>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
This. I think the headline title here is wrong. Prime Minister Modi has always said that demonetisation of Rs. 500 and Rs. 1000 is just the beginning and Step #1. The next step is to probe the bank accounts of these wealthy individuals and give them an opportunity to explain why the Tax has not been paid on it before seizing it.
Unfortunately PM Modi and his government have been constantly shifting the goalposts. In the beginning they did promise demonetization as a way to render all black money null.
It is, but the initial claim was that this would basically convert the millions of rupees of black money that's hidden away into worthless paper. That was the promise on which millions of poor Indians were asked to stand in long lines—that even if it inconveniences them, it would inconvenience the rich and corrupt even more.
The unfortunate truth, I hope I don't get hate for saying it here, is that those poor people who need the money the most suffered, and even died during the demonetisation exercise
>>This is the important part, money coming back to the system doesn't mean people can get away with it.
Nobody with big money worth chasing after deposited money in the banks. There are some real estate developers who preferred to throw money in lakes than give it back to the government.
>>An elaborate exercise is going on and I read multiple stories where the tax dept is sending notices to people with dubious deposits.
Basically any body smart enough to put it back into the bank has long covered their tracks. Also it will take forever given the population scale.
>>Digital payments certainly went up, people started using bank accounts.
Temporarily, I'm back to DeMo days. People and shops around me too. These days if you say you will pay by PayTm they just give you blank stare and ask you to come back by cash.
Was it worth extending the status quo where around 1 percent of the population pays any tax at all because of the rampant black market economy? (12.5 million people paid any tax at all on a population of 1.23 billion, source - https://www.cnbc.com/2016/05/03/guess-how-many-people-pay-ta...).
'Killing people' makes it sounds like they were shooting anyone who objected, but that article does do a good job of documenting the human cost of economic dislocation. The abrupt and absolute change appears to have given rise to numerous avoidable problems.
Recently I heard that a guy owned 100 trucks is selling his house for quite a low price. Probably lost a chunk of stashed black money. Well, this seems like the effect of demonetization. This is great. The thieves do deserve this.
That is just one anecdote. OTOH 103 people died in the process, productivity was lost by people standing in lines all day, GDP growth declined by over 2%, RBI's credibility has been destroyed. Sure, some rich suffered, but many more poor lost their livelihood.
Just out of curiosity, what makes you think RBI credibility is destroyed? Indian Rupee seems to be faring well compared to other currencies. Do you have any data around poor losing their livelihood? Last time I checked, street-side vendors continued selling stuff. Most poor people would rarely deal with 500/1000 so I don't know where is this coming from.
http://indianexpress.com/article/business/banking-and-financ...
> This has led to people such as former prime minister Manmohan Singh (himself a former RBI chief), former finance minister P Chidambaram, and former RBI governors Y V Reddy and Bimal Jalan raising concerns about the “harm” to the RBI’s “credibility” and talking of the “institutional damage” it has “suffered” in the process.
http://www.mydigitalfc.com/my-world/rbi-row-oppn-slams-govt-...
> “I don’t think ever before, the employees of a government institution especially an independent and respectable institution like RBI have written against its national policy. Very clearly RBI has compromised to an extent never ever before. Prime Minister Modi and his government have destroyed RBI, its credibility and the role of an institution,” Congress leader Sandeep Dikshit told ANI.
I wouldn't take the statements about credibility at their face value. AFAIK it didn't seem like RBI's credibility got affected. Also, as other poster cited, most of those seem to be the opposition and they are just "concerns" rather than "facts".
With respect to poor losing jobs, that seems like a play around statistics more so than actual facts. 1.5 million out of 406.5 million lost jobs, which equals to 0.36%. Employment usually goes in cycles so we don't know how this relates to the previous year. Given that April is the end of financial year, could it be the case that people usually get fired during that time? I don't know.
I have no meat in this game. I would consider myself as an observer interested in knowing how it worked out. This whole debate is very polarised and it is hard to separate fact from fiction. I would take everything with a grain of salt. As an Indian growing up in the hopes of seeing a developed country, I was hopeful that this could actually be the catalyst that roots out corruption. Unfortunately, that doesn't seem to be the case. Well, we keep dreaming on...
