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Demonetisation Day 50: Why Arun Jaitley is wrong in painting a rosy picture of economy

Union finance minister Arun Jaitley is a good communicator. Well articulate and sophisticated in his arguments to convincingly present a case to any audience. On Thursday, Jaitley demonstrated this ability yet again when he listed out the gains of demonetisation to the economy citing data to say why the critics of note ban are wrong. Following is the main points Jaitley made in his address yesterday.

In all the categories (of indirect tax) till 30 November, there has been a significant increase in tax collection. Till 19 December, direct tax mop-up rose 14.4 percent, indirect tax grew 26.2 per cent, central excise is up 43.3 percent percent and service tax by 25.7 percent, Jaitley said.

Secondly, life insurance and mutual fund sales, tourist arrivals and fuel consumption have gone up. The flow into mutual funds was increased by 11 percent. “Assessment can be unreal but revenue is real,” the FM said.

Finance Minister Arun Jaitley. PTIFinance Minister Arun Jaitley. PTI

Finance Minister Arun Jaitley. PTI

Jaitley is missing the point here or is simply being selective in choosing his data to assess the impact of demonetisation over the last 50 days.

First of all, the above sets of numbers do not reflect the segment that has been hit badly by the demonetisation — the small traders/ service providers and those in informal economy.

Small traders with annual turnover less than Rs 1.5 crore and service sector with turnover of less than Rs 10 lakhs are not reflected in the indirect tax net. If one talks about impact on account of demonetisation, shouldn’t the segments that got hit most be factored in first?

Second, November typically shows a spike due to festive season. This will reflect in the indirect tax numbers too, including the excise duty. The full impact of the demonetisation will come with a lag.

Already there has been a slowdown in indirect tax collection in November, when the kitty swelled by 21.8 percent as against 34.6 percent in October. Similarly, growth in excise duty collection declined to 31.8 percent in November against 40.9 percent in October. Now , look at the monthly data on service tax. The growth in November slipped to 13.3 percent from 66.5 percent in October. (see the table below).

indirect tax collection table - Dec 30, 2016indirect tax collection table - Dec 30, 2016Third, the sudden spike in fuel consumption at a time when the overall economic activities are slow is dubious. Part of the reason could be that black money hoarders were smartly using the government-permitted window to dump the old notes in petrol pumps.

Fourth, FM Jaitley ignored the pessimistic GDP forecasts from various forecasters, including that from the Reserve Bank of India, which has lowered the full year forecast to 7.1 percent from 7.6 percent even while stating that it hasn’t fully taken into account the full impact of the demonetisation resulted cash crunch. Private forecasters are even more pessimistic.

Fifth, the spike in mutual funds and insurance premiums isn’t a good set of data while discussing the impact of demonetisation. According to the Insurance Regulatory and Development Authority of India’s (IRDA) 2015-16 annual report data, the life insurance penetration in India is 2.72 percent. Similarly, as a share of GDP, mutual fund penetration in India is still around 7 percent. The section of the population in the cash economy who are affected by the demonetisation has nothing to do with spike in life insurance premiums and mutual funds. Also shouldn’t the spike in insurance premiums also take into account the digital incentives rolled out by the government?

Sixth, Jaitley was also silent about the number of jobs lost in the informal sector post demonetisation. There is no official estimate for this. But, various estimates say about 4 lakh jobs could be lost due to the note ban.

According to the Centre for Monitoring Indian Economy (CMIE), unemployment rates rose to 6.1 percent in the week of 4 December and further to 6.6 percent in the week ended 11 December and then to 7 percent in the week ended 18 December. The impact comes with a lag and we need to wait for fresh numbers. The full impact of the demonetisation resulted cash crunch will only unfold in the next few months. If the cash crunch prolongs, things can get worse .

Seventh, Jaitley missed crucial indicators such as PMI data when assessing the economic situation. The consumption story has taken a hit. The services sector PMI sharply fell to 46.7 in November from 54.5 in October — that is the biggest monthly drop since November 2008, just two months after the global financial crisis hit the economy following the US investment bank Lehman Brothers going bust in September. The manufacturing PMI too fell with the index shrinking to 52.3 in November from October’s 22-month high of 54.4. These signals are hard to ignore. Here again, one need to wait for further data.

The bottomline is this: Full impact of demonetisation on economy will be visible only with a lag. May be next few months should offer more clarity. What FM Jaitley has done is presenting selective set of data and use that to prove demonetisation critics wrong and, finally, conclude that demonetisation has helped the economy in 50-days. This is too early an assessment and an incorrect presentation.

(Kishor Kadam contributed to this story)

First Published On : Dec 30, 2016 15:30 IST

Demonetisation Day 50: Pain from ‘Mahayagna’ eases in India, but not in Bharat; what have we gained?

Prime Minister Narendra Modi called demonetisation a ‘Mahayagna’ in his speech on the evening of 8 November when he scrapped Rs 500, Rs 1,000 currency notes asking citizens to ‘stand up and participate’ in the exercise to make it a grand success.

The note ban was initially sold as a war on black money, fake currency and terror funding and later as a project to create a cashless economy. Everyone, including Modi’s political rivals, lauded his intention behind note ban — cleansing the economy from illegal cash and fake currency and make each rupee floating in the banking system accountable to tax scrutiny — but in the same breath criticised the way the government and Reserve Bank of India (RBI) handled the implementation.

PM Modi asked for 50 days to end the common man’s pain. Post 50-days, let’s take a look at what has happened since the demonetisation announcement.

Prime minister Narendra Modi. PTI file photoPrime minister Narendra Modi. PTI file photo

Prime minister Narendra Modi. PTI file photo

To begin with, there were a series of flip-flops in rules that could have been avoided had there been a proper plan. More than 60 circulars were issued in just one month confusing both bankers and customers. Promises made by both the PM and RBI were broken adding to confusions.

Promises broken

Look at these statements: In his speech, Modi said “you will have 50 days to deposit your notes and there is no need for panic. Your money will remain yours. You need have no worry on this point. After depositing your money in your account, you can draw it when you need it. Keeping in mind the supply of new notes, in the first few days, there will be a limit of ten thousand rupees per day and twenty thousand rupees per week. This limit will be increased in the coming days.”

True, money in their bank accounts belonged to the citizens but Modi’s promise that people can withdraw as per their need wasn’t fulfilled since banks struggled to fill their ATMs and branches to meet the increasing customer demand. This was on account of three reasons: 1) the government mints couldn’t churn out enough new notes to meet the demand; it was beyond their capacity even after working in three shifts; 2) the fresh lot of new currencies that arrived were mostly Rs 2,000 notes; there were not enough change to go around; 3) people who managed to draw money started hoarding it as curbs on cash withdrawals created panic.

On Thursday, Finance Minister Arun Jaitley refused to acknowledge even a single case of ‘unrest’ during the 50 days of demonetisation.

But, what about the ruckus at the banks and ATMs causing inconvenience to the public reported from across the country linked to demonetisation? Surely, all of it can’t be fake.

During his parivartan rally in Moradabad, UP, Modi asked Jan Dhan account holders not to withdraw the black money deposited in their accounts and promised that he will find a way for them to keep that money. This wasn’t in good taste because he was effectively offering a reward to the benami account holders for abetting a wrongdoing.

In his 8 November speech, Modi assured the citizens that they don’t need to panic and can exchange their old currency till 30 December. “From 10th November till 24th November the limit for such exchange will be 4,000 rupees. From 25th November till 30th December, the limit will be increased.”

But, the government, in fact, chose to advance the deadline much before the promised date. Lastly, there was a 19 December circular from RBI restricting deposits above Rs 5,000 only once, which was later withdrawn. Here again, a promise made initially was broken.

Lack of preparedness, transparency

The point here is both the government and the RBI were not prepared to face the rush for cash as evident from the frequent change in rules in the days following the demonetisation announcement. Even though the RBI promised a weekly withdrawal limits of Rs 24,000 (hiked from the initial Rs 20,000) and Rs 2,500 from recalibrated ATMs (from Rs 2000 initially), banks were unable to give even this amount to customers, often leading to altercations between staff and customers.

After 50 days, the cash situation has improved for sure, but only mildly. The situation has indeed turned better in metros, where ATM queues are now shorter. But, in rural areas the situation hasn’t improved much. As this Indian Express ground report states: since most farmers maintained accounts in cooperative banks, they continue to be in a spot. The informal economy, which offers employment to millions of workers, has been shattered. It will take a long time before small entrepreneurs recover from the shock. The cooperative banking sector, which plays a prominent role in rural India, is struggling to survive.

The RBI’s reluctance to communicate effectively and lack of transparency in updating information in public domain, added to confusion. An end to the cash-crunch isn’t in sight yet. Till 19 December, the RBI has infused Rs 5.92 lakh crore in the banking system as against the Rs 15.44 lakh crore demonetised. Given the physical constraints of four mints run by the RBI and government, it is unlikely that cash situation will return to normal before March 2017, according to bankers. This means, the cash curbs will stay longer.

Economy impact

Demonetisation is sure to have short-term impact on the economy which is predominantly dependendent on cash transactions the signs of which are already visible. The RBI has lowered the GDP forecast for the year to 7.1 percent, so have most private forecasters. The consumption story has taken a hit. The services sector PMI sharply fell to 46.7 in November from 54.5 in October — that is the biggest monthly drop since November 2008, just two months after the global financial crisis hit the economy following the US investment bank Lehman Brothers going bust in September.

Similarly, the manufacturing PMI too has fallen with the index shrinking to 52.3 in November from October’s 22-month high of 54.4. data from the Centre for Monitoring Indian Economy (CMIE), unemployment rates fell to less than 5 percent in the week of 27 November, but has since risen to 6.1 percent in the week of 4 December to 6.6 percent in the week ended 11 December and then to 7 percent in the week ended 18 December. The impact comes with a lag and we need to wait for fresh numbers. The full impact of the demonetisation resulted cash crunch will only unfold in the next few months. If the cash crunch prolongs, things can get worse.

RBI fighting a trust deficit

Another highlight of the 50-day period was the fall of the RBI, which faced criticism for giving up its autonomy and credibility. The RBI appeared clueless how to take the demonetisation process ahead from the beginning and faced criticism from former central bankers including Usha Thorat and K C Chakrabarty. According to a Bloomberg report, the RBI board approved demonetisation less than three hours before Modi announced the decision in a televised address to the nation.

Information on how many members favored or opposed the move isn’t “on record,” the RBI said in response to queries from Bloomberg News under the Right to Information Act, the report said.

The report also cited Power Minister Piyush Goyal’s comment to lawmakers on 16 November that it was RBI’s 10-member board that came up with the idea of note ban. Was the RBI forced to approve the idea of demonetisation is something only time will tell.

Demonetisation gains

Will demonetisation deliver its originally stated long-term gains of demonetisation — winning black money, killing fake currency and terror? Long-term gains are hard to predict at this stage. The tangible gains of demonetisation will dependent up on how much illegal cash is unearthed at the end of this exercise. Demonetisation as a trigger for Indians to shift to a digital world of finance is a far-stretched idea since such a change can’t happen overnight and should be gradual. As of now, only pains are visible.

True, in the long term demonetisation may prove to be beneficial when more people come in the tax net. This coupled with the Goods and Services Tax (GST) rollout can reboot the economy. But, that point is still away. Adjusting to the loss to the economy and the pain suffered by common man that isn’t quantifiable, what will be the net gain to economy from demonetisation is a question PM Modi will have to answer with support of evidence when he once again face the electorate in 2019.

First Published On : Dec 30, 2016 12:01 IST

Demonetisation Day 50: Deadline to deposit old Rs 500, Rs 1,000 notes ends today; crunch to continue

New Delhi: The 50-day deadline to deposit the old Rs 500/1,000 notes in banks comes to an end today but the cash crunch and queues before ATMs are likely to continue for some more time as currency printing presses have failed to meet the huge demand for new bills.

People, however, will still have time to exchange the currency notes at designated RBI counters till March 31 after giving valid reasons for not depositing defunct notes in their accounts by December 30.

The government is also planning to come out with an Ordinance making possession of old Rs 500/1,000 notes beyond a specified limit for numismatic purposes illegal and punishable.



Prime Minister Narendra Modi in a surprise announcement on 8 November declared the old Rs 500 and 1,000 notes invalid.

The banks started accepting deposits in scrapped notes from November 10. However, very few ATMs opened on 11 November, as most of the machines had to be recalibrated for people
to get cash which was available in Rs 2,000 denomination.

Saddled with cash crunch, banks resorted to rationing of valid currency notes and fixed a withdrawal limit of Rs 24,000 per account in a week. Although the overall situation at banks has improved, ATMs still have to do some catching up. Many cash vending machines are still out of cash even after 50 days since demonetisation.

The government move was sharply criticised by the Opposition parties led by Congress and TMC.

With every passing day, the number of circulars from the government or the Reserve Bank kept on rising that led to confusion among bankers as well as the public. Bankers believe that restrictions on withdrawal of cash from banks and ATMs are likely to continue beyond December 30.

After the demonetisation, the government had fixed a limit of Rs 24,000 per week on withdrawal from bank accounts and Rs 2,500 per day from ATMs in view of the currency crunch.
The government and the RBI has not specified when the restrictions will be withdrawn. Finance Secretary Ashok Lavasa had said the withdrawal cap would be reviewed after December

First Published On : Dec 30, 2016 09:01 IST

CEA’s electricity plan for 2027: Four key hurdles will prove achieving targets is a huge task

As the year 2016 comes to a close, the Central Electricity Authority of India (CEA), the apex planning body for the power sector in India, has created a buzz with its draft National Electricity Plan, 2016 (NEP). This document primarily highlights the demand side projections, and presents a perspective on electricity supply sources till 2027. A key highlight of this draft plan is – no coal-based capacity addition is required to meet the country’s power demand by 2027 as 50,025 MW of coal capacity (presently under construction) will suffice for the overall demand. It is also expected that the share of non-fossil (hydro, nuclear, and renewable energy sources) based capacity will reach 46.8 percent by 2021-22, and will further increase to 56.5 percent by the end of 2026-27; as compared to 30 percent at present.

However, all of the ambitious projections come on the back of heavyweight assumptions that a committed capacity addition of 115,326 MW from renewable energy sources (RES), 4,340 MW from natural gas-fired stations, 15,330 MW from hydro, and, 2800 MW from nuclear; will materialise by the end of 2022.



From a climate change perspective, it resonates with India’s Nationally Determined Contribution (NDC) targets pledged at the UN Climate Change Conference held in Paris (COP 21, December 2015). We need to be ambitious to foresee a low-carbon future, but we should also understand the complexity associated with such aggressive planning with regards to deployment of RES. The existing 46.7 GW (as of November 2016) of renewable-based capacity is still far away from the mammoth target of achieving 175 GW by 2022. Practically, to achieve this target within a time frame of five years is a herculean task for any government. By bringing all the four portfolios i.e. power, coal, new and renewable energy, and mines under the control of one minister, there has been a clear intent for swift planning and quick decision making. Yet, the implementation of this plan will come across the following challenges, and there is a need to set out effective plans for the same:

Availability of finance for renewable energy
Reaching 175 GW RE by 2022 would require an investment of more than $200 billion. Council on Energy, Environment, and Water (CEEW) estimates suggest that if we include the costs associated with grid integration and energy balancing, achieving 100 GW of solar alone would require investments ranging between $120 billion to $147 billion. Despite gaining a big jump of 22 percent from the previous year, India’s total RE investments adds up to only $10.2 billion for 2015. Achieving targets in another five years call for massive inflow of money considering all the perceived risks (honouring the contracts, financial health of distribution company, construction and clearance risk, delays and challenges in land acquisition, etc.) in this sector.

Availability/Acquisition of land for solar projects
One of the major constraints behind rapid expansion of renewable energy projects is availability of land and associated delays. Considering solar projects alone, as per the Ministry of New and Renewable energy (MNRE), 60 GW is likely to come in the form of utility-scale solar projects, while grid-connected rooftop is expected to constitute the remaining 40 GW share. As a simple rule of thumb, each MW of solar requires 4 acres of land. Such a massive scale of land acquisition within a short time frame, especially in India’s development context, could pose significant problems. We have some examples demonstrating novel ways to minimise the use of land, such as canal-top projects, hybrid solar-wind farms, co-locating solar installations and agriculture, etc. But, such ideas also have specific challenges and limited viability.

Intermittency with renewables and grid integration
Solar and wind does not generate electricity round the clock, and hence are intermittent in nature. To integrate an intermittent source of power with the grid is a challenging task. It requires lots of planning, such as a day ahead time scheduling. Assimilation of a humongous amount of renewable power (175 GW) will require at least 53.56 mmscmd of natural gas to meet the grid balancing requirements (as per the draft plan). Alternatively, grid storage is another option. In any case, resultant tariff after balancing adjustment could be uncompetitive with prevailing coal prices. This could prove to be a major deterrent. Anyhow, a significant boost to the 24 GW of natural gas fired power generation capacity is essentially required. This shall be driven either by cheaper imported gas prices, or through subsidy/incentive linked mechanisms. From a long-term perspective, focus on R&D in storage technologies could be a game changer for India.

Low PLF of thermal power plants
Implementation of NEP means a drastic fall in capacity utilisation of coal based thermal power plants, which can go to as low as 48 percent. That said many of them could turn into non-performing assets due to technical unviability.

While, all three scenarios presented in the draft NEP are highly aggressive in terms of meeting RE targets, a business-as-usual scenario would also be useful to make clear the kind of efforts required by all the stakeholders. The draft NEP reaffirms India’s climate commitments and aggressive renewable energy goals. However, it requires a strategic road map and strict implementation of policies to drive India’s low carbon growth.

(The writer is a Programme Lead at the Council on Energy, Environment and Water – a policy research organisation based in New Delhi. He can be reached at [email protected])

First Published On : Dec 28, 2016 15:12 IST

Demonetisation was a move towards formal economy, says Arvind Panagariya

Expressing their support for the November 8 demonetisation of high-value currency that has resulted in a major cash crunch, a group of experts on Tuesday told Prime Minister Narendra Modi that the move help to strengthen the process of formalising the Indian economy, the major part of which is organised informally.

“Demonetisation was discussed as a move towards formal economy,” NITI Aayog Vice Chairman Arvind Panagariya said, briefing reporters following Modi’s interaction here with a set of noted economists at a session on “Economic Policy – The Road Ahead” organised by the think-tank.

NITI Aayog, Vice-Chairman, Arvind Panagariya. Image courtesy PIBNITI Aayog, Vice-Chairman, Arvind Panagariya. Image courtesy PIB

NITI Aayog, Vice-Chairman, Arvind Panagariya. Image courtesy PIB

“All the speakers stressed the need to bring workers and activity into the formal sector,” Panagariya said in reference to the stated aims of the 8 November demonetisation announcement for curbing corruption, black money, counterfeit currency and terror financing.

Complementing the demonetisation process, he said it is the government’s drive to promote digital transactions and a less cash economy so as to move from the informal to greater formalisation of the economic system.

“The speakers pointed out that 90 per cent of the labour force in the country is still in the informal sector,” Panagariya added.

Besides Niti Aayog and Finance Ministry officials, the session was attended by economists and experts, including Pravin Krishna, Sukhpal Singh, Vijay Paul Sharma, Neelkanth Mishra, Surjit Bhalla, Pulak Ghosh, Govinda Rao, Madhav Chavan, N.K. Singh, Vivek Dehejia, Pramath Sinha, Sumit Bose and T.N. Ninan.

The meeting with experts to take stock of the economy assumes significance against the backdrop of the cash crunch after the government last month scrapped the Rs 1000 and Rs 500 notes.

Economists and various state governments have voiced concerns that demonetisation will disrupt the economy and drag down the GDP growth rate for this fiscal by up to two percentage points.

First Published On : Dec 28, 2016 09:06 IST

Economy in year 2016: Brexit, Trump victory, demonetisation turn conventional wisdom around

Year 2016 was a fairly turbulent year for both the world economy and India not so much because there were any great surprises in terms of economic events or extraneous shocks but on accounts of forced developments which will have a long lasting impact.

When the year started, the question really was as to when the world economy would turnaround as there were differing signs emanating from different countries. The direction of movement of the Federal Reserve was more or less known while the ECB was to continue to maintain status quo while Bank of Japan was to reflate. The world economy has been moving along expected lines and the Chinese recovery was also almost on course. Therefore there did not seem to be any perverse sign to think otherwise.

Representational image. ReutersRepresentational image. Reuters

Representational image. Reuters

Two major developments however have changed the perception not so much from the point of view of things going wrong this year, but more from a futuristic perspective. These are the BREXIT followed by Donald Trump’s victory, which though unexpected has been convincing with the Republican Party having a majority in the Congress and Senate. BREXIT is symptomatic of the world turning towards becoming more closed and the dictum of free trade and investment is being questioned seriously today. While the referendum in Britain could have termed a ‘one off case’, similar undercurrents prevail also in France and Italy where public opinion is veering towards movement away from the Union and probably at some time from the euro currency.

Countries have started thinking more of isolationism as it is believed that globalization progressively impedes growth as the benefits could be leaning more towards the rest of the world. USA for example believes that the major challenge today is jobs and that they are being lost to outsiders at both the unskilled and skilled levels. This was probably one reason why Donald Trump succeeded. When dealing with the strongest economy, there is always a case of the weaker countries benefiting more than the former, and this perception has led the Americans to believe that they have been losers. This has given a shot to pro-protectionist policies.

BREXIT does not mean the end of ties with the EU but Britain no longer has to accept the goods and people of the continent based on these water tight agreements. Quite clearly conventional wisdom is being turned around now and while presently no singular action has been taken, the future of the world economy is going to be far from normal once these ideologies are implemented. In fact, even the progress made by the WTO which is always a conflict between developed and developing countries will be questioned within the former set of nations as they compete with one another. The latter would also tend to be reinforced through trade barriers once it is realized that they are disadvantaged on the basis of restrictions in export of services.

Closer back home, the growth story had been building quite firmly with even the second quarter corporate results giving one the impression that things were turning around. The consumption story was being told rather convincingly with the pre Diwali sales laying the road of optimism. This was when the government embarked on the big demonetization exercise. While the entire nation has welcomed it unequivocally, there have been doubts raised in terms of the economic impact and it is almost certain that growth will slow down and that it will take two to three quarters for recovery – which will be mid 2017 at the earliest. While the objectives of dealing with black money and forcing the public to be technology-savvy are localized issues, from the point of view of the economy, things have been pushed backwards.

The impact on growth has been debated and while the numbers are a matter of subjective conjecture, the fact is that jobs have been lost and consumption buffeted mainly due to absence of currency which still dominates 90 percent of our transactions. Arguably, the impact would, be of a temporary nature as money is only a means of payment and is a facilitator rather than a commodity on its own. Therefore the production processes will continue as before once normalcy steps in. However, specific industries have taken a major blow like real estate, consumer goods, automobiles, tourism, transport, hospitality to name a few. The timing of the bounce back will vary but for sure will take a couple of quarters.

Hence, we too are ending the year on an uncertain note, though there is the feel good factor that black money has been slayed or at least an attempt has been made to do so. This would, also be an interesting phenomenon to watch out for in the New Year whether we change, what the economist Alfred Marshall have said, our ordinary business of lives.

The major concern however, for the entire world is the decision taken by OPEC to cut back output. Presently it does not seem to be an issue, but given that the last two to three years have been very hospitable as oil prices have been depressed, this may be a warning. It is still uncertain whether the OPEC nations will stick to their targets as there are signs of desperation as these countries which run only on oil may be tempted to ‘cheat’ to improve their incomes which could make this decision self-defeating. This can be a defining event for the world in 2017 as higher crude prices have always pressurized economies in terms of higher inflation and lower growth prospects. As most countries are on the anvil of such a turnaround, higher oil prices can delay the process.

Hence, the world will have to look at what the European countries do and what Donald Trump actually does when he becomes President. Will he drive immigrants out or dilute the free trade agreements and turn fully protectionist? It is hoped that what he has promised is political rhetoric and would get moderated along the way. But the dollar has become stronger as have the stock indices which mean that the markets are positive about these outcomes. Back home in India, the final numbers of growth will tell the story but for sure the deferment of the certainty of high growth due to the twist in tale on account of demonetization will remain a contentious issue for discussion.

