Demonetization: Misconceptions, problems and solutions

The biggest voice I have been hearing nowadays in India (since Nov 8, 2016, when the Indian Prime Minister Narendra Modi declared Rs. 500 and Rs. 1000 notes as illegal tender of currency from the next midnight i.e. with just 4 hours’ notice) is that it is ‘Unconstitutional’ to Demonetize the currency, especially when there was a limit put on cash withdrawals on the ‘Savings accounts’. So I thought it would be better to understand what it means by ‘Savings Accounts’ or ‘Demand Deposits’

Definition of ‘Savings accounts’
A savings account is an interest-bearing deposit account held at a bank or another financial institution that provides a modest interest rate. Banks or financial institutions may limit the number of withdrawals you can make from your savings account each month, and they may charge fees unless you maintain a certain average monthly balance in the account. In most cases, banks do not provide checks with savings accounts.
_{Read more: Savings Account Definition | Investopedia http://www.investopedia.com/terms/s/savingsaccount.asp#ixzz4TG5IHZn5  Follow us: Investopedia on Facebook}
Savings accounts offer limited use of the funds in the account because they are generally not available for paying bills or buying items directly via checks or debit cards. Some accounts have Internet access, which can be used to move money from the savings account to other accounts, but some savings accounts require the account holder to physically go to the bank in order to deposit or withdraw money.
_{Courtesy: http://www.livestrong.com/article/58780-definition-savings-account/}
These deposits accounts are one of the most popular deposits for individual accounts. These accounts not only provide cheque facility but also have a lot of flexibility for deposits and withdrawal of funds from the account. Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these. However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account. Till 24/10/2011, the interest on Saving Bank Accounts was regulated by RBI and it was fixed at 4.00% on daily balance basis. However, w.e.f. 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. Under directions of RBI, now banks are also required to open no frill accounts (this term is used for accounts which do not have any minimum balance requirements). Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits. From the FY 2012-13, interest earned up to Rs 10,000 in a financial year on Saving Bank accounts is exempted from tax. 
_{Courtesy: http://www.allbankingsolutions.com/top-topics/dep1.shtml}

Definition of ‘Demand Deposit’
A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking. In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period of time. M1 is a category of the money supply that includes demand deposits as well as physical money and negotiable order of withdrawal (NOW) accounts that have no maturity period but limited withdrawals or transfers.
_{Read more: Demand Deposit Definition | Investopedia http://www.investopedia.com/terms/d/demanddeposit.asp#ixzz4TG8EBOqY  Follow us: Investopedia on Facebook}
A demand deposit is money that you deposit into a bank account from which you can withdraw 'on demand' - at any time without any advance notice to the bank. Common examples of accounts that are often demand deposit accounts include many checking and savings accounts. Keep in mind, however, that not all checking accounts and savings accounts are demand deposit accounts.
Manner of Demand: There are many ways you can make a demand on your bank for the funds deposited in a demand deposit account. You can make your demand upon the bank not only before a bank teller, but also through use of an ATM, use of a debit card, online banking transfers and through drawing a check. In fact, if you look closely at a check, you'll see the words 'pay to the order of' right before the line where you fill in the name of the person you're paying. You are actually demanding that the bank pay the sum of money indicated on the check to the payee identified on the check.
_{Courtesy: http://study.com/academy/lesson/demand-deposit-definition-lesson-quiz.html}

All of the above information is picked ‘as is’ from the links provided and these are not my words. So in Legal / Constitutional terms, Banks are free to put limits on any withdrawals from ‘Savings Accounts’ at any time, including cash transactions. In reality, there is limit placed only on Cash Withdrawals from ‘Savings Accounts’ (Teller and ATMs), while one is free to make any amount of transactions using all other instruments like Cheques, Debit Card swipe at POS, Online Payments (NEFT, RTGS, IMPS) or e-commerce transactions linked to the Savings Accounts. By all legal means, Banks do have the right to limit each of these types of transactions from ‘Savings Accounts’ as well.
Another right of the depositor would be to close the account. For this, the depositor can withdraw or transfer all the balance to another account. The Bank may also use the option of Bank Draft / Banker’s Cheque _{(Refer: http://www.investopedia.com/terms/b/bank_draft.asp)} in case there is no cash available in the concerned Bank for withdrawal. So the depositor’s money belongs to depositor at any time.