You may debate about job losses, but all of the aggregate effects have been captured by the GDP growth rate which has dipped to 5.7% compared to 7.9% the same quarter last year.
This is mostly due to GST impl. in July. Manufacturing had stopped and warehouses were no longer being filled from March onwards in anticipation of GST.
3 out of the 4 persons mentioned here (Singh, Chidambaram and Dikshit) are opposition party leaders, so I wouldn't take their statements at face value.
Did you even read the articles? There are 5 people mentioned, two of whom are former RBI governors and apolitical. While Manmohan Singh and Chidambaram are from the opposition, they are noted economists - MMS had predicted back in Nov. 2016 that GDP growth would drop by two percentage points and he was bang on target. The third article was about a letter written by RBI employees about the RBI loosing credibility and the Congress spokesperson was simply echoing their words. I can't provide more sources right now (on phone) - during the demonetization period - ATMs were not working, shortage of new notes, RBI issuing new directives each day because it could not cope, a general confusion all around - all severely damaged the RBI.
I did read the article, thanks for asking. Doesn't change the fact that those 3 persons I mentioned are opposition leaders. And hence I don't take their (Singh, Chidambaram and Dikshit) words at face value. I'm not even questioning Singh's credentials as an economist.
Edit: I didn't realize that you mentioned 5 people in your comment. I stand corrected on that account.
All Positive comments here are made by those who don't live in india and are influenced by massive propaganda machinery that ruling parting of india is running.
As someone who actually lives in india, I am vouch that Demonetisation was a disaster of all sorts. Ruling party kept justifying this failure by shifting the goal posts again and again.
Here is a piece which describes in detail, this monumental failure of indian government failure
In November I predicted this to my Indian friends (who were quite excited by the new changes) that a rational Indian person shouldn't throw away their old black money, because this money would make a come back in a few years, when the new money starts to lose value due to inflation (Indian Rupee is inflated by the govt at a crazy rate, because that's how the govt funds itself in lieu of taxes).
This would eventually reach to a point when new currency would die out in the hands of the old currency. Why? Because what Indian govt has done is not 'demonetization' rather they have announced that they would stop printing more old currency and start printing a new currency. But it's like USG issuing Bitcoin like currency (without the electronicy parts, but with the fixed supply, and anonymity of cash).
In other words, the old Indian currency is the perfect black market currency created, and it will just keep gaining value over time as new currency keeps losing value.
My prediction was for at least 4-5 years, but pleasantly surprised to have it come true in only a few years.
>> Indian Rupee is inflated by the govt at a crazy rate, because that's how the govt funds itself in lieu of taxes
Very interesting. I was looking for an answer to how the Indian government even funds itself with only 1% of the population paying taxes (which also suffers from tax evasion). Could you please explain more how inflation is used in lieu of taxes?
No scheme can eliminate the evils 100%. 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. All those on-record transactions are now part of formal banking system, instead of earlier don't-bother-about-tax approach.
Combine this with the recent roll out of GST, we are on a very progressive path and with good momentum.
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.
Governments have so much leverage they don't need to be efficient to be a huge net benefit.
Consider the cost to build and maintain a road network vs. the benefits it brings.
PS: Further, it's not a question of collecting more money from everyone it's a question of collecting the same money from everyone which is a benefit even if you end up burning the extra money.
> Governments have so much leverage they don't need to be efficient to be a huge net benefit.
But aren't you just saying that when you have $1 Billion then paying $500k more to a contractor doesn't seem that bad based on the net benefit it would bring to have a dream home.
But imagine if this was a charity (something which govt is, if we look at it a certain way), that inefficiency means more people could have benefited out of it.
Efficiency gain's are clearly beneficial. My point is governments can be effective in providing roads and common defense etc without being efficient.
India is a case in point, they have enough infrastructure to allow for rapid growth even with a highly corrupt government. While they could do a better job, the increasing standard of living allows for ever improving government services even without increasing efficiency. Further, as standers keep rising the pressure and ability to reduce corruption increases both because governments can directly pay more and because better options show up outside of government.
PS: In the US and I suspect most other countries you can reduce your tax burden by donating just fine. So, taxes are effectively a non issue in terms of charitable donations. Thus tax evasion is simply money people are keeping for personal use.
> 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).