(The writer is Chief Economist, CARE Ratings. Views are personal)

First Published On : Dec 28, 2016 07:32 IST

Demonetisation: Four things Narendra Modi should do to take the economy out of the mess

For the Narendra Modi government, which stormed into power in May 2014, to come out of the demonetisation mess unhurt isn’t an easy task. This is despite what it promises to achieve in the future –an economy free of black money, corruption and fake notes, and no matter how good the latter-stated objectives are (including a shift to a cashless economy). And certainly not in the manner it has gone about scrapping 86 percent of currency in circulation all of a sudden on the night of 8 November throwing the economy into a crisis. The consequences so far have been disastrous — corporate profitability has taken a hit, lakhs of jobs have been reportedly lost in the informal sector, consumer ability to spend has been curtailed, farmers affected as prices have crashed, services and manufacturing sectors have been impacted and there is skepticism globally on the rationale behind Modi’s currency ban.

Not surprisingly, both government and private forecasters are competing to show lower India GDP numbers for fiscal year 2017. The estimates range from 7.1 percent (Reserve Bank of India) to an extremely pessimistic 3.5 percent by Ambit Capital, a private brokerage firm.  The available data–advance tax payments by corporates, PMI numbers, auto sales and slowdown in service-oriented sectors confirm the fear of a deeper impact to the economy.

Prime Minister Narendra Modi. AFPPrime Minister Narendra Modi. AFP

Prime Minister Narendra Modi. AFP

Most economists have ruled the third quarter as a miss, but the real danger comes if the cash crunch-woes spill over to the fourth quarter since then there will be a cascading impact in the economy.

According to data from Centre for Monitoring Indian Economy (CMIE), unemployment rates fell to less than 5 percent in the week of 27 November, but has since risen to 6.1 percent in the week of 4 December to 6.6 percent in the week ended 11 December and then to 7 percent in the week ended 18 December. The impact comes with a lag and we need to wait for fresh numbers.

Need of the hour

There are a few critical tasks before the Modi-government that should be done urgently:

First, refrain from populist, non-productive expenditures such as promising the poor that the gains on black money will be distributed to them and that farm loans will be waived. The government should focus on boosting the capital base of banks on an urgent basis so that bank credit flow to productive sectors doesn’t suffer, and sell off the loss-making banks or consolidate a few if there is synergy amongst them. Finance Minister Arun Jaitley has a good opportunity in the 2017 Union Budget slated for 1 February to announce some bold measures to take the reform process ahead in the public banking sector.

Presently, state-run banks are severely undercapitalized and the problem is worsened with their non-performing assets (NPAs) hitting the roof (nearly Rs 6 lakh crore as on September, 2016 or nearly 8 percent of the total bank credit), and total chunk of stressed assets (bad loans and restructured loans together) jumping to 12-13 percent of the total bank credit. Under the government’s Indradhanush plan, of the Rs 1.8 lakh crore capital needed by banks under Basel-III, the government has offered to infuse Rs 70,000 crore over four years till 2018-19 and wants the government banks to fend for themselves for the remaining Rs 1.1 lakh crore from the market. This is not enough. Also, it is almost impossible that weak state-run banks will find takers. This compounds the problem. So far, there is not much progress on the reform front. That is why the government, the majority owner in these banks, will have to think about infusing them with higher chunks of capital and push the reform button.

Two, offer a fiscal boost to the economy by ramping up infrastructure spending. A section of economists agree that the economy is in need of a strong stimulus to get back on track. This is warranted because several layers of economy have taken a hit post-demonetisation. One of the expectations from the demonetisation exercise was to get a ‘windfall’ of Rs 4-5 lakh crore provided that kind of money doesn’t return to the system as black money hoarders run for cover. The government was expecting to garner around Rs 10 lakh crore of the Rs 15.44 lakh crore demonetized on 8 November. But, that hasn’t happened yet. This, coupled with the Reserve Bank of India’s (RBI) clarification that there is no possibility of a transfer of surplus from the central bank to the government on account of reduced currency liability, has ruled out any immediate tangible gains for the government. Instead, the exercise has resulted in considerable damage to the economy.

Third, Jaitley should also announce reliefs to both individuals and corporations in Budget 2017 by offering substantial direct tax reductions to tide over the difficult phase. This will work in three ways—to make India still an attractive destination for companies when US president-elect Donald Trump’s administration rolls out massive tax cuts, reverse the negative mood on account of the artificially imposed cash-crunch and put more money into the household kitty to keep the consumption story going. Corporate tax incentives should be over and above the ongoing plan to bring down corporate tax rates to 25 percent over a period and gradually remove exemptions. But this hasn’t found much appeal in the industry since the effective rate is only about 23 percent after exemptions. This is the reason the marginal tax cut in the last budget hasn’t received much response. The government will have to act to regain losing momentum by offering industry a temporary stimulus.

Fourth, it is even more critical now to resolve the cash crunch as fast as possible and bring things back to normalcy. The government can’t expect a miraculous shift to digital payments in a few months replacing a world of cash. Estimates are that 70 percent of the economy still transacts in cash. Pulling out 86 percent cash in one go in a country like India and then facing a cash shortage could be compared to an act of removing blood out of a healthy human body to filling it again with better quality blood, only to realize that there is not enough stock!

Until 19 December, the RBI has infused only Rs 5.92 lakh crore into the banking system as compared with deposits worth Rs 12.44 lakh crore in old Rs 500, Rs 1,000 currencies. Of the total 22.6 billion pieces of notes of various denominations infused, only 2.2 billion belonged to higher denominations of Rs 2,000 and Rs 500. It is not clear how many of the 2.2 billion is in Rs 2,000 notes and how many are Rs 500 notes. Herein lies the problem. The ongoing cash crunch, according to bankers, is mainly due to shortage of the new Rs 500 notes. An end to the current cash crunch is possible only when there is enough Rs 500 notes coming out of the government mints.

But the tricky part for the Modi government will be to find the fiscal space to spend more simultaneously keeping the fiscal roadmap intact. It needs to meet a 3.5 percent fiscal deficit target for the fiscal year 2017. Given that demonetisation itself is unlikely to give any major fiscal boost, the only hope is for the taxmen to dig out substantial chunks of illegal cash from the system from the funds that reach bank accounts either through the black money declaration scheme or raids contributing to the exchequer. Handling a bigger budget, including that of the Railways, is another challenge. “There is a big monster called the Railway budget coming as part of the general budget this year. This can sharply spike numbers on the expenditure. How will the government handle the new situation is worth watching,” said Devendra Pant, chief economist at India Ratings and Research. The expected boost to tax kitty from more number of digital transactions will come, but only at the beginning of the next year.

The short point here is about balancing Union Budget 2017 with the much-required economic stimulus while keeping the fiscal deficit roadmap intact. This will be a trial by fire for the Modi-government.

First Published On : Dec 27, 2016 13:42 IST

Demonetisation: PM Modi to discuss jobs, agri woes with NITI Aayog officials, experts

Prime minister Narendra Modi will meet NITI Aayog officials today to discuss the demonetisation impact on the economy and also to plan for the Union Budget to be presented on 1 February, according to media reports.

The government’s surprise decision to demonetise Rs 500 and Rs 1,000 notes on 8 November has impacted the consumption demand resulting in a cash crunch. A section of experts think the government or the RBI was not prepared to handle the situation effectively. The currency printing presses under the central bank and government had not printed enough cash of smaller denomination currencies even as the move sucked out about 86 percent of the currency in circulation.

Prime minister Narendra ModiPrime minister Narendra Modi

Prime minister Narendra Modi

The prime minister’s meeting with experts assumes significance as the cash crunch persists even as the deadline of 30 December, when Modi has promised the pain will end, is nearing.

The shortage has resulted in huge job losses in the informal sector, with construction workers being laid off in hordes.

Textile, tourism and jewellery sectors also have witnessed deep impact as slowing demand is pulling down the sales. Also, agriculture is another sector that has been crippled as farmers are holding back rabi sowing because of their inability to buy seeds and pay for the labour owing to the persisting cash shortage situation.

Many brokerage houses and economists have already reduced the GDP growth target for the current year, citing sluggish economic activity after the demonetisation announcement.

Meanwhile, the government’s efforts to push for transition into cashless economy has not paid off due to various issues including low internet penetration and speed.

According to a report in The Times of India, agriculture sector and jobs will be the focus area of the prime minister’s meeting today with NITI Aayog, which is expected to start at 11 am in the morning.

The meeting will be attended by 13 experts, including finance minister Arun Jaitley, NITI Aayog vice-chairman Arvind Panagariya, secretaries and a few others from outside, said reports in ToI and the Business Standard. The theme of the meeting, the ToI report says, is ‘economic policy: the road ahead’.

Apart from those mentioned above, according to the CNN-News18 report, the experts include Vivek Dehejia, professor with Carleton University in Canada, economist Surjit Bhalla and NITI Aayog chief executive Amitabh Kant.

The BS report says the team will have an initial discussion in the morning and they will split into three groups, who will again deliberate on the issues. They will again present their discussion outcomes in front of the PM in evening.

First Published On : Dec 27, 2016 10:24 IST

Demonetisation deadline: Does govt has no plan to get back crores of NRI ‘white money’?

Despite all the love sprayed on NRIs and those multiple Pravasi Divas conventions held in various parts of the country for various ministers to iterate their love for Indians abroad the week of good cheer is a bit soured.

With good reason. As airlines hike up the cost of tickets by nearly 250 percent (from the Gulf for sure) and families largely opt to stay home there is also a tangible sense of loss from the enormous vat of Rs 1,000 and Rs 500 notes lying around the diaspora.

Awash in cash? PTIAwash in cash? PTI

Awash in cash? PTI

Assessed officially at 30 million people but probably higher by another five million with about Rs 5,000 being taken as the modest average lying with each person it comes to a sizeable Rs 15,000 crore and running.

Most of us keep a reasonable amount in high denomination notes with Rs 25,000 being the outer limit as per law to avoid delays at Indian airports in making foreign exchange and simply pull out the wads that have been lying under shirts and saris or used biscuit and chocolate tins to take a cab home and, in case banks are closed, have enough for Day One and Two.

The stories of long queues and no money and cards not working have made for a change in touching the base.

Relatives in the home country already stretched to breaking point are also not too keen to having us descend upon them en masse.

Rumours and half-truths that the government is listening to last moment pleas from community representatives for a delay in the 30 December deadline for these notes to be vacuumed in don’t seem to have much grounds and the odds are the Not Required Indian will stay not required. Perhaps in the grand scheme of things the sum from NRIs is not astronomical but why lose it.

The Customs form allows us to bring in Rs 25,000 though most of us carry less on each visit. And we do not take back much, just the leftover financial debris of the holiday.

This year the stress level has a different texture to it. For one, there is this fear that carrying banned notes might cause hassles at points of entry. No one wants to be taken aside because they are carrying six or seven crumpled notes. There is no logic in the fear but it exists anyway…there have been enough scare stories on the social platforms to make everyone a little concerned…and hugely confused.

And it does not make sense spending Rs 30,000 per passenger and more for a Y class ticket to make the end of the year deadline when such a low cast carrier ticket usually goes for Rs 10,000 or thereabouts. The situation as it stands is that these Rs 150 billion will be consumed by the clock. Come to think of it, the total is probably much more.

That these crores are going to be largely lost to the exchequer seems to be of no concern to the authorities. Even blue-collar labour has a note or two, often placed in their wallets for good luck by tearful parents sending their sons and daughters to foreign shores when they leave home…a kind of ‘shagun’ that has now lost its meaning.

You would think that one of the mandarins in the Ministry of Overseas Affairs would say, uh oh, that is a lot of money let’s create a blueprint for getting it back and instruct all banks to allow these monies to be sent by courier to the accounts up to Rs 25,000 and let it be accepted.

After all, look at the delicious irony. It is not black money. it is bright, shiny, pristine white money that people want to return.

Allowed to be in our possession by law. So why are NRIs being penalised indirectly for not breaking the law. Echo answers who?

First Published On : Dec 23, 2016 19:37 IST

U.S. consumer spending slows; business investment perking up | Reuters

By Lucia Mutikani

WASHINGTON U.S. consumer spending increased modestly in November as household incomes failed to rise for the first time in nine months, suggesting the economy slowed in the fourth quarter after growing briskly in the prior period.But the economy remains on solid footing, with other data on Thursday showing new orders for U.S.-manufactured capital goods rising last month amid demand for machinery and primary metals, indicating that some of the oil-related drag on business spending was fading.And while the number of Americans applying for unemployment aid hit a six-month high last week, it remained below a level that is associated with labor market strength. The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2 percent after increasing 0.4 percent in October. When adjusted for inflation, consumer spending edged up 0.1 percent last month after a similar gain in October. But the moderation in consumer spending is likely to be temporary against the backdrop of a labor market that is near full employment and consumer confidence that is at cycle highs.Still, last month’s modest gain in consumption, coming on the heels of weak industrial production and housing starts in November, implied gross domestic product growth estimates for the fourth quarter, currently around a 2.6 percent rate, could be trimmed.The Commerce Department said in another report on Thursday that the economy grew at a 3.5 percent annual rate in the third quarter instead of the previously reported 3.2 percent pace. That was the strongest growth rate since the third quarter of 2014 and followed the second quarter’s anemic 1.4 percent pace. The upward revision reflected stronger growth in consumer spending, business investment in structures and intellectual property products than previously estimated, underscoring the economy’s solid fundamentals, which contributed to the Federal Reserve raising interest rates last week.The U.S. central bank lifted its benchmark overnight interest rate by 25 basis points to a range of 0.50 percent to 0.75 percent, also encouraged by a sturdy labor market. The Fed forecast three rate hikes in 2017.The dollar was trading lower against a basket of currencies. U.S. government bonds fell as did stocks on Wall Street.

Slower consumer spending last month held back inflation. The personal consumption expenditures (PCE) price index, excluding food and energy, was unchanged after edging up 0.1 percent inOctober. That lowered the year-on-year increase in the core PCE price index to 1.6 percent, the smallest gain since July. The core PCE index increased 1.8 percent in October, which was the biggest gain since July 2014. The core PCE is the Federal Reserve’s preferred inflation measure and is running below its 2 percent target.INCOME FLAT
Consumer spending last month was restrained by a 0.6 percent drop in purchases of long-lasting manufactured goods such as automobiles. Spending on services rose 0.3 percent.

Personal income was flat last month after increasing0.5 percent in October. Wages and salaries fell 0.1 percent. With consumer spending outpacing incomes, savings fell to $780.9 billion, the lowest level since May 2015, from $809.1 billion in October. While consumer spending might be cooling, there are signs that business investment is perking up after a prolonged slump.In a third report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.9 percent after gaining 0.2 percent in October. A collapse in oil prices last year, together with a surge in the dollar, pressured manufacturing. Much of the impact has been through weak business spending on equipment, which has contracted for four consecutive quarters.

With oil prices hovering above $50 per barrel, manufacturing, which accounts for 12 percent of the U.S. economy, is starting to show signs of life. Gas and oil well drilling has risen over the last several months.Economists expect business spending to rebound in 2017, driven in part by president-elect Donald Trump’s perceived business-friendly policies.The incoming Trump administration has promised to slash taxes, remove some regulations and increase infrastructure spending. But manufacturing gains are likely to be limited by renewed dollar strength in the wake of Trump’s victory.Since Trump’s Nov.8 election victory, the dollar has increased 4.4 percent against the currencies of the United States’ main trading partner on concerns that the business mogul’s policy agenda could fan inflation.Last month, shipments of core capital goods rose 0.2 percent after falling 0.3 percent in October. Core capital goods shipments are used to calculate equipment spending in thegovernment’s GDP measurement.A third report from the Labor Department showed initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 275,000 for the week ended Dec. 17, the highest since June.Despite the increase, it was the 94th straight week that claims were below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970, when the labor market was much smaller. Claims tend to be volatile around this time of the year because of different timings of the various holidays. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 6,000 to 263,750 last week. (Reporting by Lucia Mutikani; Editing by Andrea Ricci)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Dec 22, 2016 21:58 IST

RBI U-turn on Rs 5,000 deposit rule: It’s time for Central bank to come out of its trance

The Reserve Bank of India (RBI) has done well by removing restrictions on deposits above Rs 5,000 for the remaining days of this month when the deadline to surrender old, invalidated currency expires.

Though Wednesday’s RBI notification is silent on the reasons for reversing the move, it is obvious that the decision is triggered by widespread criticism against its earlier directive that required anyone who wanted to deposit over Rs 5,000 in old currency to face questions by two bank officials on why he/she didn’t do it earlier.

Even if one makes multiple deposits that add up to more than Rs 5,000, the restrictions would have kicked in.

This was a breach of promise and lacked logic as this writer said in an earlier Firstpost column.

Reserve Bank of India (RBI). ReutersReserve Bank of India (RBI). Reuters

Reserve Bank of India (RBI). Reuters

The new RBI notification, which says the old directive will not apply for KYC compliant accounts, would mean that almost all genuine customers will escape the unnecessary scrutiny, since majority of bank accounts are now KYC compliant. The only exceptions, perhaps, are Jan Dhan accounts which were opened with loose KYC norms and fraudsters.

The Rs 5,000 limit was absurd looking at the purpose (tackling tax cheats) from any angle. Any large deposit in any kind of account should naturally trigger scrutiny by bankers and taxmen to check likely money laundering. For this the government and the RBI didn’t need to trouble all customers and bank officials at a time when the common man is already feeling the pain of an artificial cash crunch.

Besides, such a restriction contradicted the repeated promises of Prime Minister Narendra Modi and Finance Minister Arun Jaitley that people do not need to rush to bank branches to deposit their old currency since there is time till 30 December.

In hindsight, the many flip-flops by the RBI and the government show the lack of planning and coordination among the top authorities who handle the demonetisation implementation. There are reasons to believe that the central bank isn’t in control of the situation and experts have pointed fingers at the erosion in the credibility of the central bank, an institution that is known for its ability to drive the economy through even worse phases with skill and conviction.

It was clear the Rs 5,000 deposit rules will hit the common man hard. Those who would have waited for the queues at the banks to get shorten to deposit their old currency savings, were taken by surprise with this rule. Remember, a number of time rules have changed for the common citizens on cash withdrawals and deposits. Last month, the government had abruptly stopped the currency exchange facility at bank counters after initially promising until 30 December. Bankers, at one point, even inked customers to ensure people don’t withdraw cash beyond certain specific limits, reminding one of war-time rationing. All this created more panic and confusion among the public.

Demonetisation, in the scale the Narendra Modi government has undertaken (pulling out 86 percent of the currency in circulation), has no parallel among major economies.

The entire world is watching this episode in India as a rare case study of a botched up economic reform plan. No one has a clue on where this is taking the Indian economy – the fastest growing major economy in the world – in the days ahead. In this backdrop, there is a closer scrutiny on the Indian central bank and government by global economy watchers and investors on each and every stage of demonetisation.

Here frequent flip-flops in rules only does damage to the credibility of the economy and its political and economic institutions.

As of now, there are a few missing links in the demonetisation plan that the central bank needs to clarify, including the number of new Rs 500 and Rs 2,000 notes printed, giving guidance to the public on until when the cash crunch will last and what is the cost of the exercise to the economy.

Except for assurances there is enough cash in the system, the RBI hasn’t offered specific details of the currency operation that is underway to ease panic. The RBI assurances do not reflect on the ground as still ATMs run dry and bank branches ration money. So far, since the 8 November demonetisation announcement, there have been 60 circulars issued by the finance ministry and the RBI. This points to a lack of planning and hold of the situation.

The RBI should make up its mind and guide the economy and the general public through this uncertain phase. Though demonetisation began as a political decision, the responsibility to ensure that this does not harm multiple spheres of the economy equally lies with the central bank which is the authority of monetary policy and currency in circulation. It’s high time the RBI came out of the trance and took control of the situation.

First Published On : Dec 21, 2016 15:24 IST

Dozens of Afghans deported from Germany as Merkel takes firmer line | Reuters

By Mohammad Aziz and Madeline Chambers

KABUL/BERLIN A group of 34 rejected Afghan asylum-seekers arrived in Kabul from Germany on Thursday, the German interior ministry said, the first to be deported under an agreement reached between the two countries this year.Their expulsion is in line with a tougher approach from the government of Chancellor Angela Merkel, who has faced domestic criticism for letting in more than a million migrants since the start of 2015. As she prepares to run for a fourth term next year, she is throwing out those who do not qualify as refugees.”It was early morning and I was sleeping when four policemen came to my home and arrested me,” said Ali Madad Nasiri, one of the men on board a charter plane that landed in the Afghan capital from Frankfurt.”I didn’t have a chance to take my clothes, cellphone and laptop – all left behind,” added Nasiri, who said he had been living in Germany for three years.Afghans made up a fifth of all migrants entering Europe last year, the second biggest share after Syrians. The deportations are taking place under an agreement reached between Germany and Afghanistan in October. Making clear that more would follow, Interior Minister Thomas de Maiziere said in Berlin that granting asylum to those who need it and ensuring that others leave are two sides of the same coin.Only people who can prove they are refugees fleeing persecution, war or violence are eligible for asylum.

“These deportations are right and necessary to keep the asylum system functional,” said de Maiziere.He added that one-third of those deported were criminals convicted of offences, from robbery and drugs crimes to rape and homicide. Of the 50 men due on the plane, 16 had disappeared.

In response to criticism that returnees may face reprisals in Afghanistan, de Maiziere said that while the security situation was “complicated”, there were large parts of the country that were safe. More than 3,200 Afghans had voluntarily left Germany this year, he added.The Afghan Ministry of Refugees will help returnees get back to their homes, a ministry spokesman said, adding that about 10,000 Afghans had returned from Europe this year.The mass influx of migrants and refugees to Germany has raised concerns about security and integration. The arrest this month of an Afghan refugee suspected of raping and murdering a student in the southern city of Freiburg has caused outrage.

Anti-immigrant groups such as the Alternative for Germany (AfD) party have surged in popularity, while support for Merkel has waned.Afghanistan’s Western-backed government is battling militants who have stepped up attacks since the withdrawal of most foreign troops in 2014. Western military officials estimate the Taliban control or contest nearly a third of the country. Civilian casualties are near record high levels, with thousands killed and wounded every year. The government is also struggling to develop the economy.”Everyone loves his country. I also love my country but what should I do here?,” said Mati Ullah, 22, who said he had no job prospects in Afghanistan. “Do I have to go and join the Taliban or Daesh?” he asked, referring to Islamic State militants. (Writing by Randy Fabi, Michael Nienaber and Madeline Chambers; Editing by Robert Birsel and Mark Trevelyan)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Dec 15, 2016 21:28 IST

Demonetisation: ADB slashes India’s 2016 growth estimate to 7%

New Delhi: The Asian Development Bank (ADB) today trimmed its 2016 growth estimate for India to 7 percent from the previous 7.4 percent on account of demonetisation, weak investment and agricultural slowdown.



But India’s growth forecast for 2017 was kept at 7.8 percent.

“Economic growth in developing Asia remains broadly stable, but a slight slowdown in India has trimmed the region’s growth outlook for 2016,” said the new ADB report.

In a supplement to its Asian Development Outlook 2016 Update report, ADB has downgraded 2016 growth for Asia to 5.6 percent, below its previous projection of 5.7 percent. For 2017, growth remains unchanged at 5.7 percent.

“India’s tempered growth projection to 7 percent from the previously forecast 7.4 percent in 2016 is due to weak investments, a slowdown in the country’s agriculture sector, and lack of available cash due to the government’s decision to ban high-denomination banknotes,” ADB said.

The junking of old 500 and 1,000 rupee notes will likely affect largely cash-based sectors in the country, including small- and medium-scale businesses.

“The effects of the transition are expected to be short- lived and the Indian economy is expected to grow at 7.8 percent in 2017,” it said.

ADB said South Asia is the most dynamic part of the region, with growth expected at 6.6 per cent this year, down from the previous forecast of 6.9 percent. South Asia’s
growth is estimated at 7.3 percent in 2017.

China, it said, is on course to grow 6.6 percent this year and 6.4 percent in 2017.

First Published On : Dec 13, 2016 12:18 IST

Bitcoin hits highest levels in almost three years | Reuters

By Jemima Kelly

LONDON Web-based digital currency bitcoin hit its highest levels in almost three years on Friday, extending gains since India sparked a cash shortage by removing high-denomination bank notes from circulation a month ago. Bitcoin was trading as high as $774 on the New York-based itBit exchange, up almost 1 percent on the day and the highest since February 2014, having climbed almost 9 percent in the past month.

Bitcoin is a cash alternative that can be used for moving money across the globe quickly and anonymously with no need for a central authority to process transactions. It has climbed around 80 percent so far this year, far exceeding its 35 percent rise in 2015. Indian prime minister Narendra Modi announced a shock move on Nov. 8 to ditch 500 and 1,000 rupee notes – worth a combined $256 billion – that he said were fuelling corruption, being forged and even paying for attacks by militants who target India.

