Now Even Jaitley Agrees with Us - Vivek Kaul's Diary
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Now Even Jaitley Agrees with Us

Dec 2, 2016

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Dear Reader,

This is just a short post to tell you that now even the finance minister Arun Jaitley agrees with us.

In the Letter dated November 25, 2016 (Subscription Required) and the Diary dated November 29, 2016, I had said that the demonetisation mess will take some time to sort out.

My logic was very straightforward. Some simple maths based on numbers put out by the Reserve Bank of India tells us that it will take another five to six months for the government to print enough new Rs 500 notes to be able to replace the old Rs 500 notes which have been demonetised.

The entire issue is about printing enough Rs 500 notes and not the Rs 2,000 notes, as I have explained earlier.

And unless there are enough new Rs 500 notes going around in the market, transactions of all kinds which have come to a standstill, won't pick up. If transactions don't happen, businesses don't do well, companies don't do well and the economy doesn't do well, as well.

It means lower revenues for businesses, lower taxes for the government and lower growth for the overall economy.

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------------------------------

Many readers did not agree with me. They expressed their opinions in the comment section.

Nevertheless, the finance minister Arun Jaitley agrees with what I have had to say. As he said yesterday: "The effect of demonetisation will remain for one or two quarters, but its effect on the economy will be seen in the long term."

This statement comes after the initial statement made by the prime minister that it would take nearly 50 days to set the economy right. The 50-day period has now jumped to two quarters, a period of six months.

The fact that the government doesn't have enough currency going around is proven in the fact that banks are still short of cash and many ATMs are still dispensing the Rs 2,000 note, which is pretty much useless.

It can also be seen in the fact that withdrawal limits are still in place.

In this era of shortage, even people who have currency are hoarding on to it and postponing purchases which are not immediately important.

As I have said in the past, it is important to remember that paper money is primarily a token deemed to have a certain value by the government and which everyone accepts and is used to carry out transactions in the everyday economy.

Without enough paper money in the economy, people can't carry out transactions and the economy comes to a standstill. This is what is happening right now all-across the country. Mobile phone sales are down. People aren't buying two-wheelers. Restaurants and malls are deserted. And normal taxis are not getting enough business.

The farming economy has slowed down tremendously. Daily wage workers like plumbers and electricians are not getting enough work. For more examples, you can open any newspaper and there will be enough stories there. Generally, business is slow.

And that being the case, it will take some time for the economy to recover.

This isn't surprising given that close to 86 per cent of the currency by value has been rendered useless by the demonetisation move. Of course, this wouldn't have mattered if Indians were used to transacting through debit cards, credit cards, net banking, wallets and so on. The show would have gone on.

But that is not the case. A PwC report titled Disrupting cash: Accelerating electronic payments in India points out that 98 per cent of volume of consumer transactions in India are still in cash.

And that 98 per cent cannot go cashless overnight. All this has been done to fight black money.

But it is worth remembering that change is a slow process. Things take time.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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18 Responses to "Now Even Jaitley Agrees with Us"

Benoy

Dec 7, 2016

I completely agree with wahat vivek kaul says he has just pointed out the naked truth. To keep
things secret 500 rupee note was not printed when the scheme was launched. when people demanded
change soiled notes which was to be destroyed was distributed. I somehow feel that demonetisation
could have handled better. Hope this time counterfeiters will have a hard time.

Like 

venkatesh

Dec 7, 2016

After coming through your recent posts on demonetisation,I feel like Vivek paid to take common people in wrong assumption, looks like anti MODI worker.People has honest faiths in your posts and tend to believe what ever you post, please don't loose our trust on you.

Like 

Allan

Dec 6, 2016

A lot of people are saying demonetisation will end corruption, but no one clearly lays out HOW. In fact, already there are reports of govt officials being caught demanding bribes. What has changed? Again, in the beginning the stress was on ending corruption, ending terrorism etc. but now that so much money is being deposited in the banks (about 80% of the currency is estimated to have been deposited in half the time) the talk is shifting to moving to digital payments. Even this is very problematic. India does not have the infrastructure, whether physical or legal for electronic payments. Even if MEs go for PoS terminals etc. the question is whether transactions can actually be put through them. Just last month 32 LAKH debit cards were hacked. The legal basis for tackling problems of electronic payments is still not in place.
There is a huge amount of work to be done!

Like 

Mani

Dec 5, 2016

Modi baiting again! We cannot expect anything more from Mr Vivek Kaul, who is an out-and-out apologist for anti-Modi forces.

