactions
first, and then soaked up the remaining cash hoard. This would
perhaps have taken poor people out of the sledgehammer action of
November 8. Vodafone and Airtel could have leveraged their
recharge network to accept Rs.500 and Rs.1,000 notes and to load
mobile phones with money, which could be used to pay for goods
and services. Demonetisation cannot suddenly stop the voluntary
exchange of cash. Over the next few months, the demand for cash in
a cash-driven economy will force the release of more cash. Will we
be back to square one?

If the government is really serious What is not clear is what the


government wants to target: Reducing cash or black money. The
first involves creating an institutional framework of micro cash
transactions bypassing bank accounts. In its wisdom, the Reserve
Bank has ordered that mobile phone companies will not be able to
use their database for payments banks. This needs to be
reconsidered. This framework then needs to be supported by
incentives and a strong and swift grievance redress. Exactly the
opposite happens now. For example: Online services levy
convenience charges. As mentioned, black money has two

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components: Unreported income and extortion. The first is being


addressed slowly. It will require a combination of carrots (reduced
taxes) and sticks (better enforcement) to speed it up. Extortion
generates the worst kind of black money. The antidote of extortion
is minimum government, a pre-election slogan long forgotten and
which no one has an interest in not even the opposition parties.

From E-Group, Banking-News

So far, PM Narendra Modi is seeking to


woo only the visible and more articulate ones

Nilanjan Mukhopadhyay

The Economic Times


Published on November 28, 2016

Having opted to drive into a one-way street with no certainty if it


will open into an esplanade with people cheering him or take him to
a dead end, PM Modi has wasted no time in kick-starting the second
phase of his biggest political and policy gamble. In this stage Modi
has adopted a three-pronged strategy. In the first part, Modi has
positioned himself as custodian of public morality and those who do
not support demonetisation are effectively portrayed as backing the
dishonest. The message being transmitted is that people will do
their two-bit for the nation by supporting Modi and those who dont
are effectively siding with the dishonest.

The second element of his strategy is to present the idea of cashless


transactions as a utopian panacea for all economic irregularities.
Even in Sundays Mann ki Baat, the emphasis on cashless
transaction suggests the urgency of the matter. This is not the first
time Modi has used such tactics a significant part of the 2014
campaign revolved around the notion of Vikas with the idea rarely
being detailed. The third and the most crucial component of his
current strategy is aimed at polarising politics between honest and
corrupt political parties. Towards this end, he has already charged

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at parties criticising demonetisation, alleging that its critics are


those who accumulated wealth using chit funds and other dubious
means.

Despite the joint Opposition call for nationwide protest on Monday,


Modi has the benefit of a fragmented Opposition. The support
extended to demonetisation by Nitish Kumar and Naveen Patnaik
reflects conflicting postures of Opposition parties only partially.
While Kumar is not joining forces with other Opposition parties
because of growing frostiness with Lalu Prasad, Patnaiks principal
adversary is Congress. Even parties backing Mondays protests have
divergences on the issue, nuanced as well as pronounced. In
contrast, Modi heads a monolith and discordant voices, in his party
and among allies, dare not speak up. The scenario enables Modi to
polarise polity, this not on religious identity but on the decision to
scrap Rs.1,000 and Rs.500 bank notes. There are risks and
inconsistencies in each step of his strategy. Firstly, the objective of
converting India into a post-fraud economy is too utopian or
idealistic, sound to aspire for personally but not as state policy.
Slogans are beneficial during election campaigns but not in the
middle of a tenure unless these are precursor to a snap poll.

The Gandhian appeal for self-denial albeit for 50 days, may be a


great idea but may not be a great success when the masses realise
that they are only ones being asked to forsake.

Unruly queues are nothing new to India and they reflect the innate
habit of people to benefit at others expense. It is only a rare person
who stands in a line and does not grudge the position of the one
ahead. Moreover, evidence has surfaced that many are paid to stand
as proxy, suggesting that unscrupulous tactics continue to be used
by those with the capacity to forsake a part of their ill-gotten
wealth. The risk that Modi has taken is grave for while few will
publicly dispute his argument even those who are hiring people to
stand in lines on their behalf there is no knowing that when
before an EVM, if people will put the stamp on Modi once again.

The second prong of his strategy is to harp on benefits of cashless


transactions but given the lopsided spread of banks, a cashless
society is a remote dream. Modi has tremendous belief in the power
of technology, slogans and capacity of hidden persuaders. The
difficulty is electoral verdicts in India depend on the choice of
people who remain invisible during inter-poll years. Modi will have
to be on lookout for these people and find ways to lessen their
hardships caused by his decision. So far, he is seeking to woo only
the visible and more articulate ones.