The cryptocurrency’s value has been highly volatile – after rocketing above $1,100 in 2013, it had fallen to around $150 by early 2015. But it has since stabilized, staying above $500 for the past six months.

(Reporting by Jemima Kelly; Editing by Jamie McGeever)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Dec 9, 2016 21:10 IST

One month of demonetisation: We are no wiser today than we were 30 days ago

“Why did God create astrology?” “So that economics would appear a more accurate science!”

This is a joke doing the rounds in certain circles these days. There’s another on two economists stranded on an island who made millions of dollars selling their hats to each other. Of course, both the dollars and the hats are imaginary!

Humour in the grim days of demonetisation is possibly because it’s been one month and economists are still to provide us with anything accurate on the topic. And the millions of rupees they keep talking about could be more fiction than real. Worse, as if demonetisation was not complex enough for the layman’s comprehension, we have a whole army of wannabe economists dabbling in faux punditry to bring about even more confusion.

So where are we four weeks after demonetisation by way of understanding what exactly it is? There is no clear answer, but here are some takeaways from the intense debate over it:

Representational image. PTIRepresentational image. PTI

Representational image. PTI

Never trust economists to agree on anything: The basic facts about demonetisation are clear to everyone: That 86 percent of currency, amounting to somewhere around Rs 15 lakh crore, is sucked out of the system; the money that does not come back to the banking system before 30 December is taken as purged; that swelling bank deposits would make available more funds with banks for use; that the organised sector in the Indian economy would get bigger; that there’s pain to ordinary people and disruption of their normal lives from the move; and so on.

Beyond this, it’s all creative thinking. Demonetisation has produced a great deal of literature. Read through all of them and you find economists of repute almost equally divided in their opinion on its benefits. You have dire predictions for the economy as well as those dripping optimism, and contradictory views on how much the GDP would contract or how much money would enter the system. Perhaps you would be swayed one way or the other given your political leaning. But in the end, you realise you are no wiser than when you started; beyond the original facts, everything else is gas. Economists confuse more than they clarify.

The rise of the inner economist: Before Prime Minister Narendra Modi‘s government undertook the demonetisation exercise, the ordinary people to economist ratio was in grave imbalance, perhaps in the range of 10,000,000:1. Now it is certainly better. We have a whole lot of simple people writing complex prose that only economists can produce. With Google as source of instant enlightenment, the tribe has expanded, nay exploded. But the arousal of the inner economist is not confined to this section only. Speak to auto-rickshaw drivers, maids at home, your regular milkman. They talk black money, notebandi and counterfeits with the conviction of experts. Demonetisation has certainly made economics more democratic.

Black money is something the other person has: The demonetisation debate was all about black money till the government decided to shift the focus to cashless transactions. No one is sure how much black money is lying around or what exactly constitutes such money — economists are still struggling to find a definitive number — but almost everyone in the queues outside banks are happy that those with black money have been dealt a nasty blow by Narendra Modi. Try to convince them that all hoarded money is not necessarily black money, or that clever people don’t make mattresses of their illicit money and they invest it elsewhere, you are likely to get a cold, hard stare. The blanket conclusion is the rich are rich because of black money. Demonetisation may have been hard on ordinary people but they won’t mind so long as the “rich” suffer too.

Indians can take a good deal of suffering: Call it Gandhian influence if you please: Indians have great tolerance for inconvenience if they are convinced that it serves a noble purpose. A month after they were made to stand in interminable queues and made to accept rationed cash there is still no harsh public reaction to demonetisation. Although there are signs of frustration, explosive anger outburst has been limited. A wicked interpretation would be to ask what else can they do but suffer. After every big incident in Mumbai — bomb blasts, the great flood, and terror attack — glowing tributes are paid to the never-say-die spirit of Mumbaikars. But does he have any option other than getting back to routine? That could be the case with all people at the queues. They would lose money if they lose patience. Thus the latter is certainly a bad idea.

Rest assured, after 50 days – the period Prime Minister Narendra Modi has sought from people – we would be exactly where we are now. One economist would be contradicting the other. Ordinary people would find themselves saddled with knowledge they don’t need. Economics would continue to be as inaccurate as astrology. Let’s wait and watch.

First Published On : Dec 9, 2016 15:51 IST

Manmohan Singh’s warning to Narendra Modi: Is demonetisation already a ‘mammoth tragedy’?

The choice of words of Manmohan Singh, former prime minister and an economist, for his column in The Hindu on demonetisation impact on India’s economy, beginning with the title, Making of a mammoth tragedy, should worry the average Indian. Even if one tend to discount the politics of Singh’s article, the former RBI governor’s warning on an impending economic crisis, that according to him, will mainly hit the poor, is worth paying a great deal of attention by his successor in PMO, Narendra Modi.

Singh begins the piece by lauding Modi’s intention—addressing black money, fake currency problems—but later goes on to say that what he has done to achieve this task will not only work but its ‘unintended consequence’ will harm the poor greatly. Singh said. “All black money is not in cash, only a tiny fraction is. Against this backdrop, the decision by the Prime Minister is bound to have obverse implications by causing grievous injury to the honest Indian who earns his/her wages in cash and a mere rap on the knuckles to the dishonest black money hoarder.” Singh, who had just recently warned about a 2 percent GDP decline following demonetisation, ends his article saying “It is my humble opinion that we as a nation should brace ourselves for a tough period over the coming months, needlessly so.”

Prime Minister Narendra Modi. AFPPrime Minister Narendra Modi. AFP

Prime Minister Narendra Modi. AFP

Is the former PM overstating the short-term pain caused by the demonetisation calling it ‘a mammoth tragedy’, launching a political attack intended to bulldoze a massive economic reform shouldered by his political rival–something and a missed opportunity for his government? Or is it an important caution from an economist-cum former central banker that should be an eye-opener even to his political enemies and the finance ministry?

It is too early to talk about the actual impact on the economy and its various stakeholders from the artificial cash crunch that is a consequence to PM Modi’s massive currency crackdown that has parallels in India only to the 1978 currency ban by Morarji Desai Government. But, some indications have begun to flow in, which indeed shows things have taken a bad turn for the economy though no one is sure how things will pan out from this point.

Let’s look at the available data so far and try understanding Singh’s caution.


The demonetisation announcement happened on 8 November. The only real numbers that gauge the economic activity in the month of November that is out is the Nikkei India Services Business Activity Index for manufacturing and services sectors. This is an important index economists and central bank track to fathom the trends in these key areas. The services sector PMI sharply fell to 46.7 in November from 54.5 in October—that is the biggest monthly drop since November 2008, just two months after the global financial crisis hit the economy following the US investment bank Lehman Brothers going bust in September. A reading of PMI above 50 typically shows economic growth, while a figure below 50 indicates contraction. “The latest set of gloomy PMI figures for the Indian service sector shows that companies were heavily impacted by the 500 and 1,000 rupee notes ban. Cash shortages resulted in fewer new business intakes, which in turn caused a fall in activity and ended a 16-month sequence of expansion ,” said Pollyanna De Lima, Economist at Markit and author of the report.

A decline, though not to this extent, was seen in the manufacturing PMI as well with the index shrinking to 52.3 in November from October’s 22-month high of 54.4. But, the PMI numbers do indicate both manufacturing and services have taken a major hit in November. One needs to wait and watch how things will pan out from here on when more data comes.

November auto sales

Then we have the auto sales numbers, which is a good indicator to know what is happening on the ground. According to PTI report, the vehicle sales across categories registered a decline of 5.48 per cent at 15,63,665 units, from 16,54,407 in November 2015. It is the steepest decline in 43 months when total sales had declined by 7.75 per cent in March 2013. Two wheelers and commercial vehicles are the segments that are hit most. According to Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales last month were at 2,40,979 units, as against 2,36,664 in November last year. Domestic car sales ticked up to 1,73,606 units as against 1,73,111 in November last year while that of commercial vehicles (CVs) was down 11.58 per cent at 45,773 units in November, SIAM said. According to this report, total two-wheeler market sales dropped by five per cent, with market leaders like Hero MotoCorp and Bajaj Auto witnessing major fall. Hero MotoCorp sold 4,79,856 units of two-wheelers in November, marking a fall of around 12.9 percent year-on-year, while Bajaj Auto saw sales dropping by 12 percent in November, and others reported a flat growth.

The RBI cues

The RBI’s approach to the demonetisation impact on the economy is bit perplexing, but the obtrusive caution is hard to ignore. In its latest bi-monthly policy review, the central bank has already cut the FY17 growth forecast to 7.1 percent from 7.6 percent, but not taking into account the full impact of demonetisation shock. “The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited,” the RBI said.

The RBI indeed acknowledges that there’ll be ‘short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector’. But the RBI’s larger assumption seems to be that there will be a recovery beyond short –term pain of cash-crunch. “ If the impact is transient as widely expected, growth should rebound strongly.”

But the central bank too only ‘expects’ that the demonetisation effect is ‘transient’ but it is not fully sure on the actual impact. “The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs (specified bank notes) which are still playing out.” In short, the RBI has no clue at this stage what the demonetisation will do to the economic growth. It primarily attributes the loss of growth momentum in second quarter to the downward revision and to the as yet unclear effects of note ban. This means, if things turn bad, the 7.1 percent growth projection could be revised downwards even further to 6-6.5 percent.

Job losses

There are indications of severe hit to the employments in the informal sector post after the government announced Rs 500, Rs 1,000 notes as illegal tender on 8 November. As Singh points out in his Op-ed, “more than 90 per cent of India’s workforce still earn their wages in cash. These consist of hundreds of millions of agriculture workers, construction workers and so on”. The pain and suffering of these segments, which constitute the majority is not quantifiable, but no government can shun the responsibility of massive losses in the country that is a consequence of a “well thought-out”, conscious policy action, which according to RBI governor Urjit Patel, “wasn’t done in haste”. We don’t have reliable figures on job data. But, according to a report in Financial Express, which quotes unnamed industry officials, “As many as 4 lakh people, mostly daily wagers, may have either lost their jobs or shunned work temporarily due to the lack of payment so far, and the number is only going to grow if the cash crunch persists.”

Even the Bharatiya Mazdoor Sangh, the labour wing of BJP’s ideological parent, Rashtriya Swayamsevak Sangh has raised an alarm about the huge hit on job losses. “”Under the new government, 1 lakh and 35 thousand job opportunities have been created so far but 20 lakh people have lost their jobs,” Baij Nath Rai, president of the Bharatiya Mazdoor Sangh, told The Telegraph. This is a serious situation indeed in a country where job creation is already a massive challenge. The onus, yet again, falls on the Modi-government here.

The big question is how long the pain will last. There is no clarity on this either from the government and the central bank. PM Modi talks about 50-days, his finance minister, Arun Jaitley speaks of two or three quarters and the RBI doesn’t seem to have an answer except assuring the public that there is enough cash out there and things are under “constant review”.

There are no two thoughts on the intentions behind the demonetisation exercise but when ultimately a cost-benefit analysis is done, and if the government finds little luck on recovery on unaccounted cash, the cost of this whole exercise will be enormous, far outweighing the gains that may include more people moving to non-cash transactions. PM Modi’s big task now is to ensure demonetisation doesn’t end up as a tragedy.

Data support from Kishor Kadam

First Published On : Dec 9, 2016 14:59 IST

30 days of demonetisation: Pros and cons of the Modi govt’s note ban move

The demonetisation of high value currency denominations featuring Rs 500 and Rs 1,000 notes were banned effective 8 November midnight by Prime Minister Narendra Modi in a televised announcement. Today is exactly one month since the ban on the outlawed notes was imposed, but things on the ground are yet to see any meaningful change in the overall scenario.

While it has been a daily struggle for lakhs and lakhs of people so far to get their money back from the ATMs or bank branches, let’s take a look at the positives and the weaknesses the demonetisation of notes could have on the people and the economy at large.

Pros: Since the decision to ban high value currency notes was taken in early November, the government has tried to portray the brighter side of the note ban and its benefits on the economy in the long run. The decision to ban high value notes was taken to weed out black money and counterfeit notes from the system which has been deep-rooted in the economy for the past many decades.

With 86 percent of the total money circulation wiped out from the system, the government plans to keep a tight leash on the corruption front. According to Ambit Capital report, the share of the informal economy in India could shrink from 40 percent to 20 percent and the formal organised sector will gain market share.

The sustained crackdown on black money will also prevent people from parking their savings in physical assets such as gold and real estate, and instead boost the flow of savings into the financial system. With the quantum increase in financial savings, the cost of debt capital in India should fall. Further, as saving rate increases, lending rates are likely to fall in the line. Through the demonetisation exercise, the government has been pressing hard to become a cashless economy and is encouraging more and more people to adopt the digital payments system for their transactions. The government wants people with smartphones to use the United Payments Interface (UPI) app for a cashless transaction. Besides banks, online wallet companies including Paytm, MobiKwik and Free-Charge, too, are promoting their online products and wooing customers to get away from cash-based transactions.

In the aftermath of demonetisation, reports also suggest that housing prices in 42 major cities across India could drop by up to 30 percent over the next 6-12 months.

Cons: Although several advantages of demonetisation rolling into the economy could be far-fetched, there are immediate challenges the economy is already staring at. Following the decision to ban the currency notes, the government’s lack of preparedness to deal with cash availability has hit the common man really hard. Despite the government’s assurance to improve cash availability on a daily basis, several banks and ATMs across the country continue to dispense little or no cash.

People in villages and semi-urban areas are worst hit as majority of the transactions are done through cash. The government’s constant flip-flops on withdrawal and deposit limits at bank branches and ATMs have put people in complete disarray. With one month past the note ban move, the problem doesn’t seem to be fully resolved as banks continue to face cash crunch.

The bigger threat arising out of demonetisation is the impact on the country’s economic growth. While brokerage Ambit Capital created shock waves by predicting that GDP growth will fall to 5.8 percent in 2017-18 from 7.3 percent estimated earlier, former Prime Minister Manmohan Singh, also an economist, echoed concerns by suggesting that demonetisation could contract the GDP by as much as 2 percent.

According to CPM’s Sitaram Yechury, since 8 November, four lakh jobs have vanished, and more than 31.9 million people employed in the textile sector or “government” sectors have not been getting wages. Construction and allied sectors, jewellery, textiles and real estate are some sectors where job losses, if not already happening, are imminent.

Similarly, 20-25 percent of the roughly 2.5 lakh workers in the leather industry have been adversely affected as they are daily wage workers. The industry has been hit particularly hard as 90 percent of the units are small and medium enterprises. In the jewellery sector, 15-20 percent of workers, who are paid daily, too, have been affected.

Economist Pronob Sen has also warned that a virtual shutdown of India’s informal sector could spell doom for employment.

Recently, the July-September growth numbers of 7.3 percent also came below analysts’ estimates. A day before, the Reserve Bank of India in its policy statement cut down growth forecast to 7.1 percent from 7.6 percent earlier for the current fiscal year.

Demonetisation one month: Jewellers feel the heat of cash crunch as gold sales slump nearly 90%

Gold shopping in India is an activity indulged by both the rich and the poor. Demonetisation has dealt a body blow to the world’s second-biggest gold consuming nation and consequently to the demand for gold, a must-have accessory in Indian weddings. Demand for gold jewellery has dropped as much as 80 percent with jewellery shops witnessing drastically reduced footfalls and low volumes.

A month later, footfalls continue to be lacklustre, especially, at a time when weddings are held across the country starting by the year-end till mid-February. Business has thinned down to a mere 10 to 15 percent, say jewelers.

Demonetisation has been the biggest crisis ever for the business, said Ashok Minawala, partner in the 80-year-old Mumbai-based Danabhai Jewellers and Sons. Ticket sizes have dwindled to below Rs 2 lakh and that is the budget most weddings are also trying to adhere too with the cash crunch enveloping the entire country.

Jewellery is a high value purchase and customers are putting their decision to shop for the yellow metal on the back burner as they are focussed on taking care of the essentials items. People are focused on having cash reserves until they can access their money easily given the fact that banks and ATM are cash-strapped and are rationing money.



Unless there is a wedding in the family which necessitates spending or buying a gift for a close relative’s wedding, people are reluctant to enter jewellery stores. “We do not see our regular customers coming into the stores anymore,” said Minawala. He pegs the drop in business to almost 40-50 percent where cheques are given for gold purchases. Sales in cash purchases of gold has plunged to over 50 percent, he said.

Lacklustre half year

The jewellery industry has seen highs and lows in the current year. The industry had shut shop post the budget when the government reintroduced a one percent excise duty on jewellery after four years.

Industry estimates the loss incurred on account of the strike to be at Rs 18,000 crore.

Dhanteras brought a shine to the yellow metal which was otherwise lacklustre for nearly six months. The country’s gold demand had fallen 30 percent to 247.4 tonnes during the first six months of 2016, from 351.5 tonnes in the year-ago period, as per World Gold Council.

India is the world’s largest gold consumer and imports a sizeable chunk of its total annual consumption of around 900-1,000 tonnes.


Since 9 November, the rush for gold has petered down to a trickle. The demand is down to almost 90 percent now, said jewellers. The reason for the fall can be mainly attributed to the limited availability of cash at ATMs and the banks in the country, said Sreedhar GV, chairman, All India Gems and Jewellery Trade Federation.

“We are witnessing a drop of around 75-80 percent. If there is not much circulation of money in the country due to demonetisation, business cannot be buoyant,” he said.

A month after demonetisation, the situation continues to be grim. Shailesh Sangani, director, Gitanjali Group, creators of Gili jewellery, said that though the trade has undergone several challenges particularly in 2016, demonetisation was the worst of it all. “We have been affected as sales has been dismal.”

Most jewellers said that they had clocked sales of 80-90 percent during Diwali and post-Diwali too and also on the day the demonetisation announcement was made. Now there is hardly 10 to 15 percent growth, they said.

In the south, the wedding season is on only until December and then mahurats or auspicious days begin post-January 15 till mid-March. But demonetisation has brought down business to almost 90 percent in the South. But some of them are happy at the trickle of footfalls in their stores. “We thought there would be hardly any business post-demonetisation,” said Ananthapadmanabhan, MD, NAC Jewellers, a 43-year-old jewellery chain with nine stores in Chennai, but is thankful that the wedding season has brought in a business of 20-25 percent.

“Usually, the big ticket buyers purchase their jewellery months in advance. It is the middle and lower middle classes who make their purchases closer to the wedding dates,” he said, adding that the latter’s purchases have been negligible so far. The footfalls to the store has begun to pick up to almost 20-25 percent because of small ticket purchases. After mid-December, non resident Indians arrive in the country to attend weddings or to buy jewellery, said Ananthapadmanabhan. He was worried wondering how their shopping behaviour would turn out to be under the prevailing circumstances post-demonetisation in the country.

Those jewellers dealing in small tickets like the south-based Muthoot Jewellers are seeing increased footfalls since the past week. The company deals in low-ticket purchases averaging 4 grams. “I don’t stock product and customers have to make bookings,” said Keyur Shah, CEO, Muthoot Pappachan Group, precious metals business. It has 3,500 stores across India.

Shah said that business was picking up and he was hopeful that it would be normalized by January 2017.

In the East in Calcutta too, limited shopping and footfalls have watered down the otherwise bright time of wedding season buys. P C Jewellers said the demand for wedding jewellery has fallen upto 60 percent due to demonetisation. The company expects the pent-up demand to drive revenue growth in the coming months.

Sangani said he expected this dismal phase in the gold jewellery business to continue until February.

In the south, in Tamil Nadu, Pongal is a big festival when jewellers are expecting sales to pick up. For rest of India, post makar sankranti (14 January), there is renewed interest. Until last year at least. However, the trader is not optimistic that trend will be evident in January 2017. “The only hope is Akshay Trithiya in April-May as of now,” said Sanghani.

Meanwhile, All India Gems and Jewellery Trade Federation (GJF), said the sales of jewellery have started to pick up slowly and there has been increase in cashless / credit and debit card / RTGS / NEFT / IMPS / cheques and pay order transactions over the last few weeks. Sreedhar of GJF  has urged the government to provide special consideration on cashless purchase of jewellery. “We urge the government to remove existing restrictive measures on cashless jewellery buying,” he said.

First Published On : Dec 8, 2016 15:14 IST

Demonetisation: Not the most effective tool to weed out corruption, eliminate black money

The currency demonetisation scheme of 2016 has invalidated approximately Rs 14,180 billion worth of high value currency, which is almost 86 percent of the total currency in circulation (31 March 2016: total currency in circulation Rs 16,454 billion).

The immediate effects of the demonetisation scheme are significant and manifold. The banks are raining deposit collections, which will eventually have a positive cascading effect on the economy as a whole. However, the unexpected and sudden announcement of the ‘demonetisation scheme’ has had a ‘knee jerk’ reaction on the level of economic activity in the country. All the cash dependent consumption led sectors, such as retail, wholesale, jewellery, hospitals, healthcare, diagnostics, trading, restaurants, transport, logistics are severely affected. Real estate/construction transactions, which are partly done in cash, have been affected jeopardising millions of construction jobs. A large proportion of the country’s labour force is employed in these sectors collectively. Therefore, the biggest concern of the demonetisation exercise is it’s far reaching consequences on India’s cash economy.

Cash economy
India is a cash intensive economy with a whopping 12 percent of GDP existing in the form of currency notes and coins in circulation. The ratio of money held in currency notes and coins to the



amounts held in bank deposits is 51:49. Indian citizens and businesses still prefer cash to other modes of payment. Cash transactions are free, final, irrevocable and instant. Cash is the preferred mode of payment due to habits, poverty, illiteracy and most importantly, lack of easy access to the banking system. Most Indians lack the means to use non-cash payment alternatives due to the low penetration of banking facilities in the country.

As per the World Bank estimates, approximately 35 percent of the Indian population above the age of 15 years have an account with a bank. Population having debit/credit cards are way below 10 percent of the total. These ratios further go down in case of ‘rural’ population and ‘female’ population segments. Within the 35 percent having an account with the bank, many are dormant accounts as the distance to travel to the bank branch; the travel time and the cost thereof are significant.

Year 2015 statistics suggests that 87 percent of the total transactions in India were in cash. This just suggests that we have sucked out most of the cash from the economy, leaving the cash economy gasping for breath.

Not all transactions in cash have a colour. It acquires colour only when cash is exchanged for illegal or contentious transactions or for undisclosed factor income (mostly to evade taxes). The cash economy, although highly susceptible to transforming into black, is extremely low cost and efficient and thus vibrant. The beauty of cash economy is in its speed and resiliency. Much of the rural and semi urban India thrives on cash economy, which gives them extremely efficient options of earning their livelihood despite lack of infrastructure. For example, the key source of cash transactions in India is its 10 million plus retail outlets. A very small percentage of these retailers have ‘Point of Sales’ (PoS) systems. Much of them neither have internet connectivity nor can they afford the transaction fees of operating the financial cards and hence prefer cash as a mode of payment.

Effects of demonetisation
The question is, can we risk putting the cash economy on a halt, although temporarily, in view of the fact that significant amount of labour force is employed therein and does not have access to banking services? If we are depriving the tiny retail stores, roadside vendors, low paying job workers without employment contracts, of currency and demanding them to undertake minuscule transactions through financial institutions on digital media, we are taking away their source of daily income and slowing down the economy significantly making it highly inefficient. Are we ready for a digital transformation? Even if our political ambition says we are, it will take a very high amount of time and costs to get them all on the digital banking platforms and educate them on the transactions, which may far exceed the benefits. Also, there are no alternative arrangements for the survival of the population.

The administration has claimed that the demonetisation scheme is intended to combat tax evasion, counterfeiting, wide spread corruption and the resultant black economy. But what quantum are we talking about?

As per the Indian Statistical Institute, Kolkata, counterfeit currency in circulation is estimated to be Rs 400 crore, 0.028 percent of the demonetised currency. As per the World Bank estimates, India’s black economy is in the range of 21 percent to 23 percent of its GDP (World Bank estimate 2007: 23.2 percent). In present GDP terms, the black economy could be approximately Rs 6,800 billion (2016 3rd quarter estimate of GDP Rs 29,628 billion). However, approximately 70 percent of the black assets, Rs 4,800 billion are estimated to be parked overseas, leaving approximately Rs 2,000 billion in the country, of which 5 percent to 6 percent are held in cash (data compiled from Income Tax raids).