Having said all this, I agree that there are real problems in Indian Economy post Demonetization. There are few major issues like,

• IT and Telecom infrastructure – in order to use online modes of payments including different wallets, you need to have proper network (wired or wireless) enabled by adequate security, which is not there even in the biggest cities (supposed to Smart-cities) in the country
• Availability of POS machines and alternatives (M-swipe et al) – the merchants either do not want to use these devices or not able to get them
• Infrastructure Charges, Convenience Fees, Service Taxes on non-cash transactions (on non-Government sites) – if you want to make payments on any of the non-Government websites, you will see either of these being charged on top of your payable amount, which is not the case for cash transactions (Tax laws, implementations, official’s behaviour are few of the underlying issues)
• Availability of lower denomination currency – after (ideally before) demonetizing Rs. 500 and Rs. 1000, there should have been enough supply of lower denomination currency tenders to the Banks, so that the real needy people do not suffer

There are also few solutions / workarounds available that can be explored to overcome the problems. (What makes me qualified to put my opinions here? – I have been making more than 90% of all my transactions without using cash for last 10 years, at least. I needed to use the cash at all, because some places like vegies vendors, maids and daily perishables dealers are really not equipped / inclined to make cashless transactions)

• Financial Education to the common people on other instruments of transaction – Banks should really employ few retired people or students to educate the people standing in the queues of Banks and ATMs on how to make cashless transactions and what all alternatives are available. At least this education should reduce the amount of money these people would withdraw in cash (if not convince them to get out of that queue)

• Availability of other legal instruments and mandate as well as incentives to use them – Government, RBI and Banks should really be working on making POS machines and other devices available to the merchants, so that people do not need cash. And more importantly there should be proper infrastructure and legal backing present to make such cashless transactions mandatory, initially there should be incentives provided to all the people to go cashless (not just at Government sites and outlets, but everywhere)

 After all these, what remains is just the people who really want to evade the taxes and charges by remaining invisible to financial institutions aka Black Money hoarders.

The reinvented 'Theory of Relativity'

It happens so, that I had been in certain circumstances & through certain series of events that I was about to get into a shell once again then things have taken an abrupt turn. It is yet to reveal how this turn turns out. But I'm less bothered now.

First, I watched a movie called ‘The Time Machine’ based on H. G. Wells’ novel. Incidentally I've seen both the versions of the movie. The movie takes place at the same location travelling through over 800,000 years of time. It depicts how the conditions change over the time. How the behaviours of people change & yet all the problems remain almost same. How the same solutions can be applied to evolve again & how irrelevant all the years of evolution has been as conditions would be pretty much same even 800,000 years later.

Second, thanks to one of my senior colleagues I read a short story called ‘विदुषक’ by ‘जी.ए.कुलकर्णी’. A mind boggling piece of literature! This tells you about how the absolute truth can be so much different than what you thought you knew. Everyone is living in one’s own universe; one might be very true to oneself and would be following all the rules that are proven by time & act accordingly, but that may be millions of light-years away from the absolute truth & would not fit in the scheme of things at all. How one would be so correct & so satisfied with one’s life, decisions & actions, only to know the real truth as a rude shock to the core of one’s belief & wisdom. Things might be falling in place just like a straightforward mathematical equation only to realize that the balancing of equation was a mere coincidence & there was either a completely different scheme of things or no scheme at all.

Every now & then, the Brownian motion proves to be the only rule. If you see closely enough, every particle by itself is following all the basic rules of physics like inertia or Newton’s laws of motion just like a well oiled mechanism, but on a larger level, all the outcomes are so much dependent on the other particles & so much random if you consider the scheme of things or the lack of it.

So the conclusion is, stop worrying about the things.

तात्पर्याच खर कौतुक ते हेच! त्याचा मूळ कथेशी संबंध असलाच पाहिजे असा काही दंडक नाही. ते स्त्रीच्या कटेवरील बालकासारखे असते. ते तिचेच अपत्य असले पाहिजे असे नाही.

