The chickens come home to roost - for those with chickens

November 11 2016

This has been quite a week in India. There is a big problem here called ‘black money’, undeclared income that people stash away in their homes to avoid paying taxes. Some of this money comes from business people who don’t record transactions, some comes from drug trafficking and some is counterfeit.

Modi, the PM, promised while campaigning to fix this problem.  About two months ago the government announced that anyone with black money could deposit it into their bank account and no questions regarding the source would be asked, but the tax would have to be paid. A number of people responded and did just that. A number did not heed this warning sign. So on Tuesday at 8:00 p.m. after banks had closed there was an announcement that as of midnight the 500 and 1000 rupee notes (the two highest denomination bills) would no longer be legal tender. That meant your stash was worthless. Until December  30^th you can exchange your old notes up to 4,000 rupees (about $60) daily by waiting in long lines at the banks. No ATMs were available for two days and now ATM withdrawals are limited to 2,000 rupees, about $30. Banks were closed the day after the announcement. Now we see double lines snaking out the bank doors and winding down the stairs. Rahul took 4,000 rupees from us and it took over an hour in line to get 40 100 rupee notes. We are currently holding 38,000 rupees, all in 500 notes, some left over from our latest trip and some from a hidden stash. We can pay Rahul and our rent with these rupees and that will use 28,000. That money can be deposited into their accounts with no problems on either side. That leaves us with another 10,000 to get exchanged before Dec 30^th. Hopefully the lines will shorten between now and then. If not we can deposit it in Rahul’s account before the end of December and he can make withdrawals in the new currency that is printed. Because the inventory of new bils is tight there are restrictions on withdrawals so more people can get some and we hope that will change soon since that is how we get our cash. We have no accounts here. We mostly use credit cards for purchases.

Those who hit the panic button on Tuesday night ran to the jewelry shops which ended up staying open past midnight and people started buying gold and diamonds like crazy. The price of gold nuggets increased from 29,000 to 55,000 during this one evening ‘gold rush’. This allowed people to dump their cash for gold nuggets. Otherwise they would have nothing. As long as they could get the shop owner to date the receipt for Nov 9^th they were legal. On Wednesday I was walking to the veg market when a neighbor who has never talked to me approached me to talk about this episode. She asked me what I would do. At that point we had assumed we would go to the bank and exchange our currency for the newly printed notes. We also assumed we could exchange up to 20,000 a week. She said ‘what are we Indians to do?’ She said she would only be able to exchange 80,000 by Dec 30^th. In essence she had been stashing unrecorded income from their two businesses in her home and now she had no way to off load it given the restrictions. Did I mention there was a 200% penalty for anyone holding more than a certain amount which obviously applied to her? I think her next request may be to ask me to take some of her money to the bank. Frankly I don’t have any sympathy for folks who don’t pay their fair share of taxes and particularly the uber rich. Modi is to be commended for his strike and how many were caught off guard. How he kept this a secret is truly amazing. It has created a lot of inconvenience for the population but he should gain income for the country from this move.