Through ‘demonetisation’, we have targeted the minuscule of the big whole, disturbing the natural flow of the cash economy in the country, which is very much a part of the main economy. We also need to understand that currency demonetisation is a monetary tool, which will drain off existing stock of counterfeits and cash hoardings at one time but is incapable of targeting the structure and source of corruption and counterfeiting. As widely understood, black money is not equal to corruption; it is the result of corrupt activities, which are very wide in nature.

Demonetisation will not prohibit people from undertaking corrupt activities unless the tendencies and opportunities are rooted out. Corruption will continue with resultant assets merely changing their form and destination. Therefore, demonetisation of the currency at the cost of cash economy is not the most effective strategy to eliminate or control black economy. Instead, the Government should consider establishing infrastructure to track large financial transactions in key sectors, create a robust mechanism to identify and arrest tax evasion and focus efforts on penetration of the banking infrastructure in the country along with proper education. The key is to reduce the cash intensity of the economy not to suffocate it!

(The author is Partner ASA & Associates LLP. Views are personal)

First Published On : Dec 8, 2016 08:32 IST

Nearly 100 killed, hundreds hurt as quake strikes Indonesia’s Aceh | Reuters

PIDIE JAYA, Indonesia Nearly 100 people were killed and hundreds injured in Indonesia on Wednesday when a strong earthquake hit its Aceh province and rescuers used earth movers and bare hands to search for survivors in scores of toppled buildings.Medical volunteers rushed in fading evening light to get people to hospitals, which were straining to cope with the influx of injured.The Aceh provincial government said in a statement 93 people had died and more than 500 were injured, many seriously.Sutopo Nugroho of Indonesia’s national disaster management agency, said a state of emergency had been declared in Aceh, which sits on the northern tip of Sumatra island. “We are now focusing on searching for victims and possible survivors,” said Nugroho. His agency put the death toll at 94.Aceh was devastated by a massive earthquake and tsunami centred on its western coast near the provincial capital, Banda Aceh, on Dec. 26, 2004. That tsunami killed 226,000 people along Indian Ocean shorelines.Officials urged people to sleep outdoors as twilight fell, in case aftershocks caused more damage to already precarious buildings.

President Joko Widodo was expected to visit the area on Thursday, his deputy told media.Wednesday’s quake hit the east coast of the province, about 170 km (105 miles) from Banda Aceh. Nugroho said Aceh’s Pidie Jaya regency, with a population of about 140,000, was worst hit. Many victims had suffered broken bones and gashes and had to be treated in hospital corridors and hastily erected disaster tents, a Reuters witness said. Television showed footage of flattened mosques, fallen electricity poles and crushed cars.

A Red Crescent volunteer said health workers were struggling. “There aren’t enough medical staff,” the Red Crescent’s Muklis, who like many Indonesians uses one name, told TVOne. Nugroho said more than 1,000 personnel, including military officers and volunteers, had been deployed to help in disaster relief.

The U.S. Geological Survey said the quake struck just after 5 a.m. (2200 GMT Tuesday) at a depth of 17 km (11 miles). No tsunami warning was issued.At least five aftershocks were felt after the initial quake, the disaster management agency said.The region suffered massive destruction in 2004 when a 9.2 magnitude quake triggered a tsunami that wiped out entire communities in Indonesia and other countries around the Indian Ocean. Indonesia was the hardest hit, with more than 120,000 people killed in Aceh. (Additional reporting by Fergus Jensen in JAKARTA and Reuters stringer in PIDIE JAYA; Writing by Kanupriya Kapoor; Editing by Paul Tait, Robert Birsel)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Dec 7, 2016 21:23 IST

About 40 people feared dead in Pakistan plane crash | Reuters

By Jibran Ahmed and Asad Hashim

PESHAWAR/ISLAMABAD, Pakistan A plane carying about 40 people crashed on the slope of a mountain in northern Pakistan on Wednesday, with witnesses on the crash site saying there were unlikely to be any survivors.The military said 21 bodies had been recovered and rescue efforts continued.Pakistan International Airlines (PIA) said its plane lost contact with the control tower en route to the capital, Islamabad, from the northern region of Chitral. The airline said the plane crashed at 1642 local time (1142 GMT) in the Havelian area of Khyber Pakhtunkhwa province, about 125 km (77 miles) north of Islamabad.”All of the bodies are burned beyond recognition. The debris is scattered,” Taj Muhammad Khan, a government official based in Havelian, told Reuters.Khan, who was at the site of the crash, said witnesses told him “the aircraft has crashed in a mountainous area, and before it hit the ground it was on fire”.Images shown on Pakistani TV channels and circulated on social media showed a trail of wreckage engulfed in flames on a mountain slope.Irfan Elahi, the government’s Aviation Secretary, told media the plane suffered engine problems but it was too early to determine the cause of the accident.PIA said the plane was carrying 48 passengers, including five crew members and a ground engineer. But Sohail Ahmed, a PIA official in Chitral, said there were 41 people on board, while the Civil Aviation Authority (CAA) earlier put the number of people on board at 47.

A local trader at the site of the crash said the fire was still burning nearly two hours after the crash, with rescue officials now on the site.”They are removing body parts,” trader Nasim Gohar told Geo TV.The military said it had sent troops and helicopters to the site of the crash.A PIA spokesman said the dual turboprop engine plane lost contact with the CAA at around 4.30 p.m. (1130 GMT).”PIA is doing everything possible to help the families of passengers and crew members,” the airline said in a statement.

Junaid Jamshed, a well-known Pakistani pop star turned evangelical Muslim cleric, was on board the crashed aircraft, according to Ahmed, the PIA official in Chitral.Jamshed, a singer in one of Pakistan’s first major rock bands in the 1990s, abandoned his singing career to join the Tableeghi Jamaat group, which travels across Pakistan and abroad preaching about Islam.In his last tweet, Jamshed posted pictures of a snow-capped mountain, calling Chitral “Heaven on Earth”. The region is one of the most popular tourist destinations in Pakistan.

According to the flight manifest, there were three people on board with foreign names.Plane crashes are not uncommon in Pakistan and safety standards are often criticised. In recent years, media have reported on multiple near-misses as planes over-ran runways and engines caught fire.In 2010, a passenger plane crashed in heavy rain near Islamabad, killing all 152 people on board. Two years later, a plane operated by a private Pakistani company, with 127 people on board, crashed near Islamabad. All on board were killed.PIA has also suffered major disasters in the past. In 1979 and 1992, PIA jets crashed in Jeddah, Saudi Arabia and Kathmandu, killing 156 and 167 people, respectively.In 2006, a PIA plane crashed near the central city of Multan killing 45 people. (Additional reporting by Mehreen Zahra-Malik and Amjad Ali in ISLAMABAD and Gul Hamad Farooqi in CHITRAL,; Writing by Drazen Jorgic; Editing by Ralph Boulton)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Dec 7, 2016 21:04 IST

Demonetisation will not put an end to black money-generation, says economist Arun Kumar

Weeks after the government startled all with the demonetisation move, black money continues to be the biggest talking point in the country. However, much of the discussion on the subject is less than informed and it confuses more than it enlightens the lay person.

In an exclusive interview with Firstpost‘s, Debobrat Ghose, Prof Arun Kumar, noted economist and author — The Black Economy in India, , who is an authority on the subject of black money said that the government’s move would not be a sledgehammer blow to generation of black money. Instead, he believes that it would leave the economy in trouble and people harassed.

Here are the five major takeaways from the interview:

Professor Arun Kumar, Centre for Economic Studies, Jawaharlal Nehru University.Professor Arun Kumar, Centre for Economic Studies, Jawaharlal Nehru University.

Professor Arun Kumar, Centre for Economic Studies, Jawaharlal Nehru University.

Hoarded money is not necessarily black money
The demonetisation move may demobilize only a small part of the stock of black wealth held in the form of cash, but it won’t stop the flow. The need is to stop black income generation which results in generation of black wealth. Income needs to be distinguished from wealth, and so black money should be distinguished from black income. Black money is only a tiny part of the black wealth that has been accumulated. Black income generation will continue due to the existence of a large large number of mechanisms by which it is generated, such as businesses resorting to under and over invoicing; manufacture of spurious drugs; charging of capitation fee for admission in school and colleges; adulteration of food, etc.

Black money is largely circulating in businesses. It’s black wealth that is parked. First, we need to understand the difference between black money, black income and black wealth. It’s not the same. Black money is possibly less than 1 percent of the black wealth.

The demonetisation move won’t put an end to generation of black wealth. The actual people behind black wealth are not being targeted. The misnomer is that black economy means cash. That is where the understanding of the government is lacking. They are thinking that if they demobilize the cash, the black economy will collapse. It won’t.

Demonetisation is no silver bullet against fake currency
Demonetisation won’t end fake currency problem either. According to the RBI, fake currency amounts to only Rs 400 crore of the total currency in circulation of Rs 17.5 lakh crore—which is a minuscule amount. Fresh printing and import of counterfeit currency will not stop with demonetisation. Counterfeit currency is used to finance terrorist activities and those involved in it ensure that it is constantly generated. The printing of fake currency has to be stopped. If the old notes could be counterfeited, so can the new ones too, despite having advanced features. So, extinguishing fake currency one time is not going to help.

Move will leave the economy hobbling
The Rs 1,000 and Rs 500 denomination currency notes constituted 86 percent of the currency and it has been sucked out of the system. It’s like taking out 86 percent of blood from a person’s body. Imagine, what will be the effect! He will die. Same is with the economy. New currency is only slowly trickling in, which is inadequate to restore the flow of incomes. There’s a decline in footfalls in malls; small traders are unable to sell goods; circulation of income is slowing down; the farmers, households, small producers, transport sector – all are hurt due to fall in demand. The poor, the daily wage earners in the unorganized sector are the worst sufferers. If the situation continues for a longer period, it’ll have a cascading effect on the economy. The cash shortage will not be sorted out early because of inadequate printing capacity. So, demand will be affected for much longer than 50 days. This can result in irreversible changes setting in like increase in NPA, unemployment and decline in investment, so that India may head into a recession and not just a decline of GDP by 2 percent.

The circulation of money is like blood flow in the body. If there is a shortage of that, then there is a problem. In the coming months, newer problems will crop us as a result of demonetisation.

Scale of operation is the problem; may not be the intent
Prime Minister Narendra Modi has rightly said that black money menace is the source of poverty, flight of capital and corruption. But, it needs to be clarified why such a drastic step like demonetisation is not the solution, but will jeopardise the economy instead. It’s a wrong move.

In 1978 when Rs 10,000 and Rs 5,000 notes were banned, it didn’t make any noise. The common man wasn’t affected because these high-value currency notes were not used by them. It was with the super rich and it constituted a very small portion of the currency. What was being circulated then were Rs 10 and Rs 100 denomination notes. So, it didn’t touch the day-to-day lives of people. In contrast, at present the common man, including lower middle classes had been using Rs 1,000 and Rs 500 notes. The Rs 1,000 and Rs 500 denomination notes constituted 86 percent of the currency—worth Rs 14.5 lakh crore. The government, in a single stroke has scrapped such a large volume of currency, which was in circulation, without having an alternative arrangement in place. It has created chaos and panic.

Due to lack of advance preparation, almost every day there is a change in policy related to exchange of old notes. The banks and the ATMs are still not equipped to dispense the volume of cash needed by the people. Even today, almost after 30 days, there are long queues at bank branches and outside the ATMs. The salaried class and pensioners are facing a tough time to withdraw their salaries and pensions.

Lingering cash pain
With liquidity sucked out of the system, even if temporarily, money supply has become a problem. Replacing 86 percent of the currency may take many months. You have to replace quickly the Rs 500 and Rs 1,000 notes worth Rs 14.5 lakh crore printed over the years. If you are printing Rs 100 notes, you need to print 10 times more notes than for a Rs 1,000 note and that will take a lot more time. Had the government prepared properly and managed to create enough supply of cash, this pain would have been less. But given the hoarding of currency and printing of small denomination currency notes and shortage of ink and paper, it can take even a year for the supply of currency to become normal.

First Published On : Dec 7, 2016 13:03 IST

Wounded Kashmiris blocked from medical help during clashes – rights group | Reuters

By Nita Bhalla

NEW DELHI (Thomson Reuters Foundation) – Indian security forces in Kashmir blocked medical care for injured protesters by firing on ambulances, holding up emergency vehicles and preying on hospital patients during clashes in the restive region this year, a health rights group said on Tuesday.At least 80 civilians were killed and more than 10,000 wounded in almost five months of clashes between protesters and security forces, sparked by the killing of a leading separatist militant in a joint army and police operation on July 8.Physicians for Human Rights (PHR) said not only did police and paramilitary forces use excessive force during the unrest, they also delayed wounded people seeking medical attention, increasing the likelihood of permanent injuries and deaths.”Such delays in care are violations of the longstanding protections afforded to medical workers and facilities in times of conflict and civil unrest,” said Widney Brown, director of programs for PHR, a New York-headquartered advocacy group.”What’s more, the doctors we interviewed said police were present in their hospitals, intimidating patients and monitoring those being admitted.”The report also said security forces harassed medical workers attempting to treat protesters and prevented doctors from reaching the hospitals where they work.

Police in Kashmir said they would respond to the allegations once they had studied the PHR report. Kashmir is at the centre of a decades-old rivalry between India and Pakistan, which rules a northwestern section of the divided region, and backed an insurgency in the late 1980s and 1990s that Indian security forces largely crushed.The unrest, sparked by the killing of Burhan Wani, a popular separatist militant leader, is the worst in the Muslim-majority Himalayan region for six years, and critics accuse Indian security forces of heavy-handedness in quelling the protests.

Many of those killed in the clashes died from shotgun pellets or rifle bullets fired by police and paramilitary troops. Hundreds of bystanders were blinded by the pellet rounds, the report said.While Indian authorities say the use of such weapons was meant to reduce the potential for injuries or fatalities, PHR found that their use actually caused serious injury and death.Police in Kashmir say pellet guns are non-lethal weapons but they have been fired from short distances in “unavoidable circumstances” when protesters target security forces.

PHR’s report – based on hospital records and interviews with doctors, witnesses and victims – found police used 12-gauge shotguns loaded with metal pellets that directly caused an estimated 5,200 injuries and at least a dozen deaths. “Injuries inflicted by ‘less than lethal’ weapons like pellets, rubber bullets, and shot guns require early medical intervention to avoid permanent or debilitating injury, including loss of life,” said the report.”In Kashmir, delays in accessing medical care for hundreds of injured protesters increased the risk of permanent damage, including for those with eye injuries.” (Reporting by Nita Bhalla. Additional reporting by Fayaz Bukhari in Srinagar. Editing by Katie Nguyen.homson Reuters, that covers humanitarian news, women’s rights, trafficking, corruption and climate change. Visit

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First Published On : Dec 6, 2016 18:14 IST

Demonetisation seals RBI rate cut deal, but that will not reboot a battered economy

Most of the originally stated results of the demonetisation exercise—killing black money, corruption and terror, are disputed now by experts. It is too early to assess these outcomes. But, if there is one result for certainty with regard to the massive currency crackdown, then that is a rate cut from the Reserve Bank of India (RBI) on Wednesday (7 December)—which, perhaps, wouldn’t have happened under normal circumstances, when the rupee is struggling to recover and global factors are at play.



Most economists forecast a quarter percentage point rate cut decision by the Monetary Policy Committee (MPC) that will be read out by governor Urjit Patel, but even a 50 basis points cut in the key lending rate of RBI repo, at which the central bank lends short-term funds to banks, cannot be ruled out now given the deep slowdown fears in the economy after the government sucked out 86 percent currency in circulation overnight on 8 November while executing the demonetisation plan.

What this means is that the MPC and the RBI are left with no option but to take a growth supportive stance sooner than it thought, said Radhika Rao, economist at Singapore-based DBS Bank. “Ahead of the looming US rate hike at the mid of this month and ongoing volatility in domestic financial markets, especially the weak rupee, the MPC would have ideally preferred to wait-and-watch before easing rates,” Rao said.

“However, the government’s recent banknote ban has raised downside risks to growth for at least two quarters, starting 4Q16. Scope of food inflation dragging headline inflation lower also keeps the door open for an easy policy bias. These are likely to prod the MPC to consider a 25bp rate cut on Wednesday, followed by another cut in 1Q17,” Rao said.

It is indeed true that demonetisation has resulted in a cash crunch that has caused considerable pain on the ground. It is difficult to assess the actual impact yet. Small traders, construction workers, services sector, perishable goods market are all hit due to the ongoing cash-crunch. The activities in the informal sector have come to a standstill considering, even on conservative estimates, close to 70 percent of India lives on cash economy. There isn’t any consensus yet on the resultant impact on the GDP.

According to former Prime Minister, Manmohan Singh, the hit that the GDP growth will take will be as much as 2 percent. Many others predict 1 to 1.5 percent and some state that it could be less than one percent. But, almost everyone, like Rao of DBS, agree that the dragging effect on the economy will continue for at least two quarters.

The growth scene is not looking good if one goes by the latest GDP growth print. The July-September growth, despite a marginal improvement in the overall numbers to 7.3 percent in Q2 from 7.1 percent in the April-June quarter, has been disappointing since the only bright spot in the GDP graph is a minor improvement in the agriculture sector. Also, there is no sign of investment activity picking up yet.

Gross Fixed Capital Formation (GFCF), which portrays the actual investment activity on the ground, dropped by close to 6 percent at constant prices. Now remember, this parameter has been contracting for the last three quarters at least. That is not a healthy sign for an aspiring, ambitious economy. When investments don’t support a growth-revival, typically, a consumption-led recovery should come to the rescue. Now, what has been happening here is the government spending, which picked up from the last quarter in a major way, has actually dropped in the second quarter, from 18.8 percent in Q1 to 15.2 percent in Q2, in terms of constant prices. As against this, private spending has shown a marginal increase during the period — from 6.7 percent in Q1 to 7.6 percent in Q2.

In terms of current prices, the government expenditure has fallen to 20.8 percent on year-basis in Q2 from 24.3 percent in Q1. The corresponding numbers for private spending is 11.7 percent in Q1 to 12.4 percent in Q2, showing a minor rise. If one looks at sectors, except the growth shown in agriculture, all other segments —mining, manufacturing, electricity, construction and services such as hotel industry— have shown a decline. This means it is consumption that has been holding the growth story and remains the main growth driver. But, this is where the challenge lies ahead in the aftermath of the demonetisation exercise. The recent PMI data, the first set of economic indicators after the demonetisation exercise, shows a decline to 52.3 in November compared with 54.4 in October. Though, theoretically, a number above 50 is growth-positive, what it indicates is a slowing trend ahead. Services PMI fell even more sharply to 46.7 in November from October’s 54.5, the first time since June 2015 that the index has gone below the 50 mark that separates growth from contraction. It was also the biggest one-month drop since November 2008, just after the collapse of Lehman Brothers triggered the global financial crisis.

Will an RBI rate cut make any major difference at this stage to aid growth? It is doubtful for a few reasons.

First, if banks wanted to lend more to industries, they would have done so already. There is liquidity surplus already in the banking system. More than the availability of cash to lend, poor demand has been hurting loan growth, especially to industries. If one looks at numbers till October (just before the demonetisation happened), bank credit to industry contracted by 1.7 per cent in October 2016 in contrast with an increase of 4.6 per cent in October 2015, with all major sub-sectors witnessing deceleration, contraction in credit include infrastructure, food processing, gems and jewellery and basic metal and metal products.

Second, the problem of NPAs (non-performing assets) continues. Till the time the bad loan stock is cleaned up and bank balance sheets turn healthier, banks are unlikely to take more risks.

Third, the demonetisation and resultant chaos on the ground would mean that consumer spending will go through a dull phase in the near-term. Bankers do not expect any major pickup in consumer lending when the economy is looking at a prolonged downturn.

Nevertheless, a rate cut must happen on Wednesday’s RBI bi-monthly monetary policy review and the full credit for that should go to demonetisation. What most economists agree is that the solution to revert to the growth path lies in the following steps — 1) resolve the cash crunch at the earliest before it does more damage and get economic activities going, 2) boost public spending and work on ways to bring in more private capital to get the economic engine going, and, 3) make sure farm output doesn’t suffer on account of the currency shortage since a crop failure could stoke inflation further and erase the inflation gains. A rate cut from RBI would be of least help at this stage to reboot the economy.

First Published On : Dec 5, 2016 12:02 IST

Trump’s dilemma: slower job growth or rising rates and inflation? | Reuters

By Howard Schneider

WASHINGTON A drop in the U.S. unemployment rate last month to a 9-year low signals the risk of a collision between President-elect Donald Trump’s plans to goose the economy and the Federal Reserve’s efforts to tap the brakes with higher interest rates.Since Trump’s election, officials at the U.S. central bank have cautiously introduced the possibility that his spending and tax cut plans could prompt a faster pace of rate increases than the two hikes currently foreseen in 2017.An increase is already expected when the Fed meets in two weeks. Fresh economic projections, the first since the election, will also be issued and Fed Chair Janet Yellen will hold a news conference when the meeting concludes on Dec. 14.With November’s decline, the jobless rate is now already below the most optimistic projections from Fed policymakers for where it would stand at year end.If it keeps moving lower, Trump’s spending and tax cut plans may be adding fuel to a tank that’s already brimming. Possible new trade or immigration restrictions could make markets even tighter, and switch the Fed from worrying about the risk of deflation to fighting price rises before they get out of hand.”There is much more than the Trump election driving the … rally that started the day after the election,” Bank of the West chief economist Scott Anderson wrote. “We are seeing signs of a synchronized rebound in the global economy.”

When Fed policymakers issued their last projections in September, the lowest level predicted for the unemployment rate at the end of the year was 4.7 percent. In November, it fell three-tenths of a percentage point to 4.6 percent.The decline was partly due to a drop in the labor force participation rate, which officials have expected to begin falling again because of an aging population with more retirees. In general, the lower the unemployment rate, the slower the pace of job growth the economy can sustain without pushing up wages and prices too quickly.Policymakers insist they still have time to move rates higher to keep price increases under control. Several officials feel it may even help fix some of the damage from the 2007-2009 recession if inflation moved above the Fed’s 2 percent target for a while. That might, for example, allow steady wage increases to restore some of the ground lost by workers.

However, in recent months even ostensibly dovish officials, like Boston Fed President Eric Rosengren, have cautioned that steady rate hikes might be needed to avoid the need for even faster increases that could trigger a recession. “I view a small step up in interest rates as appropriate, not because I want to curtail the expansion, but because I believe it will help prolong the expansion,” Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday..Trump’s victory gives that debate more urgency. His plans for a big infrastructure spending package, tax cuts and tighter controls on immigration could test the limits of what the economy can absorb before overheating.

For a year now, Fed officials have said they expect job growth to slow as the economy nears full employment. It hasn’t happened, meaning Trump will take office at what may be a tough point of inflection: either job creation slows or inflation jumps.Jed Kolko, chief economist at the Indeed job site, said the current pace of job growth and low unemployment rate “sets a baseline for the Trump administration.””Recent wage gains and unemployment declines make this a tough economy to improve on,” he said. (Reporting by Howard Schneider; Editing by Tim Ahmann and Andrea Ricci)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Dec 2, 2016 23:34 IST

Note ban: When pizzas can get delivered, what’s wrong in having surrogates in queues

Bookmychotu is the quintessential example of Indian ingenuity. The same ingenuity that has the underground working on how to leap over the firewalls built as part of the assault on black money.

Surrogacy in the queue. PTISurrogacy in the queue. PTI

Surrogacy in the queue. PTI

First off, anyone who gets insulted by the word ‘chotu’ is being silly. It is not demeaning and just about every family has one person called ‘chotu’. It is just an expression of affection and there is nothing rude or nasty about it. To object to its use in the website offering you replacements on the grounds of this word is absurd. I am only sorry I didn’t think of something like this… it is a money spinner.

It just means youngster and it is fair to say that most of the people who can surrogate you in the queues at banks and ATMs are young people. You will not see octogenarians opting for the job of standing in the cold.

Some suggestions have been made that the portal is illegal and the offer should be stopped because it is dealing with proxies in money matters and has to be banned and it underscores laziness.

How is it any lazier than online shopping…it simply takes the hassle out of things.

As for being illegal, why? Where is it written that you cannot stand in for another and wait the several hours on payment and then call the actual bank account holder as you approach the teller?

Not only is a very good way of percolating money from the well off to the relatively poor but it increases efficiency.

Young people without jobs are waiting anyway. Waiting for a call to a flurry of CVs, that like Father Mckenzie’s sermon never get heard or read, waiting for someone to mend the broken promises that litter their winding road of unemployment, just waiting because waiting is the core of hope.