Epic saga

Just came back from a nostalgic journey called “Harry Potter 7 – 2”. To confess, I never read even the synopsis of the J. K. Rowling books, but I am a huge fan of her storytelling skills. That lady has stretched our imagination to witness the concoction of a magical utopia. You know it is fiction, yet it is as real & palpable as anything. What makes this epic saga such a great success is not only the imagination of it narrator, but also the artists like Chris Columbus, Alfonso Cuarón, Mike Newell & last but certainly not the least David Yates. These visionaries tried to put the imagination into as much reality as humanly possible. Hats off to all of them!

Take nothing away from the ones who portrayed these characters

Maggie Smith as Minerva McGonagall,
Warwick Davis as Filius Flitwick,
Brendan Gleeson as Alastor Moody,
Richard Griffiths as Vernon Dursley,
Jason Isaacs as Lucius Malfoy,
Fiona Shaw as Petunia Dursley,
Timothy Spall as Peter Pettigrew,
Emma Thompson as Sybill Trelawney,
David Thewlis as Remus Lupin,
Julie Walters as Molly Weasley,
Mark Williams as Arthur Weasley.
Robbie Coltrane as Rubeus Hagrid,

Outstanding performances by

Helena Bonham Carter as Bellatrix Lestrange,
Tom Felton as Draco Malfoy,
Gary Oldman as Sirius Black,
Ralph Fiennes as Lord Voldemort,
Alan Rickman as Severus Snape,
Richard Harris & the great Michael Gambon as Professor Albus Dumbledore,

And the most importantly

Emma Watson as Hermione Granger,
Rupert Grint, as Ron Weasley,
and Daniel Radcliffe as the boy who lived ‘Harry Potter’

(Cast list: Courtesy Wikipedia)

The thing that is really moving is that all three youngsters always lived up to their characters for 10+ years. They had the money & fame to get blown away, yet we heard of no misdemeanours from any of them. You really can't imagine what if we had to replace one of them. This series has not only given us a new fairy tale of our age but also some larger than life real-life characters. Why I call this epic saga a fairy tale is because it also gives us all the values that all others do too. I thank these all for making it such a memorable pleasant experience.

I for one certainly cherish my time watching this saga in the making. It will be remembered for a long time to come, I am sure. But, there’s no next episode coming. I will badly miss it.

My most important relation

I have been saying & thinking that my life partner has to perform multiple roles in my life. I recently had an awesome experience of the roller-coaster the most important relation my life is going to be with my one & only life partner.

A day before she was my mother, even I can say my granny; telling me how I should be behaving with my dad at home. What I can & cannot expect from him & how I should be responding to his irritating behavior. And last evening she became my daughter, the one that hasn't seen the difficult part of life. But like a caring father I have to let her face the world. Face the troubles of life to be a better person. To withstand the pressures & responsibilities that the life has to offer, come out with flying colours. I have to trust her for her abilities, for the very reason that she's me!

I am beginning to enjoy this part of convergence of two lives into one! I am thrilled!

'Inception' of food for thought

It’s been a long time since I wanted to blog this, but somehow couldn’t happen. I watched ‘Inception’ about a month back. Another Christopher Nolan masterpiece! Damn, he goes deeper than you think you can ever think of.

How do you implant an idea into someone’s mind? What could be the impact of that? Is that science? Is that philosophy? Is that introspection? Made me think a lot after the movie was over. I came in hangover of thoughts after the movie was over & haven’t been able to recover yet from that. I wanted to see that again but couldn’t find any company. Although irony is that I watched it the first time all by myself, alone! Yeah, I do that sometimes. I watch the movies that I consider a piece of art & every art should get its due share of respect. At least you should be able to understand the motive of the creator, if not all the thoughts in his/her mind. Watching movies is not just a pass time for me; in fact it is not a pass time for me at all.

The best part of Christopher Nolan’s movies is the climax; he leaves it for you to think about it. Remember ‘Memento’? Not to mention the screenplays & the way he weaves the story a.k.a. ‘The Prestige’, ‘Insomnia’ & ‘The Dark Knight’. He’s carrying his legacy to ‘Inception’. How deep can you go once you got yourself into something? How deep is your worst fear & how far can you go to conquer it? Or before you give in to it? And finally, how well can you accept something called reality & how you deal with it? Answers to all these questions will determine how your life will be. You think ‘Inception’ was supposed to be a science fiction; and I’m talking all about philosophy. But there is no science beyond human mind; right from what exactly is the MIND? Where it exists? How does it function? I love this food for thought. I’m always hungry for something like this, but alas very few people like Christopher Nolan, Martin Scorsese can feed me on it.

