India demonetisation fails to purge black money

I'm not sure. Historically, Indian governments have been most undeserving of our taxes simply because they've misspent it and/or misdirected it to achieve their own means (corruption, buying votes etc). Saying "yes but this government is different" also doesn't hold water when you look at the massive farm loan waivers that were just granted, and more waivers are on their way. How do you think the waivers were funded? Through our hard-earned tax money. Who do you think the debtors will now vote for in the next election cycle? The current ruling political party ofcourse.

Finally, there are a lot of disadvantages for being on a completely centralized digital payment platform from an individual liberty point of view. Imagine that a significant portion of your net worth is just a number stored in a "secure database" which falls under the jurisdiction of some government. Now image that you vocally disagree with the government's policies enough for the government to start taking notice. It becomes very very easy for the government to shut you up - all they have to do is strongarm the bank to freeze that number. Its not as hypothetical as it sounds as the Indian government has done this before.

A large portion of black money was deemed to be held up by the bureaucracy - bribes paid by private individuals and corporations to government employees and politicians. Had demonetization been done along with a hiring freeze (and subsequent trimming down) of the bureaucracy, I'd have been more certain that the motives behind demonetization were to root out corruption. However, the bureaucracy is now larger and more powerful than ever under this government. Thus, the incentives to seek bribes still exits because of this power imbalance between the powerful bureaucrats and relatively week individuals.

It was actually one of the stated secondary goals, with an appeal involving such currency being used by terrorists. However

1. While a higher than usual fake currency was detected the total fake currency detected was roughly 1 in 100,000. So there wasn't a fake note problem in general circulation. 2. The new notes launched do NOT have any additional security features, and hence while there will be a latency in getting the fakes right, it will continue to be a problem(albeit a small one).

> However, overall it had pretty strong positive impact on economy. Many of the roadside merchants who used to be exclusively cash only, have started accepting dizital payments.

The evidence is that it had a strong negative effect. Also, anecdotally, the roadside merchants who used to accept PayTM for the duration while currency supply was squeezed, have now gone back to cash[1]

However PayTM's CEO is now buying a house in the poshest part of New Delhi, so I'm sure it wasn't all bad for him.

[1] http://www.pymnts.com/cash/2017/cash-usage-india-post-demone... ... "March data from RBI poured cold water on proponents of digital payment. The volume of overall digital transactions, which had increased by 42 percent from 672 million in November to 958 million in December 2016, declined by 20 percent to 763 million in February 2017."

"I am confused with the article though. What would have been a successful result? That the all canceled currencies wouldn't have been exchanged or deposited?"

Yes - exactly - the assumption earlier was that a significant amount of money stored with the denominations that were de-monetised was "black"/unaccounted money. And this would not be deposited into banks due to fear of being scrutinized. If this had happened on a large scale and if the money had not been deposited - the liability of the exchequer would have reduced.

>Arun Jaitley, finance minister, on Thursday defended the demonetisation at a conference in New Delhi. He admitted that black money had come back into the banking system, but said that tax officials were combing through people’s accounts to identify and tax it. >He said: “The fact that money has got into the banking system does not mean that it is all now legitimate . . . The money got identified with the owner whom henceforth had been fixed with the liability of explaining that money and facing taxation on it.

This is the important part, money coming back to the system doesn't mean people can get away with it. An elaborate exercise is going on and I read multiple stories where the tax dept is sending notices to people with dubious deposits.

Also, This is always going to be a polarised debate. Digital payments certainly went up, people started using bank accounts. Yes, it's not significant, but change is really slow