So, if someone is paying them to wait, it is a kind of a job and at least they are getting a wage to shuffle along.

If I had no job and the postman never knocked and I was just standing at a street corner doing nothing and feeling the world was a conspiracy and someone came along and said, I will give you Rs 100 per hour to stand in the queue and call me when you are about to get to the teller, I’d load up my phone with music take a cold drink and a bite to eat and join that queue so fast it would make your head spin.

And this is so organised. Those who cannot spend hours in line are now productive. Those who were doing nothing are at least making money.

And if indeed the customer does not come on time the honour system kicks in and you allow the person behind you to get his money and you keep saying ‘pass’ till your man arrives.

The people who thought this up are entrepreneurs in the extreme., Imagine, in all the noise and confusion and the heat and dust they sat around a table and said, “Hmm…, why don’t we offer a service and make money?”

Because that is all it is… a service and a convenience and a heck of a good way to make everyone happy.

If you can get your pizza delivered why not this?

First Published On : Nov 25, 2016 15:22 IST

Demonetisation: Economists, experts back Manmohan Singh’s prediction of GDP slowdown

Former Prime Minister Manmohan Singh has finally broken his silence on the central government’s demonetisation move, criticising his successor Narendra Modi over the decision to discontinue higher value currency notes. During a debate in Rajya Sabha on Thursday, Manmohan Singh said, “The GDP of the country will decline by about 2 percent by what has been done. And this is an underestimate and not an overestimate.”


Experts have agreed with the observations of the former Prime Minister — who is also an economist — and concurred that the decline in GDP could be as high as three or four percent.

“I don’t know on what basis Manmohan Singh has arrived at the figure of 2 percent, but in per my estimates, it’ll be more than that. It’s true that farmers, households, small industries and businesses have started getting adversely affected as transactions have become difficult due to the cash crunch in the market. By scrapping Rs 500 and Rs 1,000 currency notes in one stroke, which comprise 86 percent of the currency, liquidity has been sucked out of the system. So, how can the economy survive and for how long? I don’t see this crisis getting resolved in 50 days and may even continue for next seven to eight months; production will be hit. This will have an adverse impact on our GDP,” said Prof Arun Kumar, economist and author of The Black Economy in India.

Manmohan Singh took to the floor of the Upper House of Parliament on Thursday and launched a scathing attack on the government. He called the implementation of the demonetisation move a “monumental mismanagement” by the government, and urged Narendra Modi to come up with a slew of constructive proposals to rectify the situation.

Here are the salient features from Manmohan Singh’s speech on demonetisation:

The move may weaken the currency system
It will weaken people’s confidence in the currency and banking system
Small businesses, farming and cooperative banking have suffered the most
The cooperative banking sector isn’t operational
A monumental mismanagement in the implementation of demonetisation
About 60-65 people have even lost their lives

According to reports, ratings agencies have cut their estimates of India’s GDP growth in light of the move by the NDA government. Scrapping of Rs 1,000 and Rs 500 currency notes, in an attempt to curb black money, has led to a cash deficit, as banks are struggling to replace the demonetised currency.

“The move could also dent consumption growth in Asia’s third-largest economy, which would have otherwise received a boost from a bountiful monsoon. And, in the short term, the consumption that would have been fueled by black money will come to a halt,” Mint mentioned.

“GDP is the measure of total economic activities during the year. Though I can’t comment on the 2 percent figure mentioned by the former PM, it is true that there will be a decline in GDP. As there is no flow of currency in the market, economic activities have gone down, along with a decline in production as well. This will have an obvious impact on the economy,” said Surajit Mazumdar, economist and professor at Jawaharlal Nehru University.

Explaining the mechanism further, Mazumdar said, “Certain things get affected immediately, like the informal credit sector. And once they’re hit, effects can be longer than expected. For instance, if a producer or manufacturer is unable to sell his product and get money, he won’t be able to pay his debts. He won’t be able to set his credit, and it’ll hit him in the long term as well.”

But despite Manmohan Singh painting a gloomy picture, not everybody is convinced about it. Economist and senior fellow at the Centre for Policy Research, Rajiv Kumar, anticipates a 1 to 1.5 percent decline in the third and fourth quarters. “I fail to understand from where Manmohan Singh got 2 percent figure, and why did he say ‘demonetisation is an organised loot’. It’s a political statement. However, my hunch is that 1-1.5 percent decline in GDP in the third and fourth quarters, and by the end I expect GDP growth to be at 6 to 6.5 percent. Due to weakening of demand and transactions, the informal sector and the supply side have been hit. But this is just 30 percent; the other 70 percent is safe. So, we can’t say that it’s all dark,” Kumar added.

First Published On : Nov 24, 2016 18:09 IST

PM Modi app survey: Over 90% respondents back demonetisation move, term it bold

Despite the noise made by political parties against demonetisation led by Trinamool Congress chief and West Bengal Chief Minister Mamata Banerjee and her Delhi counterpart Arvind Kejriwal, who is playing the role of a capable deputy, the country’s tone on the move has turned to be overwhelmingly different as an online survey revealed Wednesday.

Prime Minister Narendra Modi. APPrime Minister Narendra Modi. AP

Prime Minister Narendra Modi. AP

The survey was conducted through the official app of Prime Minister Narendra Modi on Tuesday to gauge the mood of the nation  about the Centre’s move to spike the old Rs 500 and Rs 1,000 currency notes.

According to results published on, till 3.30 pm on Wednesday a whopping in just over 24 hours of the survey, over five lakh people have participated and expressed their opinion.

Unlike the drama on the streets by Trinamool Congress and Aam Aadmi Party volunteers, over 90 percent of the respondents feel the government’s move to tackle black money is above four-star rating while 73 percent of them give it a five-star rating.

On the overall fight against corruption, over 92 percent of respondents have rated the government as very good or good while 57 percent of them termed the fight as very good.

The survey revealed that as high as 86 percent people believed that some anti-corruption activists are now actually batting in support of black money, corruption and even terrorist financing!

The mood of the nation also came out in the comments made by some of those who took the survey.


“A bold and historic move indeed!!!!Kudos to the Honorable Prime Minister and his government!!!! I really feel, the inconveniences that we are facing are nothing compared to the long-term benefits which the economy will enjoy in the near future. I hope that the Honorable Prime Minister will continue taking such steps to curb the other social and economic problems which are still prevailing. Thank you!!!!,” said Suvojit Mukherjee.

One Jeetendra Yadav urged PM Modi not to rollback demonetisation despite such calls from some corners.

On Tuesday, Modi urged the people to participate in the survey through Twitter as since the announcement on 8 November the country did witness chaos with people continuing to line up outside banks and ATMs in interminably long queues.

“I want your first-hand view on the decision taken regarding currency notes. Take part in the survey on the NM App,” said Modi posting a link of the app on Twitter.

Following were the queries given in the form of multiple choice questions:

1. Do you think that black money exists in India?

2. Do you think the evil of corruption and black money needs to be fought and eliminated?

3. Overall, what do you think about the government’s moves to tackle black money?

4. What do you think of the Modi government’s efforts against corruption so far?

5. What do you think of the Modi government’s move of banning old Rs 500 and 1,000 notes?

6. Do you think demonetisation will help in curbing black money, corruption and terrorism?

7. Demonetisation will bring real estate, higher education, healthcare in the common man’s reach?

8. Did you mind the inconvenience faced in our fight to curb corruption, black money, terrorism and counterfeiting of currency?

9. Do you believe some anti-corruption activists are now actually fighting in support of black money, corruption and terrorism?

10. Do you have any suggestions, ideas or insights you would like to share with the PM?

“This survey is in sync with the Prime Minister’s vision of participative governance and directly seeking the views of the people of India on key policy and execution matters,” the PMO said in a statement.

With input from IANS

First Published On : Nov 23, 2016 19:51 IST

GST Council meet postponed to 2-3 December

New Delhi: With several states suggesting changes in the model GST and compensation laws, the GST Council meeting scheduled for November 25 has been postponed to 2-3 December.



The officers’ committee of both the Centre and states, however, will meet on 25 November to finalise the three draft legislations — CGST, IGST and compensation law. These will be placed in public domain for stakeholders’ comments.

The Centre proposes to introduce these legislations as money bills to ensure they are not stuck in the Rajya Sabha where the ruling NDA does not have a majority.

Sources said that since the legal changes in the draft laws would take some time, it was decided to postpone the 25 November meeting of the all-powerful GST Council.

“The states have suggested certain changes relating to returns procedures in model GST law. Also, they have asked for changes in wordings in compensation law. We will finalise the three draft laws at the 25 November meeting,” a source said.

The source, however, added that Centre is on track to introduce the legislations in the ongoing Winter session of Parliament, which ends on 16 December.

The officers committee would not discuss the issue of cross empowerment to avoid dual control as it would be decided at the ministerial level.

Centre had on November 16 circulated the draft legislation among the states. The officers committee in their meeting on 21-22 November discussed the issue, with states giving their views.

The Central GST (CGST) will be framed based on the model GST law. The IGST law would deal with inter-state movement of goods and services.

Also, the states will draft their own State GST (SGST) based on the draft model law with minor variations incorporating state-based exemption.

These laws deal with returns, registration and refund process as well as where GST will be levied.

The compensation law will list out how states will be compensated in the initial five years for revenue loss on account of GST rollout.

The Centre plans to create a Rs 50,000 crore fund for GST compensation by levying cess on demerit and luxury goods.

At its last meeting, the GST Council agreed on a four-slab structure – 5, 12, 18 and 28 per cent — along with a cess on luxury and ‘sin’ goods such as tobacco.

First Published On : Nov 23, 2016 17:07 IST

5 effects of note ban on the common man

<!– /11440465/Dna_Article_Middle_300x250_BTF –>As the country says goodbye to the old 500 and 1,000 rupee notes, and with restrictions on exchanging money and taxation on high amounts of deposits, Indian economy is going through some serious churn. But how is this going to affect the economy in the short run as well as the long run?Cash crunchThe 500 and 1,000 rupee notes were the largest denomination of money, which made up for 14 lakh crores in circulation. Demonetization has a direct impact on sectors dealing with cash—vendors, auto rickshawwallahs, taxi drivers, daily wage earners and small traders. The Indian system mainly functions on cash, and so, less cash means disruption in the flow. Even sectors like real estate, which deal with illegal cash transactions, will go through a rough patch leading to fall in profits.Interest ratesWhen money is deposited in the bank, one earns interest for the same. After the announcement of note ban, there have been huge cash deposits in banks. In fact, some of the leading public and private banks have reduced the interest rates on deposits. Depositors might get lesser interest on their deposits, but the good news is that it will have a long-term positive effect on the economy as the lending rate (interest rate on loan) will fall. This will boost credit and investment, to recover the slumping economy.InflationTotal cash available, and by this we mean the supply of money, has fallen, which may lead to deflationary pressures (general price level becomes lower). In effect, it implies less cash compared to the supply of goods. But as the price levels in India have been high due to high inflation, fall in money supply can actually help in bringing down inflation. With unaccounted money being wiped out, we can expect lesser pressure on demand. Fall in inflation will help the common man, because goods will now become cheaper.On the other hand, due to the slowing economy, if production falls more than the fall in the supply of money, then the demand for goods will overshoot the supply of goods, which in turn will lead to higher inflation. It all depends upon the effect on production and economic activity in the nation.The tax effectDeposits above Rs 2.5 lakh that have not been justified or declared to the income tax department will be penalised and taxed 200 per cent. This can help bring black money into the white money fold, making it legal. This can also provide revenues for government, which can be used to pay the deficit in the budget estimation. If economic activity is slow, then the indirect taxes (tax on goods and services) will be lesser than estimation. It all comes down to which is more, collection of penalties and taxes, or the fall in indirect taxes. Demonetization could be the first step in creating a ripple in the taxation policy before the Goods and Service tax (GST) rolls out.GrowthThe gross domestic product, which is a parameter to measure growth in the economy, will take a hit. Research firms have already cut growth estimates by 0.5 per cent. India’s economy could shrink as there are many sectors run by cash. There are a lot of businesses in the non tax-paying sector, which will now be formalised; they will have to give up their market share to the organised sector. This will cause shrinking of the economy and a fall in the growth.On the other hand, though there may be a fall in consumption due to shortage of cash, growth won’t take a hit as high demand and consumption during the recent festival time would offset the effect of fall in consumption and compensate for the fall. This process would also forcibly bring in huge amount of money from the informal sector, which was unaccounted for. This will help in the growth and therefore GDP would not face a negative impact.

Drop in sex trafficking cases in India may mask real number, experts say | Reuters

By Roli Srivastava

MUMBAI (Thomson Reuters Foundation) – India has seen a 70 percent drop in cases filed under an anti-trafficking law between 2001 and 2015, which experts attribute to a lack of reporting of the crime and more sex workers moving out of brothels to escape police detection among other factors.According to the latest data from the National Crime Records Bureau, the number of cases filed under India’s anti-trafficking Immoral Traffic (Prevention) Act fell to 2,424 in 2015 from 8,796 in 2001. The Act is one of a number of laws under which human trafficking and modern slavery are prosecuted in the country. The drop in sex trafficking cases is in contrast to a more than doubling of crimes against women recorded by the bureau over the same period, and could mask the real number of women trafficked into sex work across India, anti-slavery experts say. “A drop in numbers could be due to under-reporting or not filing of FIRs (complaints),” said Priti Patkar, co-founder of anti-trafficking charity Prerana.Campaigners estimate there are between three and 9 million victims of sex trafficking in India but say many do not come forward for fear of being ostracised by society, abused by their traffickers or not taken seriously by the police.

Many victims, often from poor backgrounds, are duped with the promise of a job before being sold into the sex trade. Michael Yangad, director of operations at campaign group International Justice Mission, said prostitution in India had become more covert.”Activity has moved from classical brothels to private places. In private networks too, unless a case is investigated or studied well, you are not sure if it is a case of sex trafficking,” he told the Thomson Reuters Foundation.

The police say activities that earlier led them to traffickers have now moved online. Social media platforms are used to offer girls and many financial transactions are made online, making the crime virtually invisible. “Our investigation pattern is changing with these changes. We have busted online sex rackets,” said Pravin Patil, deputy commissioner of police in Mumbai, India’s financial hub.

“Earlier, brothels were at one place, but no longer so. It is not difficult (to monitor activities), but we have to keep changing our investigation plan,” he told the Thomson Reuters Foundation.Cases filed under India’s Immoral Traffic (Prevention) Act accounted for 38.4 percent of the total number of human trafficking cases in 2015. Cases of procuring minor girls made up another 44 percent. About 14 percent of cases related to the trafficking of people into slavery and the remaining cases involved the buying and selling of minors for prostitution. (Reporting by Roli Srivastava; Editing by Katie Nguyen. Please credit Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women’s rights, trafficking and climate change. Visit

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Nov 22, 2016 21:10 IST

Bypolls takeaway: PM Modi emerges stronger from demonetisation purge

Conducted 10 days after the demonetisation drive and held across six states and one Union Territory, the bypolls were seen largely as a referendum on Prime Minister’s daring move. The results succinctly explain the high frustration levels of opposition parties who seem at their wits’ end to stop the Narendra Modi juggernaut.

Prime Minister Narendra Modi. APPrime Minister Narendra Modi. AP

Prime Minister Narendra Modi. AP

Some of the outcomes for 14 seats (four parliamentary and 10 Assembly) are still being updated but enough information has already emerged to draw the outline of the story.

And the story is that BJP continues to be a party on the rise. If the by-elections were a gauge of public mood on demonetisation, it seems to be firmly behind the party. And if the polls were a personal test for Modi, he has started on the right note.

In BJP-ruled Madhya Pradesh, the party retained Shahdol Lok Sabha and Nepanagar Assembly seats at the cost of Congress. According to news agency PTI, BJP’s Gyan Singh defeated Congress candidate Himadri Singh of Congress in Shahdol by a margin of over 60,000 votes. In the Nepanagar Assembly seat, BJP’s Manju Dadu defeated Congress rival Antar Singh Barde by a margin of 42,198 votes. The Shahdol Parliamentary seat fell vacant after the death of BJP’s Dalpat Singh Paraste.
In Assam, another BJP-ruled state, the party bagged both the Lok Sabha and Assembly seats. According to PTI, Pradan Barua retained the Lakhaimpur LS seat, defeating Congress’s Hema Prasanga Pegu by a massive 1,90,219 votes. The seat was vacated by Assam Chief Minister Sarbananda Sonowal. BJP’s Mansing Rongpi, who had deserted the Congress in July, won the Baithalangso Assembly seat beating nearest Congress rival Ruponsing Ronghang by 16,600 votes.

In Arunachal Pradesh, BJP-backed Dasingu Pul, wife of former chief minister Kalikho Pul who committed suicide in August, won the Anjaw assembly seat by 944 votes beating Independent candidate Yompi Kri.

In Tripura, the CPIM-led Left Front retained one seat and wrested another from the Congress. CPM’s Biswajit Datta defeated TMC’s Manoj Das by 16,094 votes in Khowai while in Barjala, CPM youth leader Jhumu Sarkar defeated BJP’s Shista Mohan Das by 3,374 Votes.

In West Bengal, Trinamool Congress retained the Tamluk and Cooch Behar Lok Sabha and Monteshwar Assembly seats by huge margins, prompting Mamata Banerjee to say that the results were “a revolt against demonetisation”.
The Bengal CM’s comments are a stretch because if we look at the vote swing, as psephologist and CVoter founder Yashwant Deshmukh demonstrated on Twitter, the BJP with 21 percent votes has registered a positive swing of 10 percent relegating CPM, who suffered a massive downswing of 21 percent, to a miserable third place. Notwithstanding Mamata‘s bluster, BJP seems to have gained in Bengal.

But the story of the day came from North-East, where the BJP officially replaced the Congress as the dominant national force. Even as Tripura became Congress-mukt, despite failing to register a win the BJP gained a massive footprint with 20 percent positive swing.

BJP’s North-East conquest had started with a win in Assam where it unseated the Tarun Gogoi government and kingmaker Himanta Biswa Sarma showed he has not lost his touch. Lotus is blooming in both Assam and Arunachal Pradesh.

The BJP has not only taken in its stride a hugely disruptive socio-economic step, it seems to have blossomed in spite of the inconveniences and hardships that have been unleashed due to the currency ban. That points to a deep-seated trust between the electorate and Modi, who had positioned the insanely risky manoeuvre as a morality test against corruption.

The result will relieve the PM. If a poll that took place within the most disruptive period brings such heartening results for BJP, Modi would be well within his rights to hope for a better political dividend in the long run.

The results proved that the lotus is now a truly pan-Indian force and enjoys the kind of momentum the Congress once did at the height of its popularity. The BJP is breaking new grounds, creating footprints where none existed and consolidating position where it had the advantage.

Democracy isn’t instant coffee, however. It would be churlish to interpret bypoll results solely through the prism of demonetisation.

The forces that worked behind BJP’s stunning rise are still at work. What should simultaneously please the party and worry its opponents is that Modi has hit such a sweet spot, he can afford to take even more risks. Economist Jean Dreze, a known critic of Narendra Modi, has slammed demonetisation as shooting a bullet at the tyres of a booming economy. If the PM manages to steer the economy to a path of growth and reap political dividends even with a flat tyre, the opposition will be left chasing his shadow.

First Published On : Nov 22, 2016 19:42 IST

Demonetisation: Why people would do good in avoiding SC on deaths in queues

Along with the economic chaos that has been unleashed by the move to demonetise the Rs 500 and Rs 1,000 notes, another distressing fallout has been the number of deaths allegedly happening in long queues or cramped bank campuses.

Supreme Court of India. ReutersSupreme Court of India. Reuters

Supreme Court of India. Reuters

Siya Ram, a 70-year-old man who stood fruitlessly in a queue for three days to exchange his notes, collapsed and died from a hemorrhage perhaps brought on by the strain of the exercise. It appears that Siya Ram’s family has now moved Supreme Court under Article 32 of the Constitution, seeking compensation for his death from the Union government.

The Supreme Court is an odd choice of a forum as the first instance for the family. There are good reasons why lawyers don’t advise clients to approach the Supreme Court first. For one, if things go wrong with the case and you don’t get what you asked for, there is no higher forum of appeal to set it right. Second, the Supreme Court has, over the years, adopted an unwritten policy of refusing to hear Article 32 petitions, directing parties to approach the jurisdictional high court, unless it’s a matter of national importance. This has been a source of concern in some quarters for a while as the right to approach the Supreme Court under Article 32 is a fundamental right, and by adopting such a policy, the Supreme Court has effectively nullified this fundamental right. The Supreme Court has, over the years, interpreted Article 32 to be discretionary, even if the right to file and be heard is a fundamental right. This is perhaps a distinction that the Constitution framers did not have in mind.

There are pragmatic reasons why Supreme Court has adopted this policy. The Supreme Court’s workload over the years has increased dramatically, partly due to the court’s own liberal use of its jurisdiction to hear Special Leave Petitions and partly due to the increasing population and economic growth in India spurring growth in litigation overall. As a rule of thumb, unless the issue being agitated in an Article 32 writ petition relates to an issue of national importance (judicial appointments or high-level corruption) or a problem across multiple states (female foeticide or drought relief), the court generally declines to hear an Article 32 petition. However, that doesn’t mean the court will inevitably dismiss it. It usually gives the petitioner the option of approach the high court first, and then coming up to the Supreme Court in appeal if she so chooses to.

There is one other reason why Siya Ram’s family approaching the Supreme Court may not be a sound litigation strategy. The Supreme Court is not a fact-finding forum. Where there is a dispute on the basic facts of the case, unlike in a trial court which is obligated to conduct a trial and assess evidence, the Supreme Court may refuse to entertain an Article 32 petition asking the parties to approach a lower court where such disputed questions of fact can be sorted out. This would be appropriate specifically in a case like this where the government is likely to deny responsibility for the death, questioning the attribution of the death to the demonetisation move.

But even if the Supreme Court entertains the writ petition, it would not be without precedent. The court has evolved the concept of a “constitutional tort” – where a person whose fundamental rights have been violated by an action (or inaction) of the government can move the constitutional courts, namely the high courts and the Supreme Court for relief. First elaborated in the context of custodial deaths, this principle has been expanded by the Supreme Court to grant compensation for crimes committed by other government employees also. Siya Ram’s family contend therefore that the chain of causation for Siya Ram’s death leads directly to the Union government’s policy – a violation therefore of the right to life protected under Article 21 and consequently, deserving of compensation on the part of the government.

That there have been many instances of people standing in seemingly interminable queues for cash or deposit cannot be disputed. How many deaths and whether they are directly due to the policy is disputed by the government. Unlike with natural or manmade disasters (such as the recent derailment in Uttar Pradesh) the government has not come forward to announce any ex-gratia compensation for those who have died in queues.

Whether the Supreme Court grants Siya Ram’s family the compensation or not, there are still questions that the government must answer: Did it foresee the level of disruption that demonetisation would cause in people’s lives and in the economy? If so, what measures were taken beforehand to minimise the same? And why aren’t they working as what was promised to be a few days of disruptions looks like it’s going to stretch over months?

Whether the demonetisation exercise ultimately benefits the Indian economy, in the long run, remains to be seen but the government of the day needs to be held accountable all the same for the shoddy implementation and haphazard rulemaking we’re seeing.

The author is an advocate and visiting fellow, Vidhi Centre for Legal Policy. Views expressed here are purely personal.

First Published On : Nov 22, 2016 16:05 IST

Demonetisation: Narendra Modi risks too much by triggering a crisis for cooperative banks

If there is any immediate casualty to Prime Minister Narendra Modi’s demonetisation exercise, announced on 8 November, that will be country’s cooperative banks, which are struggling to stay afloat. Besides damaging the health of this sector, PM Modi also risks losing political goodwill if he chooses to let these institutions die as they primarily deal with people at the bottom of the pyramid.

Representational image. PTIRepresentational image. PTI

Representational image. PTI

Though inefficient, cooperative banks are still critical for the last mile in rural India. This will continue for at least the next 5-10 years till larger banks/payment banks/small finance banks take firm hold in rural India.

Cooperative banks are particularly important for farmers and lower income groups who want small ticket loans in less time in relation to larger banks. Their banking correspondents (BCs) system hasn’t worked well so far though. Banking correspondents are agents of banks who operate in areas where there are no bank branches. The BCs collect deposits and offer loan products on behalf of the banks.