It has been a long time since ‘The Departed’ that I got to watch something as good as this. There was something like ‘Burn After Reading’ but it didn’t come close. I am really looking forward for some more food to satiate my hunger, so if you know about something, please suggest me.

Union Budget 2010-11

Finally this non-event has brought me to ad nauseam boredom & I decided not to follow it so rigorously anymore. Just one bit of good news for the working class is the new tax structure proposed

Income	Tax %
0-160000	0%
160001-500000	10%
500001-800000	20%
800001-above	30%

One angle to look at this is if you earned more, it’s more beneficial to you. Just look at table below. You tell me qui bono?

Income Rs.	Previous tax	New Tax	You save
350000	24000	19000	5000
500000	54000	34000	20000
750000	129000	104000	25000
1100000	234000	114000	120000

And this came at a time when the consumer is pissed off with the level on food item inflation. This is 4^th year I have been crying out loud that the government is playing plain dumb. We have so called “some of the best economists” sitting at the top viz. Manmohan Singh, P. Chidambaram, Montek Singh Ahaluwalia. And yet the government is not able to understand a simple problem for years, that we are not making any moves to tackle the supply side problems. That’s the main reason of the inflation. If you studied economics even for a year in your curriculum, you’d understand what I’m taking about. And these people have been in the field of economic for years & yet they do not seem to heed for this.

This whole façade is simply ridiculous & there seems no sense in making a hue & cry about it. So I better shut up & leave the country for the able leaders to ruin. I better spend my time in getting self-exiled like our dear old artist M. F. Hussain.

Union Budget 2009-10

Congress & UPA may have changed the Finance Minister but they haven’t changed the policy of the budget being a ‘non-event’ (a word personified by previous FM P Chidambaram) & the only concern the budget carries is ‘Inclusive Growth’ (Something the market has got fed up of since the Nehruvian Socialist India – the concept that still hasn’t quite worked; to UPA’s credit NREGA has got some favourable results including winning the election with clear mandate for Congress & UPA, without a pejorative external support of the Leftist, Communist parties). So in all, the budget had all the ingredients to make a rotten stew & that is what it made. Here’s the list of the ingredients & a small procedure of how to spoil the party.

The basic plan of this government is keep the wheels of growth spinning fast enough so that the wobble created by global financial turmoil does not derail the engine of growth. So the basic target is to maintain the GDP growth above 9% for the whole term, which includes maintaining the Agricultural growth above 4%. There has been lot of ruckus between the state & Central government regarding the collection & utilization of taxes since the introduction of VAT. So the FM has proposed the annual dialogue between the State Finance Ministers & the central government for resolving this issue & to ensure that the state government do no fall short of necessary funds.

Some significant points in expenditure for this year are as follows,

• The budget estimate for expenditure is set to cross the RS. 10 lakh crore for the first time. Total BE is Rs.10,21,000 crore out if which Rs.3,75,000 crore is planned expenditure.
• There is a proposal to set IIFCL as SPV for infrastructure growth.
• The Central Government to refinance 60% infra projects in critical infra sectors, amount estimated for the same is Rs.1,00,000 crore
• Funds allocated for JNNURM to be increased by 87% over last year.
• Also there is 23% increase in funds allocated for NHDP/NHAI.
• There is proposal of providing the farmers with loans up to Rs. 3,00,000 with special low interest of 7%. & further 1% reduction in interest rate to 6% for farmers who repay their loans on time.
• There is emphasis on irrigation with 75% increase in funds allocated.
• Micro, Small & Medium Enterprises are given a boost of 4000 crore for refinancing loans given by banks to these industries.
• A great positive as expected by market for the Petroleum Producing & Marketing industries is that the new mechanism to be introduced for Petroleum pricing policy which will try to decontrol the petroleum prices & put more in line with global crude prices to minimise losses of these industries & also it is bound to reduce the deficit burden on the government.
• To extend the Public involvement in the growth story of India Inc. there is proposal to expand Non promoter shareholding, as currently many of the listed companies have 10 – 15% general public (retail) holding only.
• An amount of Rs.39,100 crore for NREGA in this budget which is astounding 144% higher than last year due to the success witnessed in last year.
• Allocation for Bharat Nirman is up 45% from last year.
• Indira Awas Yojana is given 63% more funds than last year.
• Allocation of Rs.7000 crore for rural electrification.
• FM also proposed a plan of bringing the Employment exchange online to facilitate the jobseekers get into the right jobs & also to create a pool of talent for the India Inc. to choose from.
• There is boost for ex servicemen by increasing the Pension paid to them.
• The all centre of attention UID scheme which is now lead by Nandan Nilekani will be allotted Rs.120 crore & expected to be completed within 12 – 18 months.