Like 

DDB

Dec 3, 2016

In terms of an Expert Group ( Rangarajan) Report 2011-2012 on Poverty Line, for a family of five the monthly expenditure (both food and non food expenses) in rural areas was Rs 4860 and in urban areas it was Rs 7035 in urban areas. These figures might have undergone changes as of date to the extent of inflationary levels. The Expert Group estimates 30.9 percent of rural population and 26.4 percent of the urban population was below poverty line in 2011-2012.I am not going into details of how those figures have been arrived at . If these be the statistics of consumption , what defies Logic is would the masses require 500 or 1000 rupee note for survival.They would require more notes of lower denomination rather than 500 rupee notes for consumption.
2.Vivek seems to be out of sync when he makes a statement that "unless there are enough 500 notes going around in the market , transactions of all kinds which have come to a standstill won't pick up........ and economy doesn't do well. "". I wonder whether Vivek is hinting at vulgar display of wealth/ wasteful expenditure ,motor cycle purchases , cell phone purchases , made by 0nly demonetised 500 and 1000 rupee notes are indicators of economic growth.
3. Vivek seems to have forgotten about existence of credit period in business transactions. In my neighbourhood as well as information gathered some from Tier II/ Tier III cities, None of the the wayside vegetable vendor , fruit seller , street side eateries ,the neighbourhood milkman to the kirana shopkeeper , have closed shops or stopped doing business. Most of them continue to offer credit even in rural/semi urban areas as it existed even before demonetisation and prefer to collect their dues at monthly intervals with some exceptions.And about large businesses , Vivek should be able to provide the statistics as to how many business houses have closed down or on verge of closing down on account of Inadequate Rs.500 notes in circulation. In my neighbourhood . Even the illiterate fisher woman has mended her ways of doing business , she accepts 2000 rupee note and squares off the balance amount with my next purchases. She has made sure that at least on this pretext, she has tied up a long term customer. My maid servant asks me to credit her salary in her Bank account (she is Class X failed).The pan seller / fruit seller has started accepting payment through PAYTM. "SURVIVAL OF THE FITTEST " is the order of the Day and these BRAVEHEARTS are the ones proving the so called educated masses wrong.It is business as usual except for the country liquor shops,dance bars, Matka shops, illegal betting syndicates, drug traders , immoral trafficking rackets, betting syndicates, goldsmiths doing business with illegal money. Yes, in the real estate ,deals with black component has seen the maximum slowdown.

Like (1)

Shekhar Mandrekar

Dec 2, 2016

I have been regular reader of Vivek''s column . However off late some of the views expressed by him are totally of sync which stink.Shortage of currency notes is no great discovery ...it is not just replacement of white Rs 500& 1000 Rs notes but disappearence of BLACK unaccounted currency in Rs 500 & 1000 denomination . JUST TO PROVE HIS POINTS VIVEK IS GOING ON PREDICTING DOOMS DAY PREDICTION WITHOUT CONSIDERING STATISTICS OF VALUE OF NUMBER OF Rs 500 & 1000 notes& it's contribution to circulating value of money . NEVER EXPECTED SUCH A PSEUDO EXPERTISE FROM VIVEK ,,,, or is it expertse PAID in fees to attack very pragmatic step taken by Prime Minister Modi .I dare Mr Vivek Kaul to do honest objective analysis .In future if I read his column , I will read with fistful of salt .

Like (1)

Raveendranath

Dec 2, 2016

The problem with us is that every one talks about the problem but no one comes up with a solution. The demonetization announcement happened overnight, but it was prepared well in advance ( around 10 months). Just allow to take comments from those people who are really well versed in analysing the Monetary Economics part, they indeed welcome and support this move. The problem in our country every one wants to make some statement, today they comment of Economy, tomorrow on science and technology,politics,education, defence etc etc. They have a myopic mind and because they don't know the subject and they don't have the power. Only thing is keep commenting just because I don't like that person and I want to criticize on what ever he does.Eg. Amarya Sen.

Like (1)

Zulfiquar Singaporewala

Dec 2, 2016

Demonetization done and its after effect not properly visualized by either Finance Ministry nor RBI. If decision is taken by few who are not well versatile with the real Indian Economy and the transaction done with 98% cash ( Even in many big countries of world cash is being used as all means of transaction like China and Japan with more than 75 % ) This will definitely bring down economy and GDP might for two or three quarter at least. Black money will be controlled or not is a questionable thing and it will be known to public or not is also a question ? As either Finance Ministry or RBI not in position to say yes this amount has be controlled in terms of even %. as I earlier also mentioned that now black money will be in circulation with diff. form in form of gold / platinum / or even other currency of world like Euro or Dollar.

If really we want to control black money than all secondary land deal must be official in any case this will automatically solve the problem of 70 - 80 % of black money circulating in India and thus there is no requirement of this huge junk of problem facing by every citizen of India at present. zulfi

Like (1)

ramakant

Dec 2, 2016

Your point is taken.

My comment is about ".....This statement comes after the initial statement made by the prime minister that it would take nearly 50 days to set the economy right. The 50-day period has now jumped to two quarters, a period of six months..... ".
I think PM said in his 1st speech while announcing demonetization, "50days pain will be there in making cash transaction normal" and not "50 days needed to set economy right"

Like (1)

Bhanu

Dec 2, 2016

The views on having to print the entire currency is in sharp contrast to Mr. Bill Bonner's view of not having control over printing currency, not pegging it to gold reserves. He wrote many articles chiding the habit of governments and central banks printing currency at will, causing inflation.

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