Post demonetisation, the cooperative banking sector is gasping for breath on account of a severe liquidity crisis. Soon after the demonetization announcement, cooperative banks were asked not to accept the old Rs 500, Rs 1,000 currency note deposits or exchange those notes with the new currency notes. This meant that these lenders could only deal with permissible denominations of Rs 100 and below or take deposits in new currencies that are hardly available in the system.

This has effectively left many smaller cooperative banks with a few thousand rupees of funds. “There is practically no business in the bank for last one week or so. It is going to be tough,” said an official with one of the primary cooperative banks in Kerala, a state where cooperative banks play a crucial role in taking the banking services to the last mile.

According to data from Nabard, there are 32 state cooperative banks, 370 district central cooperative banks as on 31 March 2015. The number of primary agricultural credit societies (PACS), the smaller ones, as on 31 March 2014, stood at 93042, as per the latest data available.

Why cooperative banks were restricted?

There are a couple of reasons why the government and the Reserve Bank of India (RBI) did not allow cooperative banks to accept or exchange old notes for the new currency.

First, the checks and balances at these banks aren’t perceived to be strong enough to counter efforts to push black money into the banking system. Staffers, too, aren’t trained well. These banks aren’t as tightly regulated as scheduled commercial banks. Most of these banks are indirectly controlled by politicians or local businessmen. Hence, there is, of course, reason to worry to let these banks participate in such a massive exercise.

But, by choking funds to cooperative banks and prolonging the crisis (it has already been more than 10 days), can inflict significant damage to the health of several cooperative banks, which are already on the verge of closure. The tiny ones are more vulnerable.

Why cooperative banks should matter to us?
Cooperative banks have been the trusted centres to bank for millions of farmers and middle, low-income people for long. Despite all their negative sides, these institutions are known to offer them easier loan and deposit products and hence is the favourite institution for the poor. Restricting them to conduct business, as happened post-demonetization, will have major impacts on these banks: It damages the business of cooperative banks and their financial health.

The cooperative sector has largely been a failure on account of the accumulated losses, etc, but that situation is beginning to change after an overhaul initiated by the RBI and NABARD in 2010. Many inefficient corrupt banks have been shut and the remaining are good enough to continue.

Consider this: State cooperative banks across the country have deposits to the tune of Rs 1,02859 crore as on 31 March 2015 as against Rs 1,04369 crore as on 31 March 2014. They have a total loan outstanding of Rs 1,14545 crore as on 31 March 2015 with an impressive loan recovery percentage almost 95 percent.

On the profitability front too, the sector has done relatively well, of late. Of the total, 29 state cooperative banks posted total profit of Rs 1,105 crore during 2014-15 as against Rs 926 crore by 27 state cooperative banks during 2013-14. Their NPAs stood at 5.02 percent of their total loans and advances outstanding as on 31 March 2015 as compared to 5.53 percent as on 31 March 2014.

In absolute terms, their NPAs stood at Rs 5,746 crore during 2014-15 as against Rs5699 crore during 2013-14. Also, these banks’ accumulated losses decreased to Rs 617 crore as on 31 March 2015 from Rs 696 crore as on 31 March 2014.

Similarly, primary agriculture credit societies (PACS) too have an impressive record of deposit-lending operations, at least in recent years. Total members of PACS as on 31 March 2014 aggregated Rs 13.01 crore of which, borrowing members at Rs 4.81 crore constituted around 39 percent. On the deposit side, these banks mobilized Rs 81,895 crore as on 31 March 2014, indicating a growth rate of 34 percent over the previous year. Currently, all these banks are under stress on account of severe cash crunch and most of them are not functioning.

As mentioned earlier, following restrictions, there has been hardly any business in cooperative banks across the country. Also, since there are no new funds, their lending operations and even ATM services have been it hard. Even large multi-state cooperative banks, like Mumbai-based Saraswat cooperative bank are struggling to get funds for routine transactions of normal customers. The bank sent a text message to its customers on Friday saying, Dear Customer, There is an inadequate supply of currency notes. Hence, we may not be able to allow cash withdrawals in part or full depending on the availability of cash at a particular branch. The situation is likely to improve soon. We request your kind co-operation – Saraswat Bank.

Second, the whole chaos will takes away the trust of common man from cooperative banks. Customers will think twice again before depositing their hard-earned money or taking a loan against their property from a local cooperative bank.

The question is: What does Narendra Modi-government want to do with these banks and how does it plan to restore normalcy in the sector? The current cash crunch in the sector will likely continue for at least a few weeks, if not months since the government is struggling to execute demonetization even within the commercial banking sector. Or is that the government just does not care about the crisis in cooperative sector triggered by its own policy action?

In states like Kerala, there have been massive protests already. Besides giving a major jolt to the cooperative banking sector, the PM will also risk the wrath of millions of common people – customers, who have deposited money in these banks.

As far as the crisis is concerned, the situation is precarious since most of these banks (especially PACS)  are left with very few funds in acceptable denominations.  Their credibility has also taken a hit since people will now be scared to park their money in future in these banks due to uncertainty.The current crisis could take the shape of a permanent impairment if cash crunch continues for a few months. It will take a long time for them to recover.

First Published On : Nov 19, 2016 10:43 IST

Demonetisation: ‘Aakhir’ queue? Aam aadmi struggle for cash, big fishes appear nowhere

Since the government has already ordered bank staff to use indelible ink to mark those withdrawing money, here is another suggestion: Why not keep ballot boxes also at ATMs? We will know both the mood and hear the voice of the nation instead of believing what we all hear in our private echo chambers.

People standing in long queues to exchange their old Rs 500 and 1000 notes in Gurugram on Tuesday. PTIPeople standing in long queues to exchange their old Rs 500 and 1000 notes in Gurugram on Tuesday. PTI

People standing in long queues to exchange their old Rs 500 and 1000 notes in Gurugram on Tuesday. PTI

A week after the government’s surgical strike on currency notes, queues at banks and ATMs are getting longer and louder. What you hear in the queues is, a wag pointed out, a simple query: Aakhir queue?

It is impossible to reproduce the wisecracks and quips heard in these queues verbatim. But, suffice it to say: Money isn’t changing fast, the mood is. And, instead of laughing, most people have started crying.

Those outside banks are complaining of hardships in daily lives. Small traders are worried that business has come to a standstill. Construction activity has stopped. Builders have stalled ongoing projects. Farmers are waiting to sell their crops in the market but there is no cash in circulation.

In a park, where people gather after dark, a trader is wailing: “We will have to start from the scratch. This is like the new Partition of India, we are all being monetarily dislocated.”

The good thing about suffering is that it sounds noble only if it comes with the pleasure of knowing that others are suffering more. So, at the moment everybody is happy his nose is being cut to spike the rich man’s, ISI’s, Al Qaeda’s, Congress’, Mayawati‘s, Mulayam’s face. What he feels next would depend on what he sees next: His own bleeding nose or the disfigured face of the promised victim.

It will depend on how fast the promised change comes, both at the counters and in collective lives.

But, where are the intended faces in the ATM crowds? While the aam aadmi struggle, there is no sign of the big fish.

Where are they? One answer is simple, most of them have parked their money in various other hidden assets, their cash savings are not significant. As pointed out by Firstpost earlier, presuming that stashed cash is 50 percent of the currency in circulation, it is just 5-6 percent of the GDP. In essence, it is loose change.

And, even this loose change is getting absorbed. Here is how:

1. There are reports that networks of touts and bank staff are using identity cards in their possession to launder money for the hoarders of cash. Since there is no way of finding out how many times an ID has been used in different banks, it has reportedly turning into a neat business with a rate of return estimated to be 20-30 percent of the turnover.

2. Another set of touts are identifying people those who have legitimate borrowings from bank —money withdrawn and spent — to replace it with cash accumulated by someone else for a quick profit. For instance, if your account reflects Rs 2.5 lakh as withdrawal during the current financial year but you have spent that money, these touts will offer you this amount and seek just 70 percent in return.

3. The third set of launderers is of people hired to queue up at bank branches and get Rs 4,500 commission for a quick commission. They go from branch to branch, getting as much currency replaced as possible. Since the indelible ink will take some time to reach banks, this will go on for a while.

4. And the fourth category is of people with small sums — Rs 10-25 lakh — lying in cash at home. They are getting the amount adjusted through family and friends since the government has promised not to harass those who deposit small amounts, especially if they match I-T their returns.

While the aam aadmi struggles in those long queues by the day, the economy of greed goes to work at night.

You don’t need ballot boxes to know who is going to win this battle.

First Published On : Nov 16, 2016 18:17 IST

Demonetisation will hit agriculture, informal sector workers the most: Study

By Abhishek Waghmare

The demonetisation of Rs 500 and Rs 1,000 notes will hurt agriculture, informal sector workers — about 482 million people who earn cash incomes — and disrupt India’s consumption patterns for at least the next quarter, according to an assessment released last week by Deloitte, an international consulting firm.

In contrast, sectors like e-commerce and payment banks, payment gateways are set to gain as transactions using cashless methods will increase over the coming months, the Deloitte report said, emphasising that “the long-term outlook remains positive”.


Advertisement of an online payment gateway, PayTM, published on the front page of major newspapers on November 10, 2016

The lines to exchange defunct Rs 500 and Rs 1,000 notes grew across India, as fraying tempers and scuffles were reported.

Source: Indian Express.

The prime minister – who had promised working ATMs by day three – pleaded for 50 days to set the chaos right, and his government extended the validity of the old notes in select transactions for another 10 days.

While the short term impacts will be pronounced on the brick-and-mortar retail sector like kirana shops, vegetable and fruit vendors, long-term negative impacts on the real-estate sector are possible, the Deloitte report said.

“Overall, a likely negative impact on disposable income is expected along with disruption in the consumption patterns of the general populace,” said the report, which called demonetisation “arguably one of the most significant reform measures in its tenure” and “an expeditious move to boldly counter the black money and parallel economy”.

Others are not as optimistic. Demonetisation has perhaps “penalised” the entire informal sector and damaged it permanently”, especially the informal financial sector, which could account for a fourth of bank lending, or 26 percent of GDP, wrote Pronab Sen, country director of the India Central Programme of the International Growth Centre, a think tank.

“There is no doubt whatsoever that Modi has pulled off a major political and publicity coup and substantially enhanced his reputation as a muscular leader, but surely somebody needs to ask: at what price?” wrote Sen on 14 November, 2016 in Ideas for India, an economics and policy portal.

Rs 14 lakh crore – or $217 billion, 86 percent of the value of Indian currency then in circulation – became useless from midnight of 8 November, 2016, part of the government’s crackdown on black, or unaccounted, money, which accounts for about a fifth of the economy, as IndiaSpend reported on 8 November, 2016.

Agriculture, under stress for two years, was forecast to grow 4 percent

Agricultural growth in India contracted 0.2 percent in 2014-15 and grew no more than 1.2 percent in 2015-16, largely because of back-to-back droughts.

Agriculture was expected to grow at 4 percent this year according to this October 2016 CRISIL report, but demonetisation is likely to dent that forecast. India is currently in the midst of the winter sowing season, but farmers are reported to be running out of cash to buy seeds.


Source: Key Economic Indicators, Office of the Economic Advisor

* Note: For 2016-17, number represents prospective growth figures.

Indian farmers expect a record harvest this year, as IndiaSpend reported in October 2016, but the rural economy–on which 800 million people, or 65 percent of India’s population, depend – is largely driven by cash. Farmers buy seeds, fertilisers and farm equipment in cash, pay their workers in cash, and traders and commission agents pay farmers in cash.

The shortage of cash is spreading anger in the countryside.

Informal economy has limited access to internet, online payment

The informal economy — which presently employs more than 80 percent of India’s workforce — includes workers in small and medium industries, grocers, barbers, maids and others.

Roadside vendors, cab drivers, kirana stores and medical stores have stopped accepting Rs 500 and Rs 1,000 notes.

People who do not use debit or credit cards, access the internet or use mobile banking and e-wallets will be the worst hit, said the Deloitte report. India has about 700 million debit and 25 million credit cards, according to this Reserve Bank of India data; about 950 million people (78 percent of the population), do not have an internet connection.

The demonetisation-led slowdown may also impact a key economic driver, private consumption, the things that people buy.

Private consumption, as a percentage of gross domestic product (GDP) has been steadily rising over five years to 2015-16, according to data from the office of government’s economic advisor.

Source: Key Economic Indicators, Office of the Economic Advisor

Note: * Provisional estimates

E-commerce, payment companies to benefit

As e-commerce websites stop cash-on-delivery – the most favoured option for Indian online shoppers, comprising 80 percent of sales – and struggle to hand over to banks the money they collected after demonetisation, the report predicted a rebound that will benefit both the e-commerce industry and companies facilitating payments to it, such as payment gateway companies, payments banks and electronic money transfer portals.

Online transactions in India rose 40 percent in 2015, IndiaSpend reported on 12 November, 2016.

Other possible impacts that the Deloitte report listed: A hit on foreign trade as the rupee currency appreciates; lower inflation and cheaper prices, especially in the real-estate sector.


Purchasing power of Indians in peril, says report

“As far as the real economy is concerned, there is going to be huge blow to purchasing power. All kinds of people who were accepting notes are going to refuse to accept the notes,” economics writer Swaminathan Anklesaria Aiyar, told the Economic Times.

“Domestically, there could be some turmoil as the effect will be disproportionately felt by the lower and upper income classes,” the Deloitte report said.

(The author is an analyst with IndiaSpend)

First Published On : Nov 15, 2016 11:10 IST

Demonetisation: Why I will give Narendra Modi 50 days to reset the system

The last few days have been tough.

Really tough.

Apart from the usual work-life pressures that accompany middle-of-the-road professionals, we have had to take time out from insanely odd schedules to stand in queues and convert non-legal tender. The missus and I took turns to visit our respective banks and despite not a small amount of chaos, emerged with cash in hand. The banking officials were cooperative under extreme pressure and deserve unqualified respect for pulling inhuman shifts in a thankless environment. As they toiled, the non-functional ATMs were a reminder that even the best-laid plans can sometimes go awry.

File image of Narendra Modi. AP

File image of Narendra Modi. AP

Although we have tried since 8 November to channel our domestic spending through digital and plastic platforms, many transactions in India’s largely cash-based economy still require cash. Guptaji, who runs the corner kiraana store, to our delight is accepting app-based payments, but a fishmonger has no such luxury and you cannot keep a Bong away from fish for too long.

The TV-based impression that there is anarchy on streets is wrong. But it would be fair to say that the initial euphoria that greeted Prime Minister Narendra Modi‘s shock decision to decommission the banknotes has slowly given way to worry, frayed nerves and tempers. And that is natural. If 86 percent of India’s total currency in circulation is outlawed in one stroke, it doesn’t take a CP Ramanujam to figure out that a country of 1.25 billion will face short-term, intense inconvenience. Given the sheer scale of the exercise and the total secrecy that preceded it, no amount of prior planning could have preempted the many glitches that have since erupted.

But how short is short term?

As daily lives remain suspended, the poor and the working class suffer losses, the economy grinds to a halt and the prospect of a deflation looms large just as the prime minister on Sunday asked for more time. He appealed for 50 days of hardship to rid the economy of black money and urged us to gnash our teeth and bear it. But is he justified in seeking that allowance? And should we give him that time?

There are two ways of looking at the decision to decommission the notes: Economic and moral. Both are intertwined.

The World Bank says India’s shadow economy forms 19 to 20 percent of the GDP; most economists disagree. They say the actual figure is much higher considering the fact that only 2.5 percent of Indians pay any sort of income tax. In truth, the parallel economy that drives the nation’s engine completely stays outside the tax net forcing the honest taxpaying citizens to pick up the tab.

Gautam Chikermane, journalist, author and New Media Director at Reliance Industries Ltd, says in his Facebook post: “Black money has become a culture, not paying taxes a best practice and laughing at taxpayers a national pastime… What may have begun as an idea to fill the pockets of politics for electoral funding (apart from personal coffers, of course) mushroomed into a culture that benefited the corrupt at the cost of the honest. The trickle down of this alternate economic system poisoned the mind of India. Essentially, it said: “Join us or be economically isolated. We have become the enemy in our own land, simply because we followed the law and paid taxes.”

The prime minister has struck at the very root of this malignancy and hacked away the branches that sustained the corruption tree. The argument that black money hoarders rarely store their moolah in cash is specious. India’s parallel economy is so huge that even if a part of it is converted into different asset classes, a mind-boggling amount of liquidity gotten from transactions that took place outside the tax net would still be around. Not only has this significant portion of black economy been rendered useless, in one fell swoop Modi also decapitated the fake currency industry that fuelled cross-border terrorism and nourished insurgency within our borders.

The parallel economy thrives on cash because unlike digital transactions, it leaves no footprint. Economists such as Richard Thaler of Chicago University or Harvard Professor Kenneth Rogoff believe that an economy overwhelmingly dependent on cash is more prone to corruption and in such a regime, the poor are the hardest hit.

While it is not possible for India to overnight rid the economy of all cash — neither is it warranted, demonetisation provides the government a great chance to press the “reset” button and actively move towards a regime that relies less on cash and more on plastic and digital money. According to the economists, that would make for a safer, fairer and a more resilient system.

If more money changes colour from black to white, the government will have more resources to spend and it may therefore target these spending towards social security schemes for the poor.

Now while demonetisation has sucked out the cash (both good and bad) almost in entirety, there should not be any illusion that the shadow economy will stay idle. It will absorb the shock and then proceed to rebuild. The legit question, therefore, is what was the point of this entire exercise?

Modi’s move will go a long way in raising the cost of hoarding black money in India.

The attempt is to make the shadow economy a less profitable and more risky enterprise and ultimately trigger a behavioural change.

Brookings India fellow Shamika Ravi writes in Livemint:

“Will this eradicate black money and corruption in India? Some ‘experts’ have warned that Indians are creative and will find ways to circumvent this demonetisation. That’s true — there are ways to bribe officials, make criminal transactions and evade taxes without Rs 500 and Rs 1,000 notes. But the removal of large bills will make several criminal and illegal activities more costly. Scaling back large denominations will not end crime, but it will force the underground economy to employ riskier and less liquid payment methods… This move will reduce corruption and several forms of criminal transactions in the economy.”

Now for the moral reason why I believe that Modi deserves our backing.

The chaiwallah at Delhi’s RK Puram, who backs the prime minister’s move despite taking a major hit in sales; the senior citizens who voice their support despite appearing visibly wary from standing in an unending queue, the grocer who has switched to digital payments and urges customer to take advantage of them, the housewife who believes the time spent in queuing up for cash will provide better dividends for the future are not “bhakts in awe of their ‘Supreme Leader’,” as a section of our commentators and elites would call them while being dismissive. They are the cross-section of our people who are fed up with the system.

Unlike the elites and so-called liberals, who can afford to be dismissive of any effort because they are used to bending the system to their advantage, these are representatives of the lower middle class, poor and the subaltern who have long paid a price for their honesty and integrity. In the prime minister’s decision, they have finally found a moral strength to take on the system and challenge it.

Modi’s move to trash the cash has armed them with a belief that they too, in their own small way, can be a part of the nation-building process and no amount of verbal chicanery and moral turpitude from the entrenched elites will sway them. Economic logic of whether this will trigger a deflation or recession doesn’t interest them. They have little patience for theory of positive shock that this move is supposed to bring. What moves them is the belief that in exchange for few days of hardship, they are helping the prime minister in building a better, fairer India.

Lastly, I would give Modi the 50 days that he has asked for because I am yet to come across any other leader who doesn’t mind irking his voter base for a higher national purpose. Modi would’ve done a cost-benefit analysis of the move before making it. He’d have known the insane risk involved in the project that may end up scalding him for good. I’d back him because he has shown the guts and moral certitude to be different.

First Published On : Nov 15, 2016 07:46 IST

A Minute With: ‘Fantastic’ Newt Scamander (aka Eddie Redmayne) | Reuters

A Minute With: ‘Fantastic’ Newt Scamander (aka Eddie Redmayne) | Reuters

Updated: Nov 14, 2016 19:26 IST


By Jill Serjeant

NEW YORK, With his peacock-blue coat, bow tie and battered suitcase, Eddie Redmayne stars as J.K. Rowling’s latest magical hero in “Fantastic Beasts and Where to Find Them.” Redmayne spoke with Reuters ahead of the movie opening on Friday about his favorite beasts and his hopes for his character, Newt Scamander. The following are edited excerpts.Q: How much of Newt came from you and how much from J.K. Rowling?A: Newt was wonderfully well defined on the page and then it was about hearing where Newt came from in her imagination. She wrote that Newt walks his own walk and that he has a Buster Keaton-eseque quality. So I met a man who tracks animals for a living, and he said that if you are trying to be absolutely silent, you turn your feet out. So I brought in that open-toed stance, which was great until I had to do stunts running like that and I kept pulling muscles.Q: Do you know if you’re going to be in all five of the “Beasts” movies?

A: No, I don’t. The whole production is so top-secret that at nights our scripts would get locked up and put in a safe. Jo has kept the story very close to her.Q: How do you feel about becoming a young adult icon, like Daniel Radcliffe’s Harry Potter?A: I don’t really know. How does one prepare for that? There’s nothing you can do really. A few more people ask for selfies and that’s about it. I think?

Q: What was it like acting against the computer-generated beasts?A: With the erumpent, we had some of the guys who worked on “War Horse” make a huge puppet that I rehearsed with for a few weeks. Then when it came to shooting, it would go away and I would have the sense memory.Q: Did you have a favorite beast?

A: I think Pickett was my favorite. He has got attachment issues and he just wants a bit of a hug. He is bullied by the other bowtruckles.Q: Where would you like Newt’s character to go in the second film?A: You get a sense when you see Leda Lestrange’s photograph that this girl has clearly had an effect on him, so that would be interesting to see. Also you hear that Newt has spent a year out in the field in Equatorial Guinea. I would love to see him out with his sleeves rolled up, wrangling some of these extraordinary creatures. (Reporting by Jill Serjeant; Editing by Jonathan Oatis)

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First Published On : Nov 14, 2016 19:26 IST

Workers laying roads in Karnataka rescued from debt bondage | Reuters

Workers laying roads in Karnataka rescued from debt bondage | Reuters

Updated: Nov 14, 2016 19:22 IST


By Anuradha Nagaraj

CHENNAI, India (Thomson Reuters Foundation) – A group of 32 labourers caught in a cycle of debt bondage were rescued from a road construction site in Karnataka, police said Monday.The labourers, all from the tribal areas of neighbouring state of Telangana, were building a road between the towns of Nipani and Mudhol when they were rescued by Karnataka police on Saturday.”It is a clear case of (debt) bondage,” revenue department official Geeta Koulgi told the Thomson Reuters Foundation.”Their statements have been recorded and we are now in the process of issuing release certificates to the workers. They will then be sent back home in a day or two.”The suspected trafficker and the contractor of the road project have both been arrested under anti-trafficking and bonded labour abolition laws, police said.Activists say Saturday’s rescue is one in a series illustrating the extent of debt bondage across India, the most prevalent form of forced labour in a country where an estimated 18 million people live in some form of modern slavery, according to the latest Global Slavery Index by the Walk Free Foundation.

The 22 men and 10 women had all taken loans of up to 60,000 rupees ($885) from the sub-contractor. They had been promised wages of 3,500 rupees ($52) per month but no one had been paid.”In one instance, a worker had taken as little as 500 rupees ($7) as loan and had been working in terrible conditions for three months,” said P.H. Vasudev Rao of the non-profit Foundation for Sustainable Development, which received the first distress call from the family of one of the workers.”It has taken us six months to help these workers,” Rao said.

“The contractor would keep moving them to various project sites in the region. We finally caught up with them now, in Chikodi, and discovered that there were at least six people who had been in bondage for two years.”Officials said that they had also recorded at least two cases of sexual abuse and two infants were among those rescued.In one of the statements, a worker described how he was not allowed to go home when his mother died.

“The trafficker just gave him 100 rupees ($1) and said he should do the ceremonies at the work site. His mother’s last rites were done by relatives back home,” said Rao, who was also part of the rescue team along with a police anti-trafficking unit.”The man was inconsolable when we rescued him.”($ 1 = 67.7599 Indian rupees) (Reporting by Anuradha Nagaraj, Editing by Ros Russell; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women’s rights, trafficking and climate change. Visit

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First Published On : Nov 14, 2016 19:22 IST

Demonetisation: Truckers demand hike in withdrawal limit to Rs 20K for drivers

New Delhi: Truckers body AIMTC on Saturday demanded increasing the cash withdrawal limit to Rs 20,000 per day in view of inconvenience caused to drivers.