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From E-Group, Banking-News

Ten ways to save demonetisation


and stop the economy from choking

Gurcharan Das

The Times of India


Published on November 27, 2016

After almost three weeks of demonetisation, there is visible pain in


the lives of ordinary people, a noticeable slowdown in economic
activity, and reports of job losses in many sectors. The economy
may contract by as much as two percentage points over the next
two quarters a colossal loss in national wealth. However, there
can be no rollback. The gains from a cleaner, whiter economy are far
bigger in the long run. Heres how Narendra Modi can save
demonetisation.

1) Speed is of the essence. Dont depend only on our own printing


presses to replenish the cash; subcontract the currency presses of
friendly governments whose security levels are unimpeachable. Fly
in the new notes and flood the system. The priority is to restore
liquidity in the market so people can get on with their lives.

2) Extend the income disclosure scheme. True, the last amnesty


scheme was only a modest success, but after the stick recently
wielded by Modi, a little carrot might work better now.
Demonetisation has given rise to new currency brokers who are
converting the old notes at 30 to 40% discount. Since government is
threatening more action against black money such as scrutiny of
benami land titles, people will be more inclined to convert their
black to white via an amnesty scheme say at a 50% tax rate
rather than the 60% it is considering rather than convert old
black money to new black money via a broker.

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Some may opt to disclose their black money as current income and
get away by legally paying around 35% tax; this too should be
welcomed. Another alternative is to offer low-yielding, long-term
bonds that would convert black to white; the government would
gain by getting money cheaply. The purpose is to diminish the fear
in the most productive groups in society that create most of the
jobs. Dont demonize them: this is not a dharmayuddha. The
objective is to change old, ingrained habits for the betterment of
society.

3) End harassment. Law-abiding citizens will happily pay tax if they


believe they will be respectfully treated by income-tax officials.
People need to be reassured that they can file returns online today;
pay tax online; and get refund online. The computer decides, not the
ITO, which returns are to be scrutinized. Modi needs to mount a
major campaign to reassure people about this reduction in official
discretion. He needs to also severely punish any tax official caught
harassing a taxpayer.

4) Put black to use. Offer a significant fiscal stimulus to the


economy from the notes not likely to be exchanged, black money
that will disappear forever. Spending this non-inflationary money
an estimated Rs 3 lakh crore on infrastructure and housing can
create masses of jobs and mitigate some of the jobs lost in
demonetisation.

5) Focus on real estate. Demonetisation will not stop the corruption


that creates black money. For this you have to attack its underlying
sources. In real estate, every step is mired in corruption from
buying land to getting approvals. Black money is also the result of
excessive stamp duty. For this reason, Vijay Kelkar had
recommended merging stamp duty into GST in his pioneering report
on GST. That may be too late but we must keeping fighting for
sensible taxes and clean titles in land.

6) Roll back the customs duty on gold. Smuggling of gold declined in


India when import restrictions were lifted after 1991. A decent
white business developed in gold and jewellery. In 2013, there was
a setback when customs duty on gold was reintroduced. Cash
payments became common again because smuggled gold was
cheaper.

7) Reform the silly curbs on legitimate election donations to

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candidates. This has led to the use of black money in elections. I do


not favour state funding, where my hard-earned taxes would
finance candidates and family dynasties I despise. Instead we
should follow the best practices in the US and Europe in funding
elections.

8) Reform the bureaucracy. Black money is generated because of


administrative discretion. A good place to begin reform is to
implement Justice Srikrishnas draft Indian Financial Code.

9) Do not attempt to end black money. People should not break the
law but we should overlook small transgressions, just like we ignore
pedestrians who cross on a red light. Cash lubricates the system and
a cashless society is the road to dictatorship.

10) Dont touch the aam aadmis tender. Finally, the next time you
want to demonetise, flood the market first with 5,000 and
10,000-rupee notes; once the black money has moved up to these
higher notes, demonetise only the Rs 5,000 and Rs 10,000 notes.
Spare the aam aadmi.

From E-Group, Banking-News

Who advised demonetisation?