Now something about the receipts

• The total Revenue Deficit for this year is set to be 4.8% of GDP.
• The Fiscal Deficit is revised to 6.8% of GDP but FM promised to bring it back within FRBM range at the earliest possible.
• The total Tax receipt for the year are budgeted to be Rs.6,42,000 crore
• Tax to GDP ratio is 11.5%.
• The only positive surprise in the budget that no one expected is that the GST is set to be introduced on previous target of April 1, 2010 without any delays.
• FM proposed to make the returns filing process simple yet again so the Saral 2 forms will be introduced soon.
• There will be New direct tax code prepared within 45 days
• Biggest negative that spooked market was that there was no change in Corporate tax. India Inc. was hoping for some reduction on that front.
• The individual tax exemption limits are changed to

• Senior citizen Rs.2,40,000
• Women Rs.1,90,000
• All others Rs.1,60,000

• Exemption under section 80DD Rs.100000
• Surcharge eliminated.
• Exemption under sections 10A 10B will be extended till FY09-10 end.
• One boost for the working class & a little to Corporates is the FBT is abolished as expected.
• Disappointment on individual level is the maximum deduction allowed under section 24(b) for the interest on borrowed capital for the purpose of purchase of home should have been increased to Rs.2,00,000 or even more sensible Rs.2,50,000, which was left unchanged to Rs.1,50,000.
• Another expected change is the STPI tax holidays are extended by 1 year.
• Tax holiday for exporters extended till FY10-11 end.
• All capital expenditure for the Corporates is allowed for deduction.
• Commodities Transaction Tax is abolished.
• MAT is raised to 15% from 10 %. This is supposed to cover up for the Surcharge & FBT abolition. In return to that the period to carry the loss for MAT is increased to 10 years from current 7 years.
• STT is tweaked to boost retail involvement.
• Exemption under section 80G will be 100% from current 50%.
• Exemption under 80E will be extended to all fields of education including vocational courses.
• Exemption under Section 80IB extended to natural gas
• Section 2(15) extended to organizations that work on improving environment.

Indirect taxes were left largely untouched. Few of the significant changes are as follows.

• Electronic sector customs duty benefits
• Set top box will attract duty of 5%.
• Duty on Wind mill magnets is cut to 5% from 7.5%.

I don’t need to say it differently than the overall market that this budget was disgusting & again a lost opportunity just to keep the promise of letting it be a ‘non-event’. I have been saying it for last 3 years now, since I started blogging this non-event that the Congress & UPA government have just not got the fundamentals of Economics right. This is astonishing & more disgusting because the best economist in the country is the PM. The reason I am saying it because for last 3 years there has been nearly no attention to the supply side of the economy, same is the case this year. All the efforts are targeted towards reviving & pushing the demand side up & thereby driving the growth. Should I remind you that similar thing was attempted by the great Alan Greenspan when he was heading Federal Bank & we all know where it ended. I fear we are just walking down the same path blindly & not ready to learn from the mistakes of predecessors. This is the same reason we witnessed the sky high inflation to the tune of 12.7% & my bet is it will be back again until the supply side is addressed on priority. The biggest thumb down was given to this budget because there was no roadmap for the all talked about & rather necessary reforms for the economy viz. disinvestment, financial reforms, view on FDI & FII. The uncertainty was maintained on it & market hates uncertainty. See where Nifty & Sensex are going, I need not say anything more.