A labourer prepares to unload sacks of potatoes from a truck at a wholesale vegetable and fruit market in New Delhi 2 July, 2014. ReutersA labourer prepares to unload sacks of potatoes from a truck at a wholesale vegetable and fruit market in New Delhi 2 July, 2014. Reuters

A labourer prepares to unload sacks of potatoes from a truck at a wholesale vegetable and fruit market in New Delhi 2 July, 2014. Reuters

All India Motor Transport Congress (AIMTC), which represents 93 lakh truckers said acute financial crunch has impacted the movement of trucks and supply of essential items.

AIMTC president Bhim Wadhwa told PTI that they have appealed to Finance Minister Arun Jaitley to enhance cash withdrawal limits as drivers across India were facing problems. Wadhwa said 80 percent of the transport operations are cash based which implies that Rs 1,194 crore is required on a daily basis by the sector to meet its operations costs.

The government demonetised Rs 1,000 and Rs 500 notes from the midnight of 8 October with the aim to fight black money and corruption, while exempting a few emergency services like hospitals, petrol pumps, railways and airports for 72 hours days up to 11 November.

This list was later expanded to include payments for metro rail tickets, highway and road toll, purchase of medicines on doctor prescription from the government and private pharmacies, LPG gas cylinders, railway catering, electricity and water bills and ASI monument entry tickets.

The time limit was to expire midnight on Friday, but it has now been extended by another 72 hours.

Banks and ATMs on weekend witnessed more chaos and even longer queues as cash-starved people jostled to exchange and withdraw money, even as cash dispensing machines went dry soon after they were stocked due to heavy rush.
Long serpentine queues were witnessed at bank branches for the third straight day across the country. Similarly, people were seen impatiently waiting outside ATMs to withdraw money.

First Published On : Nov 12, 2016 23:02 IST

At least 25 killed after blast at shrine in southwestern Pakistan | Reuters

At least 25 killed after blast at shrine in southwestern Pakistan | Reuters

Updated: Nov 12, 2016 20:23 IST


By Gul Yousafzai
| QUETTA, Pakistan

QUETTA, Pakistan An explosion at a Muslim shrine in southwestern Pakistan killed at least 25 people and wounded dozens of others, local officials said. Hashim Ghalzai, a local district commissioner, told Reuters that the toll was based on initial reports, and could rise further.The blast occurred at the Shah Noorani shrine, located in Baluchistan province, about 100km (62 miles) north of the port city of Karachi. It took place while hundreds of people were inside, said Ghalzai.

Dozens of wounded people were being moved to the nearby town of Hub and to Karachi, rescue official Hakeem Nasi told Geo TV.The government dispatched 25 ambulances from Hub to the shrine, said Akbar Harifal, provincial home secretary for Baluchistan.

“Every day, around sunset, there is a dhamaal (ritual dance) here, and there are large numbers of people who come for this,” said Nawaz Ali, the shrine’s custodian. Baluchistan has seen some of the worst militant attacks this year in Pakistan, one of which was claimed by an Islamist movement that is allied to the Islamic State group.

The province is also key to a $46 billion transport and trade corridor between Pakistan and China, which hinges on a deep-water port in the southwestern city of Gwadar. (Writing by Kay Johnson; Editing by Jon Boyle)

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First Published On : Nov 12, 2016 20:23 IST

Factory blaze kills at least 13 Indian garment workers as they slept | Reuters

By Nita Bhalla

NEW DELHI (Thomson Reuters Foundation) – At least 13 garment workers were killed after a fire broke out in a factory on the outskirts of the Indian capital, police and witnesses said on Friday.The blaze, which started in the early hours of Friday as the workers slept inside the leather factory workshop in Uttar Pradesh state, also critically injured eight more people.Police investigating the cause of the fire in Ghaziabad district said preliminary findings suggested it may have been sparked by an electrical short circuit.”We are reason to believe that it may be linked to an electrical short circuit, but we are still looking into it,” Deepak Kumar, Ghaziabad’s Senior Superintendent of Police, told reporters.”Everyone worked together to rescue the people inside the building. These included local residents, police, fire and ambulance services.”Police said they were also investigating the possibility the factory, was illegal and did not have a license to operate in the congested residential area.

Television pictures showed large crowds outside the gutted three-storey building, located in a narrowed-laned area lined cheek-by-jowl with similar structures in Sahibabad.The fire, which started at around 4 a.m. local time, spread from the ground floor housing the stitching unit to the upper two storeys, where the labourers were sleeping, said witnesses.Fire engines were rushed to area and managed to rescue 16 workers, said witnesses, many of whom were taken to a nearby hospital suffering from burns and respiratory problems.

Activists say the incident is one in a series illustrating the neglect of workplace safety in South Asia’s industrial sector, even in the wake of Bangladesh’s 2013 Rana Plaza disaster, in which more than 1,100 garment workers were killed.The Rana Plaza tragedy, where an eight-storey building housing several garment factories supplying global brands collapsed on the outskirts of Dhaka, was one of the world’s most deadly industrial accidents.In India, as well as Bangladesh, such accidents are common.

Eight people were killed in October in an explosion at a firework factory in the southern state of Tamil Nadu, while in May 2014, 15 others were killed in a similar accident in the central state of Madhya Pradesh.Campaigners advocating for better living and working conditions in the textile and garment sector said the incident showed the plight of workers were still being ignored.”Despite the many disasters we have seen before, and the great amount of attention to the dangerous working conditions in the South Asian garment industry, factories there largely remain unsafe. These workers were killed because they were sleeping in the factory,” said Carin Leffler of the Clean Clothes Campaign.”The deep tragedy that took 13 peoples’ lives in Sahibabad this morning shows that there is still a long way to go before workers can feel safe.” (Reporting by Nita Bhalla, Editing by Ros Russell; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women’s rights, trafficking, corruption and climate change. Visit

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First Published On : Nov 11, 2016 21:00 IST

Rs 500, Rs 1,000 note ban: SBI gets Rs 53,000 crore deposits till mid-day

Mumbai: SBI today said it has received deposits worth Rs 53,000 crore after the government scrapped Rs 500/1,000 notes and has exchanged currency worth about Rs 1,500 crore so far.

SBI chairwoman Arundhati Bhattacharya. ReutersSBI chairwoman Arundhati Bhattacharya. Reuters

SBI chairwoman Arundhati Bhattacharya. Reuters

“The bank got deposits of Rs 31,000 crore yesterday… Today, till now, the amount of deposit is Rs 22,000 crore …The business is going well of demonetisation. We have additional counters,” SBI Chairperson Arundhati Bhattacharya said while announcing its quarterly result today.

SBI had yesterday replaced about Rs 750 crore worth of notes with the junked ones, while till mid-day today it had exchanged currency amounting to Rs 723 crore.

The bank has been able to press into service only about half of its ATM network nationwide.

“We have also been able to put up 29,000 ATMs and Cash Deposit Machines today. Of these, 21,000 ATMs and rest are CDMs,” she said.

People across the country thronged to branches and ATMs across the country to replace their old high value currencies as Prime Minister Narendra Modi on Tuesday night announced withdrawal of 500 and 1,000 rupee notes from circulation in a bid to flush out black money.

Only a maximum of Rs 4,000 per person in cash irrespective of the size of tender was being given per person after submission of valid identity proof. Anything over and above this value was credited to bank account.

Banks set up additional counters to change cash as also allow withdrawal from bank accounts through cheque or withdrawal slips with a ceiling of Rs 10,000 in a day within an overall limit of Rs 20,000 in a week (including withdrawals from ATMs) for the first fortnight i.e. up to November 24.

First Published On : Nov 11, 2016 16:11 IST

Rs 500, Rs 1,000 notes banned: The missing elements in Narendra Modi’s attack on cash

Let’s agree: demonetisation of Rs 500 and Rs 1,000 notes will be disruptive in the short term. It may be three months before business and retail transactions return to normal.

However, the question is this: is it worth spending thousands of crores in printing new currency and forcing banks to focus on handling so much cash instead of fixing their balance sheets, all for an inconclusive attack on black money?

Representational image. ReutersRepresentational image. Reuters

Representational image. Reuters

The answer is a yes, but.

Yes, it is good to take a swipe at the hoards of black money held in currency notes (though the bulk of it must be held in real estate and gold). It is worth imposing a cost on crooks. But, this alone will not be enough. You must target other things and cash in general. You must force Indians to think less cash, more digital money.

This morning’s newspapers were stuffed with front-page ads from Freecharge, PayTM, Ola Money, Snapdeal, Uber, and Big Bazaar, among others, exhorting customers to substitute cash with other forms of payment, including e-wallets, mobile money, credit cards and electronic money transfers.

This is exactly what needs to be done.

Another Times of India report says that the Tirupati temple, India’s richest, is now setting up debit and credit card swiping machines. Even God can do with less cash.

While government ads talk about fighting black money, fake currency and terror funding, it is private businesses that are focusing on shifting focus from hard cash to virtual money.

The whole demonetisation exercise would be sub-optimal if it is seen merely as an attack on black money, and not physical money itself.

There are two broad issues here.

First, smaller value transactions need to be digitised.

Second, the stock of illegal cash generated by evading tax must be both diminished and prevented from accumulating further.

The first challenge needs political will and systematic efforts at financial literacy and promotion of digital money. This needs not only private sector effort but direct government intervention to popularise digital and mobile payments.

But this is exactly what government seems unable to do. After opening more than 250 million Jan Dhan accounts, more than a quarter of them have either zero balances or are operated infrequently.

When an initiative is top-down, the people pushing it (bankers in this case) will game the system. They will open the accounts and say “mission accomplished” when the real mission should be about having active accounts and not dormant ones. Top-down schemes need a strong push for usage, and this can’t be done without a long-term campaign of financial literacy that will explain how to open and maintain bank accounts, how to pay and receive money using mobile phones, and how to use debit cards, among other things. Putting a little amount of cash in these accounts (not Re 1, but something more substantial) will work wonders. The pump must be primed before it will be used.

Given the huge commercial interest in mobile money, as evidenced by today’s ads in various newspapers, this literacy programme can be done through a public-private partnership, with a marketing professional at the top.

In dealing with the other issue, reducing the hoard of black money and tapering down the generation of future flows, several steps need to be taken.

The most important one is real estate reform – and states must partner this initiative. The bulk of the black money is held in real estate, for this is where crooked politicians, builders, and businessmen are invested. A simple way to demolish black money in real estate is to reduce stamp duties dramatically, allow the vertical building to bring down prices of land, invest in infrastructure and mass transport, and create transparent and time-bound methods of giving building permissions.

If floor-space indices are boosted dramatically, real estate prices will fall, and benami owners will be forced to accept losses on their black money. As prices fall, more genuine buyers will be encouraged to buy property and the realty industry will revive, especially if transaction costs, including stamp duties, are rationalised.

The way to “drain the swamp” — to use Donald Trump’s apt term — is to make the real estate market function like a real market, by opening up supplies. Realtors and their hidden benefactors make money by bottling up land availability, not by allowing the land markets to function. Once real estate stops being a one-way bet to enormous gains, black money will have nowhere to hide.

As for gold, its price is artificially high in India precisely because the government wants to discourage its imports. If gold can come in and go freely, with minimal restrictions and duties, Indian prices will equate with global ones, and black money holders will take note. Indians will still buy gold, but the metal will stop looking overly attractive to black money holders.

You cannot demonetise gold the way you did with currency notes. But when the gold market operates for real, it will no longer give buyers a guaranteed gain in future. Gold prices can go up or down.

Another important area to focus on is state funding of elections. The demonetisation of Rs 500 and Rs 1,000 notes will impact the funding of the forthcoming round of elections, including Uttar Pradesh, but future elections will surely draw more black money as everyone adjusts to the new notes. The only way to end this need for black money is to fund elections through the state. It is a small price to pay for the elimination of dirty money.

Narendra Modi should thus take this opportunity to go the whole hog. He must attack cash, both when used for ordinary transactions and when used to hide illegal wealth from the taxman. Right now, a lot of the hoard is held in brick and mortar, not just cash.

Rs 500 and Rs 1,000 currency notes banned, new Rs 2,000 note to be out on 10 November

In what could be termed as an unprecedented move, Prime Minister Narendra Modi on Tuesday added a lethal edge to India’s fight against black money by announcing that the currencies in the denominations of Rs 500 and Rs 1,000 will be invalid when the clock strikes 12 midnight of 8 November.

Prime Minister Narendra Modi. PTIPrime Minister Narendra Modi. PTI

Prime Minister Narendra Modi. PTI

The move was announced in a sudden address at 8 pm that was televised across all news channels when the frenzy was otherwise with the US presidential polls.

The demonetisation of Rs 1,000 and Rs 500 notes is a major assault on black money hoarders, fake currency, and corruption.

In his 40-minute address, first in Hindi and later in English, the Prime Minister said the notes of Rs 500 and Rs 1,000 “will not be legal tender from midnight tonight” and these will be “just worthless piece of paper.”

However, he said that all notes in lower denomination of Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1 and all coins will continue to be valid.

He also announced that new notes of Rs 2000 and Rs 500 will be introduced.

ATM withdrawals will be restricted to Rs 2,000 per day and withdrawals from bank accounts will be limited to Rs 10,000 a day and Rs 20,000 a week.

Banks will remain closed on Thursday and ATMs will also not function tomorrow and day after, Modi said.

He expressed confidence that the staff of banks and post offices will rise to the occasion to introduce the new order within the available time.

He also expressed confidence that political parties, workers, social organisations and the media will go further
than the government in making it a success.

The prime minister said that black money and corruption have not only been affecting the Indian economy but has also helped finance terror activities been helping finance terrorist activities, and the new rule will help bring down both.

Modi, however, clarified that the citizens will be able to deposit old notes of Rs 500 and Rs 1,000 at post offices and banks of their choice.

“The public will have 50 days time between 10 November and 30 December to deposit old notes of Rs 500 and Rs 1,000 after showing a proof of identity,” he said. The accepted POI documents include Pan Card, Aadhaar Card, Voters ID Card, Driver’s License and Passport.

The exchange of old notes, however, will be limited to Rs 2,000 between 10 and 24 November, and it will be increased up to Rs 4,000 between 25 November to 30 December.

However, government hospitals, pharmacies in government hospitals, airline ticket counters, bus ticket counters, railway ticket counters and petrol pumps will accept old notes for the next 72 hours, ie, till midnight 11 November.

Besides depositing money in bank accounts, the Rs 500 and Rs 1,000 notes can also be exchanged with lower denomination currency notes at designated banks and post offices on production of va id government identity cards like PAN, Aadhaar and Election Card from 10 to 24 November with a daily limit of Rs 4000.

Those unable to deposit Rs 1,000 and Rs 500 notes till December 30 this year can do so in designated RBI offices till 31 March next year after filling a declaration form along with proof and reasons, the Prime Minister said.

Rs 500 and Rs 1,000 notes will be valid for transactions related to booking of air tickets, railway bookings,
government bus ticket counters and hospitals till the midnight of 11 and 12 November.


“Banks will be closed tomorrow. It will cause some hardship to you….Let us ignore these hardships… In
country’s history, there comes a moment when people will want to participate in the nation building and reconstruction. Very few such moments come in life,” Modi said.

The government has also implemented a daily limit of Rs 2,000 on ATM withdrawals, which will be increased to Rs 4,000 at a later stage.

The Prime Minister emphasised that there is no restriction on any kind of non-cash payments by cheques, demand drafts, debit or credit cards and electronic fund transfer.

In his address, PM Modi shared the insight into how the magnitude of cash in circulation is linked to inflation and how the inflation situation is worsened due to the cash deployed through corrupt means. The Prime Minister added that it adversely affects the poor and the neo-middle class people. He cited the example of the problems being faced by the honest citizens while buying houses.

The very first decision of the Modi-led NDA government was the formation of a SIT on black money.

A law was passed in 2015 on disclosure of foreign bank accounts. In August 2016, strict rules were put in place to curtail benami transactions. During the same period a scheme to declare black money was introduced.

PM Modi in course of his address said that over the past two and a half years, more than Rs 1.25 lakh crore of black money has been brought into the open.

Prime Minister Narendra Modi has time and again raised the issue of black money at the global forum, including at important multilateral summits and in bilateral meetings with leaders.

While focussing on the greener spots on the Indian economy, the Prime Minister said that the efforts of the government have put India as an emerging country to grab a bright spot in the global economy.

Soon after the address by PM Modi, in another press conference the Department of Economic Affairs, secretadry Hasmukh Adhia said, “New notes of Rs 500 and Rs 2,000 with greater security features and design will be circulated from 10 November.”

“Rs 500 notes circulation up 76% from 2011 to 2016 and Rs 1,000 notes by 109 percent as against 40 percent rise in all currency notes,” he said.

With inputs from PTI

Realty may attract 12% or 18% tax rate under GST: JLL

New Delhi: Real estate developers are waiting for clarity on tax structures applicable to them under the GST regime, with the sector likely to attract GST rate of 12 percent or 18 percent, according to property consultant JLL India.

Representational image. ReutersRepresentational image. Reuters

Representational image. Reuters

A lower tax rate of 12 percent will reduce housing price and boost demand, but 18 per cent tax rate could end up increasing the cost of homes, JLL said.

“While the goods and services tax (GST) tax structure has been announced, the real estate industry is waiting with bated breath to see which tax rate is applied to the real estate and construction industry,” JLL India Chairman and Country Head Anuj Puri said.

Given the finance minister’s clarification that the highest tax slab will be applicable to ‘sin’ items and other categories that are currently taxed at around 30 percent, Puri said it can be assumed that this rate will not apply to the real estate and construction industry.

“Similarly, the lowest tax rate of 5 per cent will apply on common use items and is highly unlikely to be applied to housing. That leaves us with two probable scenarios: the tax rate either being set at 12 percent or 18 percent,” he said.

A lower tax rate of 12 per cent will help bring down the cost of apartments and increase affordability for end-users, Puri said, adding that the developers might resultantly see an uptick in sales in a slow market.

“A higher rate of 18 percent, however, could end up increasing the cost of homes, especially in projects which are under construction, unless the government offers more clarity on the composition scheme (i.e. abatements for cost of land) as well as on service tax and value-added tax (VAT) already paid by developers on under-construction properties,” he said.

Under the GST set-up, Puri said there will be reduction in the tax management expenses incurred by developers, thanks to the single unified tax. The compliance costs are also expected to go down.

Hillary win may pose pricing challenges for pharma cos: Report

Mumbai: A Democrat sweep in US polls may pose even greater pricing challenges for the pharma industry and pave the way for tighter pricing regulations for both brand name and generic drugs, according to a report.

Representational image. Getty ImagesRepresentational image. Getty Images

Representational image. Getty Images

“Last week’s turmoil in generics stocks reminded investors that price increase-led growth is likely coming to an end in the US. However, a Democrat sweep across houses could pose even greater pricing challenges for the industry and pave the way for tighter pricing regulations for both brand name and generic drugs,” Kotak Institutional Equities Research stated in its report here.

Emerging headwinds have resulted in US generics sector facing a massive 34 per cent de-rating.

A bigger overhang for the sector is the upcoming US elections, with the recent days witnessing increasing rhetoric over drug pricing.

Both US presidential candidates have argued in favour of allowing the US government’s Medicare programme, which accounts for over 20 per cent of total US drug spend, to
directly negotiate drug prices with manufacturers.

The Democrats are also proposing a pricing cap on Medicare that is similar to Medicaid, mirroring an upcoming referendum in California that proposes to give powers to the State to cap drug pricing at a level similar to Veterans contracts.

The report stated that any such proposal will require complete control of both Houses and in the past, proposals to facilitate direct negotiation for Medicare have turned up and failed to pass muster with the Congress multiple times since 2003.

It is also worth noting that pricing for brand drugs has started turning challenging even in the private market with PBM’s targeting pricing of several primary care medications such as respiratory, insulins, etc. over the past two years with speciality medicines such as Hep-C drugs and even biologics such as TNFs coming under pressure due to increasing therapeutic competition.

Despite the headwinds to the US business, Indian generics are now trading at a record 138 per cent premium over global generics, and while a premium is justified, the extent of the premium is questionable, given the deteriorating dynamics of the US segment, which has contributed the bulk of the growth for the Indian generics.

Last week, global and Indian generics stocks went for a free fall following news that the two-year old antitrust investigation by the US Justice Department (DoJ) over generic drug pricing is likely to result in charges being filed before the year end.

The investigation’s focus is on a dozen companies and over two dozen drugs, many of which are not in the public domain. It is probing potential collusion or anti-competitive activities to raise prices.

Among Indian companies involved are Sun (doxycycline and albuterol), Dr Reddy’s (Depakote ER and pravastatin), Zydus (Depakote ER), and Taro (drug names not disclosed), though the scope could likely be expanded to include other companies as well.

It is extremely difficult to prove collusion, but the US DoJ has, in the past, been successful in its investigations in other sectors, and it seems unlikely, that charges will be filed unless the DoJ has potential evidence to support its charges, the report said.

Levy 1.25% GST rate on jewellery sector : Industry body

Mumbai: A jewellers body today demanded that the GST rate on the jewellery sector should be 1.25 percent if the government wants the industry to be “compliant and organised”.



“We are now gearing up for GST and have proposed that the GST rate for the gems and jewellery sector should be 1.25 percent if the government expects the industry to be compliant and organised,” All India Gems and Jewellery Trade Federation (GJF) Chairman Sreedhar G V said in a release.

A delegation of the jewellers’ body today met Maharashtra Finance Minister Sudhir Mungantiwar at Nagpur and submitted its representation on Goods and Services Tax (GST). GJF, he said, will send the representation to Union Finance Minister Arun Jaitley on GST, highlighting various concerns of the sector.

“We have been constantly highlighting various contentious issues such as smuggling of gold and increasing PAN card limit for purchases, lack of hallmarking infrastructure and high Customs duties on raw material gold,” he added. GJF, he said, is closely evaluating the implications of Model GST Law and has already started mapping the business practises of the sector with the Model GST Law and Draft GST Rules.

GJF Director and Member-High Level Committee (HLC) Ashok Minawala said, “The HLC Report, which was unanimously accepted by the government, was prepared after taking the suggestions and recommendations from over 60 associations of India into consideration.”

“Keeping in mind, the unique characteristics of the gems and jewellery sector, the kaarighars and small jewellers were kept out of purview of the Excise Duty. Therefore, while we welcome GST we request the GST Council to recognise the practical issues faced by the sector as highlighted in the HLC report,” Minawala added.

Meryl Streep to get Golden Globes lifetime award | Reuters

Meryl Streep to get Golden Globes lifetime award | Reuters

Updated: Nov 3, 2016 22:06 IST


LOS ANGELES Meryl Streep, regarded as the finest actress of her generation, will get the Golden Globes lifetime achievement award at the annual ceremony in January, organizers announced on Thursday.Streep, a three-time Oscar winner, will be presented with the Cecil B. DeMille award in recognition of her 40 years in the industry.”She has always taken roles with strong female leads, creating art by showing vulnerability and portraying truth on the big screen. Simply put, she is a trailblazer, having paved the way for women in television, film and stage,” Hollywood Foreign Press Association (HFPA) President Lorenzo Sofia said in a statement.”For shattering gender and age barriers, all with finesse and grace, the HFPA is humbled to bestow this honor upon her,” Sofia added.

The HFPA organizes the Golden Globes awards for film and television, one of the biggest ceremonies in Hollywood’s long awards season. The 2017 ceremony will take place in Beverly Hills on Jan. 8.Streep’s most recent film was the 2016 comedy “Florence Foster Jenkins” in which she plays a rich, elderly American with no talent for singing but big ambitions.

The 67 year-old actress won Oscars for her performances in “The Iron Lady,” “Sophie’s Choice” and “Kramer vs. Kramer.” She has received a record-setting 19 Oscar nominations during her career.

Streep joins Denzel Washington, George Clooney, Woody Allen and Jodie Foster as recipients of the Cecil B. DeMille award. (Reporting by Jill Serjeant; Editing by Jonathan Oatis)

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GST tax structure to bring down inflation, says CEA Arvind Subramanian

New Delhi: The GST Council’s decision to peg the tax rate on items of mass consumption at 5 percent will bring down prices and soften inflation, Chief Economic Advisor Arvind Subramanian said today.

Chief Economic Advisor Arvind Subramanian. PIBChief Economic Advisor Arvind Subramanian. PIB

Chief Economic Advisor Arvind Subramanian. PIB

At its meeting headed by Finance Minister Arun Jaitley, the Council agreed on a 4-tier tax structure — 5, 12, 18 and 28 percent — for the Goods and Services Tax (GST) which the government proposes to roll out from April 1, 2017.

