Nov 14, 2016

Sump cleaning

[Image: Qzprod.wordpress]

I am neutral to slightly positive about the recent demonetization exercise and so am in neither the rah-rah camp nor in the cynical 'will oppose everything' camp. I do believe the exercise would have dealt a deathly blow to counterfeit notes. And so far, most people seem to be resigned to the inconvenience assuming benefits outweigh the costs. If the lines don't start coming down soon, the fickle public opinion might turn.

As many economists have pointed out, it is unclear how much of the black market is stashed in cash. S.A Aiyar says likely 2%. And within that, gauging by the innovativeness of the criminal mind, a good chunk is likely going to be whitewashed. So would the pain of whitewashing and some inevitable shrinkage be motivation enough for changed behavior? Would those who have never stepped inside a bank before, thanks to this exercise, now feel more comfortable doing so? Remains to be seen.

The conundrum I have pertains to religious institutions. If someone drops a stash of 500/1000 Rupee notes in their nearby church, temple or dargah donation box should the government honor that? I suspect it will, at least for those that are run by the government, though technically it is not legal tender [mind you, some of these boxes get opened every day]. So the institution benefits and then the person gets the equivalent good karma? Are the gods abetting tax evasion then?

I suppose one could philosophically argue that the black money is flushed out after all. Hopefully, there will be subsequent steps around cleaning the pipes as well, not just the sumps.

November 14, 2016