Brijesh Kalappa
The Times of India
Published on November 27, 2016

Evidence emerging over the last fortnight clearly indicates that not
a single economists of any significance has been consulted while
conducting this demonetisation exercise. While the foremost name
in the list of Economists from India is Dr. Amartya Sen, who is a
Nobel Prize Winner and who has obviously not been consulted, but

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surely an established economist with a right-wing orientation could


have been consulted? Was Modi Sarkar so bankrupt that it could not
afford or avail the services of any top economists of the World to
guide them in introducing or implementing the so-called
Demonetisation scheme which has created havoc in both rural and
urban areas of India? Or is it an authoritarian decision which has
been imposed on the public at large without gauging the pros and
cons of such demonetisation? The PMs singular decision clearly
vindicates the allegations of the Opposition who are levelling this
allegation of the PM unilaterally imposing his half-baked ideas on
the public who have been rendered as guinea pigs. Had the services
of able economists been availed, the anarchy and havoc created by
demonetisation could have indeed been minimized.

India is not at a stage which can today afford to take any advise
given by a charlatan or witch man. The impact on the economy and
its people are far too large and will leave an indelible impact in the
days to come. India can also afford to obtain the best economic
advise from financial experts and Economists in the World. Nearly
40 Economists who have won Nobel Prize for Economics are still
around but not a single one has been consulted. Was there any
dearth of money/consultancy fees which could not be made
available to them while availing such consultancy from the
economists before announcing Demonetisation? The 300 million
middle class are keen of knowing as to what prevented this
Government from taking expert advise of Economists. While
unquestioningly, regular economic policies can easily be handled by
finance Ministry, such large scale decision impacting crores of
individuals ought not to have been taken by the layman.

Over 70 people have died for various reasons owing to this act of
demonetization. These lives could have been saved if proper advise
had been availed of, well in time. Neither the Finance Minister nor
the Prime Minister are experts on economic affairs. The moot
question is who guided them in taking this catastrophic decision
causing death and destruction across the country?

When India won its freedom in 1947 even an item as small and
insignificant as a pin had to be imported. When members of the
Indian national Congress are pilloried by asking as to what is the
contribution of the Party to the nation, every Congressman responds
by stating that the very fact that we are the only front ranking
nation in the world which become free in 1947 with such large
population, thanks to the INCs efforts.

It is very early that Indian National Congress learnt that decisions

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on economic policies are best taken by trained economists. When Dr


Manmohan Singh assumed the office of Prime Minister he had
already served as Chief Economic Advisor to the Government of
India, Deputy Chairman of the Planning Commission, Governor of
Reserve Bank of India and Secretary Economic Affairs. He had been
bestowed the Padma Vibhushan in 1987 at the age of 55. The most
popular President of India Dr Abdul Kalam received the same award
three years after Dr. Manmohan Singh did. Dr Kalam was 59 when
he received the award. Another former Prime Minister Shri Atal
Bihari Vajpayee received Padma Vibhushan at the age of 68 in 1992.

So it was this kind of economic wizardry that Dr Man Mohan Singh


had displayed before being appointed as Finance Minister. While he
had publicly stated that he would have liked to be Union Human
Resource Development Minister if a Congress Government came to
be formed in 2004, Mrs. Sonia Gandhi who declined to become Prime
Minister paved the way for Dr Man Mohan Singh to become Prime
Minister in 2004. From 2004 to 2014 it was a story of extraordinary
economic gains. The average growth in this period was about 8%
and this extraordinary growth was translated into financial inclusion
of a huge number of Indians. 15 crore Indians moved seamlessly
from BPL into the middle class. The Indian growth story was
internationally recognized and even Barack Obama President of USA
had publicly praised the economic policies of the then Prime Minister
Man Mohan Singh, by saying I can tell you that here at G20, when
Dr Manmohan Singh speaks, people listen

It is in this background that demonetisation is being viewed. India


is the third largest economy in the World. Since May, 2014 the
Government of India has changed the format of calculating the GDP
growth. It is contrary to every international practice. Consequently,
the actual GDP growth is in the region of 5% by International
standards but has been manipulated as being in the region of 8% by
Modi Sarkar.

The GDP Growth has fallen from the time when the UPA ruled the
nation. Job creation is far below the promised 2 Crore jobs promised
by Modi Ji during General Election, 2014. It is in this background
that Shri Modi announced demonetisation plan.

So the moot question arises as to who has suggested this? India is


not a nation that it was in 1947 when we were in the margins of
civilization. Today, a decision taken by the Union of India not only
impacts the Indian people but the World at large.

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A major decision such as demonetisation which impacts 86% of the


currency leading to destruction of man hours of over a Billion
Indians who are standing in the queue at any point of time which is
choking the economy and making sure that every small business
which does not have the strength to survive will go down under, had
to be thought, re-thought and reviewed.

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