It decided that items of mass consumption be taxed at 5 percent as against the centre’s proposal of 6 percent. It also decided that at the higher end the tax be raised to 28 percent as against the proposed 26 percent.

The modified proposal, Subramanian told PTI, “should bring prices down. I don’t think there is any fear on inflation because 6 percent goes to 5 percent. A few products move from 26 to 28 percent but many go from 26 percent to 18 percent.

“On average this should probably serve to lower inflation. If at all, the impact on inflation will be very small. Today’s change should probably bring it down.”

He further said that the mood at the GST Council meeting was “very good” and rate structure was decided on the basis on unanimity.

Headed by Union Finance Minister, the all powerful GST Council comprises state Finance Ministers.

GST Council decides on 4-tier tax structure of 5-28%

New Delhi: A 4-tier GST tax structure of 5, 12, 18 and 28 percent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the all-powerful GST Council today.

Finance minister Arun JaitleyFinance minister Arun Jaitley

Finance minister Arun Jaitley

With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.

The lowest rate of 5 percent would be for common use items while there would be two standard rates of 12 and 18 percent under the Goods and Services Tax (GST) regime targetted to be rolled out from April 1, 2017.

Announcing the decisions arrived at the first day of the two-day GST Council meeting, Finance Minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31 percent (excise duty plus VAT).

Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.

The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.

The cess, he said, would be lapsable after five years.

Jaitley said about Rs 50,000 crore would be needed to compensate states for loss of revenue from rollout of GST, which is to subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year.

The 4-tier tax structure agreed to has slight modification to the 6, 12, 18 and 26 percent slab that were under discussion at the GST Council last month.

The structure to agreed is a compromise to accommodate demand for highest tax rate of 40 percent by states like Kerala.

While the Centre proposed to levy a 4 percent GST on gold, a final decision was put off, Jaitley said.

S&P’s decision to hold India rating for 2 yrs hits Modi govt where it hurts the most

In a major set back for the Narendra Modi government, which came to power promising a quick turnaround of economy and jobs, global ratings agency on Wednesday said it is retaining its rating for the country at BBB-, with stable outlook, depsite the government’s best of efforts urging the company to revise upwards the ratings. This is the lowest investment grade rating.

What came as a bigger shock was S&P’s assertion that the rating for the country is unlikely to change for two years.



The government has reacted with anger. Department of economic affairs secretary Shaktikantha Das at a press conference said the rating agency should do introspection for not upgrading India despite unparalleled reforms anywhere in world. He also said there is disconnect between investors’ thinking and rating agencies and also promised to continue taking measures necessary to strengthen the economy, boost GDP growth and create jobs.

Here are the key facts of the development:

What did the rating agency say?

1) A rating constraint is India’s low GDP per capita, which we estimate at
US$1,700 in 2016.

2) We believe domestic supply-side factors will increasingly bind economic performance, and the government has little ability to undertake countercyclical fiscal policy given its current debt burden.

3) This debt load and India’s overall weak public finances are additional rating

4) The country’s fiscal challenges reflect both revenue underperformance and constraints on expenditure.

5) Although we expect the administration to pursue medium-term fiscal consolidation, we foresee that planned revenues may not fully materialize and subsidy cuts may be delayed.

6) The stable outlook balances India’s sound external position and inclusive policymaking tradition against the vulnerabilities stemming from its low per capita income and weak public finances.

7) But the rater has also given credit for the government’s efforts. It said the NDA government has made progress in building consensus on a passage of laws to address long-standing impediments to the country’s growth. These include comprehensive tax reforms through the likely introduction in the first half of 2017 of a goods and services tax to replace complex and distortive indirect taxes. Other measures include strengthening the business climate (such as through simplifying regulations and improving contract enforcement and trade), boosting labour market flexibility, and reforming the energy sector.

8) Despite all this, the agency has said that it does not “expect to change our rating on India this year or next, based on our current set of forecasts”.

What did the government say?

Talking to reporters after S&P Global Ratings’ issued the statement, economic affairs secretary Shaktikanta Das said: “If the rating has not been improved, it’s a matter which doesn’t bother us so much. It’s a question which calls for an introspection among those who do the rating.”

According to him, global investors feel India is highly “under-rated”. “There is a disconnect, therefore, between what the investors are thinking of, what they have in their mind, and (what) the rating agencies are concluding. I think somewhere there is a disconnect,” he said.

“If you compare the various factors which the report itself talk about, is there any other economy that equals this? So with all this, if there is no improvement, I think it’s a matter for the rating agency itself to put a question to itself and perhaps undertake a kind of introspection,” Das said.

Why is the government worried?

The rater’s assertion that it will not raise the rating has hit the govenrment where it hurts the most.

In every international forum possible prime minister Narendra Modi has marketed India as the most investor friendly country. Listing out his acheivements, he has insisted that he has turned around the country’s processes. A rating upgrade would have supported his arguments.

Apart from this, a fairly large amount critics still believe the prime minister has done nothing much to improve the economy. The schemes that he has launched are just a rehash of the one the UPA-2 had rolled out, they say. They feel the government is doing a fine job of managing the headlines. Had an upgrade come now, it would have served to shut the mouths of these ‘naysayers’.

Also, S&P’s statement closely follows Moody’s, which also made somewhat similar staments about the country in September. “We have a positive outlook on India. On balance, the risk is on the upside. We are continuously monitoring the rating. We see pressure building up in 1-2 years and any tangible change could bring about a change in rating,” Moody’s Sovereign Group Senior V-P Marie Diron had said. Moody’s has a ‘Baa3’ rating with a positive outlook for India.

It is to be noted that both the raters had accorded the low ratings during the UPA regime because of the then prevailing policy paralysis and global situation. while Moody’s accorded the Baa3 rating in August 2011, S&P’s low investment grade rating came in April 2012. The only change they have made in the last 4-5 years is in the outlook. While S&P changed the outlook to stable in September 2014, Moody’s did it in April 2015.

It definitely pricks the NDA government that despite pitching for an upgrade many times with the raters, they have not obliged and the rating continues to be the one that the country got under the UPA. Unless the rating changes, Modi cannot claim a complete break from UPA’s past. And this indeed is painful and explains the shocked reaction from the government.

However, with S&P ruling out any upgrade for two more years, the NDA government seems to be running out of luck on this count.

With inputs from Kishor Kadam

Ease of doing biz: How minister KT Rama Rao transformed Telangana in a year’s time

In August 2015, Micromax got approval to start a Rs 200 crore mega project in Fab city on the outskirts of Hyderabad. Keen to ensure that the mobile handset manufacturer dialled into Telangana, the decks were cleared to ensure commercial production started in January this year with a woman power of 1200. Micromax chairman Rajesh Agarwal reportedly told the Telangana officials that never in his life before has a government chased him to find out if there are any more issues pending before production can start.

KT Rama Rao, Industries & IT minister, TelanganaKT Rama Rao, Industries & IT minister, Telangana

KT Rama Rao, Industries & IT minister, Telangana

It is this proactive attitude to make it easy for an investor to set up base in Telangana that has helped India’s youngest state to zoom from 13th position last year to the top this year (July 2015 to June 2016) in ease of doing business ranking, as joint number one with Andhra Pradesh. Chandrababu Naidu’s state moved one position from 2 to 1, dislodging Gujarat from the top spot.

Last year, Telangana’s score was an abysmal 42.45 percent. It worked systematically in fulfilling most of the 340 parameters listed by the Department of Industrial Policy and Promotion (DIPP) and World Bank this year, implementing 324 of them. At the same time, it focused on systemic improvement so that the jump in ranking also translated into an investor-friendly approach on the ground. The parameters relate to environmental and labour registration, obtaining electricity connection, online tax-return filing, construction permit, etc.

“The fledgling state has today become a role model for many states. Within a short span, we have proved the naysayers wrong,” says KT Rama Rao, Telangana’s Industries and IT minister.

That in many senses was the driving factor. During the Telangana agitation between 2009 and 2013, there was indeed concern if Brand Hyderabad was taking a hit, driving away investment. There was apprehension if a political party that had been in protest mode for 13 years could also govern.

Industrialists in Telangana credit the leadership of Industries and IT minister KT Rama Rao and the two IAS officers – Industries secretary Arvind Kumar and IT secretary Jayesh Ranjan – for the ranking. Industrialist Narendra Surana says, “The combination has been proactive, going out of the way to get the biggies to invest money in Telangana. They have done well to compete with other global destinations and not just other states.”

While most states talk of time-bound clearance for projects, Telangana is the only state to pass an Act under which it will be the right of the investor to get a time-bound clearance. By the 16th day if the permission does not come, it is deemed to be approved. There is also provision for penal action, wherein Rs 1,000 per day will be cut from the salary of the employee who was responsible for the delay. It goes to Telangana’s credit that not a single rupee of anyone’s pay has been cut so far.

Arvind Kumar points out the experience of Ikea, the Swedish furniture giant that is to set up its first retail store in India in Hyderabad. “Ikea is also looking to set up similar shops in Bengaluru, Mumbai and Delhi. But the CEO Juvencio Maeztu told us that the bar has been raised very high by Telangana when he compares it with the response he is getting in the other three cities,” says Kumar. Inter-departmental coordination meetings ensure everything from power connection to building permissions get sorted out here in Telangana.

But while Telangana rejoices, it is a case of neighbour’s envy, owner’s pride. Karnataka next door is clearly not happy. The state has slipped from the 9th rank last year to 13th now, even though in terms of score, it has done well, improving from 48.5 percent in 2015 to 88.39 percent this year. The drawback is that Karnataka has implemented only 297 of the 340 reforms and lacks in 39 areas.

“We are quite surprised frankly,” says Priyank Kharge, Karnataka’s IT minister. He points out that the Centre has lauded its tax reform initiatives, making a special mention of investor-friendly measures likes e-filing, online payments, e-registration. “We have done well in attracting one of the highest FDIs in the country. So it is rather strange that Karnataka should actually slip in the rankings,” says Kharge.

The industry does not quite share that sentiment. Mohandas Pai, Chairman of Manipal Global Education, says entrepreneurs have horror stories to share regarding demands of bribes. “There is huge corruption in getting permissions for power connections, building registrations and pollution control certificates. This is why Telangana is getting the marquee names in IT instead of the companies coming to Bengaluru. We have good manpower, but we need to market our strengths,” says Pai.

Last year, Karnataka lodged a protest with the Centre over its ranking. “We ideally should be in the top five given that we have a better investment climate than many other states,” says Kharge.

Both Karnataka and Telangana agree on what a ranking can do to a state’s future investment. Pai says Andhra Pradesh which ranks number one, lacks in infrastructure but makes up for it by creating the right ecosystem and hence it will be the first port of call before Karnataka. Arvind Kumar believes the ranking is the icing on the cake and that it will make it easier to market the state.

Bangladesh secure first test win over England | Reuters

Bangladesh secure first test win over England | Reuters

Updated: Oct 30, 2016 16:28 IST


DHAKA Teenage sensation Mehedi Hasan took six wickets as Bangladesh secured their first ever test win over England with an 108-run victory on Sunday. England had won all previous nine matches against their South Asian rivals but were all out for 164 in their second innings while chasing 273 for victory on the third day of the second test at the Shere Bangla National Stadium.

Off-spinner Mehedi picked up his second five-wicket haul in the test for a match-haul of 12 wickets as the hosts tied up the two-match series at 1-1.

(Reporting by Sudipto Ganguly in Mumbai; editing by Nick Mulvenney)

This story has not been edited by Firstpost staff and is generated by auto-feed.

India, Pakistan to expel diplomats amid Kashmir tension | Reuters

India, Pakistan to expel diplomats amid Kashmir tension | Reuters

Updated: Oct 27, 2016 23:47 IST


By Tommy Wilkes and Amjad Ali

NEW DELHI/ISLAMABAD India and Pakistan on Thursday announced they would each expel one of the other’s diplomats amid growing tension between the nuclear-armed arch-foes over the disputed region of Kashmir.India said it would expel a Pakistani diplomat based in New Delhi who allegedly ran a spy ring that collected sensitive information about Indian security operations along its border. Late on Thursday night, Pakistan’s foreign ministry said it had declared an Indian diplomat, Surjeet Singh, persona non grata and given him 48 hours to leave the country.Police in the Indian capital said the Pakistani diplomat was detained on Wednesday outside the gates to Delhi Zoo, where he had met two Indian associates whom police believe he had recruited to spy for him. The Pakistani diplomat, who reportedly worked in Pakistan High Commission’s visa section, and his alleged Indian accomplices were found with forged documents, defence-related maps, deployment charts and lists of officers working along India’s border with Pakistan, Indian police said in a statement.”There was high probability that the information passed on by these anti-national elements to PIO (Pakistan intelligence operative) is being used against the national interests and could be highly detrimental for national security,” they said, adding they had been trying to break the spy ring for six months.

An Indian foreign ministry spokesman said the man, who was released from custody under diplomatic immunity rules, must leave the country by Saturday.Pakistan’s High Commission in New Delhi rejected the allegations, saying in a statement it “never engages in any activity that is incompatible with its diplomatic status”.Later on Thursday, Pakistan’s foreign ministry announced it had declared Singh persona non grata and informed the Indian High Commission he had until Saturday to leave the country.

The statement said Singh was accused of activities “that were in violation of the Vienna Convention and the established diplomatic norms” but did not elaborate.Indian officials were not immediately available to respond to the accusation late on Thursday.India and Pakistan have been at loggerheads since a group of gunmen killed 19 Indian soldiers in September at an army camp in Kashmir, an attack India blamed on Pakistan-based militants.

India said it had sent special commandos into Pakistan-controlled Kashmir to kill militants in a retaliatory operation that sharply soured relations between the neighbours. Pakistan says the operation never happened and accuses India of inventing it to distract attention from its crackdown on protests in the part of Kashmir it controls.Indian and Pakistani troops face off against each other along the de facto border in divided Kashmir – a region they both claim in full but control in part – and have exchanged fire several times this week in cross-border shelling. (Reporting by Tommy Wilkes; Editing by Tom Heneghan)

This story has not been edited by Firstpost staff and is generated by auto-feed.

ATM security breach reveals cyber world’s big risks, says ex-top cop D Sivanandhan

Cyber security is an issue that is affecting India as it is being attacked by the cyber army led by Pakistan and China and internally we are vulnerable in sectors of finance, oil, energy, power among other vital areas.

In February 2016, cyber thieves have been bold enough to hack into the central bank of Bangladesh and sent fake payment orders to the US Fed. The Fed was tricked into paying out $101 million. This only enthuses and emboldens hackers to go all out and commit such frauds.

D Sivanandhan, formerD Sivanandhan, former

D Sivanandhan, former DGP, Maharashtra Police

There are a lot many bank frauds that are happening in India but the banks don’t want to lodge a police complaint as that would mean their reputation would be at risk and also their customers may lose trust in them. Since they have insurance, they prefer to claim damages rather than come out in the open about the crime.

The future crimes will be largely cyber crimes and people should be careful before using their keyboard and typing out details. More people are taking to cyber capability like fish to water and there are criminals waiting on the banks to eat them up.

The government’s flagship financial inclusion program, Pradhan Mantri Jan Dhan Yojana has resulted in 25.05 crore accounts (as of 12 October, 2016) being opened across the country but most of the beneficiaries are not cyber literate. When money flows into their accounts from the government, it will be fraught with high risks.

It is very easy to clone a card. All it takes is for someone to read the card as the details are being punched and money can be siphoned away from one’s account. People must be aware and cautious of how they manage their accounts, debit/credit cards, password and personal information. Awareness must be created continuously so that customers are alert about the risks involved. Banks need to sweep their computers periodically and look out for Trojans.

In this case of 30 lakh account details being compromised, customers must know that it does not mean money has been siphoned off their accounts. If it was, under RBI rules, the concerned banks would have to pay back their customers.

Accounts being compromised means that the details of the customers, bank card numbers, etc could be hacked into which can be used to take away customer’s money. That is why the banks have had to reissue new cards. It is akin to Samsung withdrawing Note 7.

(As told to Sulekha Nair)

Don’t fall for false nationalism; India in no position to ban Chinese imports

New Delhi – Social media jingoists are having a field day dissuading the aam aadmi from buying anything Chinese this Diwali. Since China has problems with India’s stand on Pakistan-based terrorist Masood Azhar, we must therefore stop using all things Chinese: this is the logic of the twitterati. Well, as usual, the opinion generators on social media are high on rhetoric but rather poor on facts.

The fact is this: whatever be China’s position as far as India’s fight with terrorism is concerned, we cannot afford to ban Chinese goods imports. The matter must be handled diplomatically, using bilateral trade as a weapon suits ultra nationalists but not India’s economy.

Representational imageRepresentational image

Representational image

For one, imports from China accounted for over 16 percent of India’s total import basket in 2015-16, as per data available on the website of the Department of Commerce. Not only is China a country from where India imported the highest value of goods last fiscal, the amount we spent on buying the same Chinese goods which the ultra nationalists now want us to eschew was more than the combined amount India spent on importing stuff from United States, UAE and Saudi Arabia last fiscal.

India imported goods worth $61.7 billion from China last fiscal when India sent goods to that country merely worth $9.05 billion. India’s imports to China have almost halved over the last four years. A back-of-the envelope calculation shows we imported at least six times more from our largest trading partner than China did from us. Isn’t it then obvious that India is rather heavily dependent on Chinese imports and any weakening of trade ties between the two countries will substantially hurt Indian businesses, not so much China?

But why is India unable to compete with China when it comes to exports? According to a written answer Commerce Minister Nirmala Sitharaman gave in Lok Sabha during the Mosoon Session earlier this year, trade deficit with China has been increasing as Chinese exports to India rely strongly on manufactured items to meet the demand of fast expanding sectors like telecom and power. India’s exports to China, on the other hand, are characterised by primary and intermediate products.

The upshot of this is that we send products to China which are not high value-added, whereas China is sending products such as telecom instruments, computer hardware, peripherals, fertilizers, electronic components/ instruments, project goods, organic chemicals and drug intermediates, consumer electronics, electrical machinery and equipment, iron and steel etc.

“These imports feed the growing demand in India for such goods which China, due to variety of reasons, is able to export to India at competitive prices,” Sitharaman said in her reply. India’s trade deficit with China increased from $38.67 billion in 2012-13 to $48.45 billion in 2014-15.

The misguided approach towards the Sino-Indian trade ties on social media is also bothering many traders and wholesalers in and around Delhi. With Dilwai around the corner, an overwhelming chunk of goods – lights, some crackers, furnishings, gift items – all come in large quantities from China. If the Chinese stuff is not sold, traders fear a dark Diwali. Stocks have mostly been replenished months back in anticipation of the usual Diwai buying frenzy, and they came in when India and China were still not at loggerheads over Pakistan.

The president of a well-know traders’ association in Delhi did not want to be identified but told Firstpost that this year, business is suffering due to overall gloom in the market, the reduced sales have little to do with the so-called anti-China sentiment. “By this time last year, we had sold off 70-80 percent goods before Diwali but this time only about 25 percent has been offloaded. I don’t think Chinese goods are the specific reason for this decline in sales and anyway we expected the sentiment to improve closer to Diwali. I don’t see much impact of anti-Chinese sentiment”.

Manish Jain, owner of one of the large gift items’ shops in Delhi’s biggest wholesale market, Sadar Bazar, said supply of imported goods from China has anyway been negligible for the last three months so there was no reason to assess the so-called anti-China sentiment.

“No shipments have been coming from ports for the last three months…I do not know why. Sales are anyway suffering, we are selling whatever is there in stock (Indian and Chinese goods). Impact of anti-Chinese sentiment will be known only after the season is over”.

This report quotes IndiaSpend’s visit to Manish market, the hub of imported Chinese goods in Mumbai’s heart. It syas Chinese products here are cheaper, available in bulk, neatly packaged and easy to buy. “If the 50 different types of LED lamps that I sell were available from say, Surat, at a cheaper rate and at my doorstep, why would I go for Chinese lamps?” asked a lamp distributor and retailer, requesting anonymity. “If I had to buy these in India, this collection would cost me double.”

But Kunal of Ram Chand Chhunnu Lall Fireworks near Delhi’s Jama Masjid and Manish Sachdeva of Sachdeva Lighting, both denied any Chinese connection vehemently. Kunal averred that none of the 7-8 shops selling crackers near Jama Masjid stock any Chinese stuff while Sachdeva said there was no need for Chinese goods in premium lighting, this was mainly the need for ocassion lighting with ‘ladis’.

Some associations like the Confederation of Indian Traders (CAIT), however, seem to place ultra nationalist sentiment over plain business sense. Praveen Khandelwal of CAIT said there has been a 30 percent decline in shipments from wholesalers to retailers after the anti-China sentiment surfaced on social media and that he has “personally” seen consumers avoiding Chinese products in the run-up to Diwali shopping.

But in the same breath, he said it was impossible to totally ban imports from China due to global trade compulsions. “China has celebrated its Diwali since import shipments usually arrive three months in advance, when the entire Masood Azhar issue had not happened. They will suffer during Christmas as New Year now,” Khandelwal said.

Instead of targeting sale of small-value Diwali items imported from China, India should be looking to demand greater market access for some of its exports to China. Of course, we also need to take some major initiatives to correct the widening trade imbalance between the two countries and try and lessen our import dependence. But until this is achieved, India is really in no position to avoid using Chinese goods which have flooded our local markets.

GST Council meeting starts today: All you need to know about the agenda, challenges

As the crucial three-day meeting of the GST Council, comprising state finance ministers, starts Tuesday, here is a look at the the agenda and key challenges before the council.


1) Tax rate: This is the most important and vexed issue as the prices of goods and services that will come under GST are dependent on it. The key challenge is to arrive at a consensus on the rate, that will be revenue neutral for the states and also is agreeable for all the political parties.



Last year, a panel headed by Chief Economic Advisor Arvind Subramanian had suggested 17-18 percent as the standard rate for bulk of goods and services while recommending 12 percent for low rate goods and 40 percent for demerit ones like luxury car, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6 percent. Finance Minister Arun Jaitley had last week said tax on environment-unfriendly products will be “distinct” from others in the GST framework.

The main opposition party Congress has argued for an 18 percent rate. But state governments are unlikely to agree to this as this would mean deeper revenue loss (of about 12 percent) for them. In all likelihood, the Congress will object to any rate higher than the one suggested by it.

Even if the GST Council discusses in the present meeting it is unlikely that a decision will be taken. Considering the political sensitivities involved, it is going to be a long drawn process, unless the Congress is ready to relent.

2) Compensation formula: This too is a likely to be difficult one to crack. At the first GST Council meet, 3-4 alternatives were discussed but a decision could not be reached.

As per the proposals, a state can be compensated if the revenue under GST falls short of the average tax earnings in the best three years out of the past five years.

Second, of the five years, two outliers are left out and an average is taken. If the revenue under GST is short of this, then states get compensated.

Third, a base year can be fixed and a particular growth rate decided for all states. If the revenue falls short of that, then the state gets compensated. The base year would be 2015-16.

Another suggestion was on a fixed rate of revenue growth and give compensation, he said.

The Bill seeks to provide full compensation to states for first five years of rollout of the GST regime. Earlier the 100 percent compensation to states was restricted to only first three years. However, the Select Committee of the Rajya Sabha had in its report recommended 100 percent compensation for probable loss of revenue for five years.

3) Service tax assessment: The Council will also deliberate on the vexed issue of the Centre retaining power to assess 11 lakh service tax filers under the new dispensation.

While a decision to this effect was taken at the first meeting of the GST Council, at least two states dithered on approving the minutes of the meeting, saying they are not in favour of losing power of assessment of these assessees.

Crucial meeting

The meeting is crucial because the government has set a deadline of 1 April 2017 for the rollout, which is just five months away. The finance ministry setting 22 November as the deadline for building consensus on all the issues in the Council.

The legislations for central GST (CGST) and integrated GST (IGST) can be introduced in the Winter Session of Parliament beginning 16 November only once the consensus is reached.

Issues already resolved

The GST Council’s first meeting had finalised area-based exemptions and how 11 states, mostly in the North-East and hilly regions, will be treated under the new tax regime.

So far, as many as 6 issues have been settled by the GST Council, including finalisation of rules for registration, rules for payments, returns, refunds and invoices.

The Centre and states had also reached an agreement on keeping traders with annual revenue of up to Rs 20 lakh out of the new national sales tax ambit that will subsume all cesses.

It also resolved issues over dual control over small traders, and decided that states will have exclusive control over all dealers up to a revenue threshold of Rs 1.5 crore in a year.