Depending on who you ask, Governments will always be undeserving of your tax money. Also, I'd rather prefer my tax money be spent on farm loan waivers than be stashed away hidden from the Government under a carpet or in a foreign bank, if that's the comparison you want.
> 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.
Are you suggesting that you should keep significant amounts of your money hidden from the Government because you think they might unduly target you because of your wealth and views? Isn't that how black money is defined in the first place - keeping it hidden from the Government? That is a civil liberties issue, the solution for which cannot be to keep your money hidden from the Government.
> 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.
I don't see the connection between a hiring freeze in bureaucracy and demonetization. Bureaucrats are a fraction of the population of the country and tackling corruption in bureaucracy is something that must be done regardless.
> Also, I'd rather prefer my tax money be spent on farm loan waivers than be stashed away hidden from the Government under a carpet or in a foreign bank, if that's the comparison you want.
Those aren't the only two alternatives. How about you lower the tax rate and create incentives so that the farmers actually pay back the loans. Right now, farmers take loans with the assumption that they'll be waived, and the cycle continues. I'm not shooting on the farmers here, I'm just saying that farmers, like bureaucrats, like businessmen, are human. If they're incentivized to game a system, they will. For once it'd be great if my tax money could be better spent on other things that would actually benefit the country (strong defense, capable law and order through an effective police and judiciary, etc.) rather than indirectly buying votes for the current political party in power (farm loan waivers etc.). Hell given the binary option of farm loan waivers vs stashing my cash abroad, most businesses will still stash it in real estate, abroad, etc.
> Are you suggesting that you should keep significant amounts of your money hidden from the Government because you think they might unduly target you because of your wealth and views?
No. Even after tax legitimate money is at risk if its just a number stored in a "secure" database somewhere. Whoever has ultimate control over that database has power over you. With cash, gold, you can carry them with you and anonymously pay for goods/services without compromising on your privacy. I was merely pointing out one limitation with a completely central digital payment platform.
> I don't see the connection between a hiring freeze in bureaucracy and demonetization
Ok who is on the receiving end of bribes? The bureaucrats/politicians. Demonetization was supposed to hit the tax evaders (usually bribe givers) and the bureaucrats (bribe takers). Maybe they both were seemingly hurt with demonetization as they both had cash stashed. But since the bureaucracy still exists (and has become more powerful eg - http://www.thehindu.com/news/national/the-taxman-now-has-mor...), there is no incentive for the bribe takers to stop taking bribes. Tell me this new bill won't be abused and misused. Looking at the history of laws being abused in India, I'd bet that it will be
Look at it this way. I have $100. I can either spend all of that $100 on stuff that makes me happy, or I can give half of it to the government which will spend most of it on stuff like schools that my kids won't go to, roads I won't drive on, charity (welfare) for people I don't even know. They're wasting all of my money on stuff that doesn't directly make me happy!
No matter how well a government is run, there will always be people who complain about it, and not without cause.
Of course the alternative (extreme libertarianism) ends up being worse in pretty much every way, but in that case it is the world that is shitty, not some big government.
> 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."
And he preordered a Tesla too. While that's not the concern. Calling out 'Roadside merchants accepting Paytm' as a Positive impact on economy is more of anecdotal than data driven. This nevertheless must have increased Paytm's market penetration and cash flow but a lot of road side vendors just had to sit in their homes for days due to unavailability of cash which is their primary mode of purchasing and their customers too.
Road-side merchants live hand-to-mouth and would anyways not contribute to tax because their incomes are so low.
Every study out there suggests that demonetisation was a big blunder, causing a very severe blow to the Indian economy, including the death of 150+ civilians.
The real motive for demonetisation was to legitimize the black money of the ruling party BJP and eliminate black money of opposition parties.
If they start using banks and digital payments, one can build credit score and issue loans to them, so they can develop their business. That is not possible today.
Loans for what? Some people in many fields should NOT get a loan. It will make matter worse...broke and indebted to a bank. Not everyone is gonna make a $1 million a year.
Women from rural areas can start a small business with a loan of 1-5 lakhs INR (~10k $). You should read more. Here is one recommendation http://a.co/fAC8YSQ
>>However, overall it had pretty strong positive impact on economy.
Overall it has permanently destroyed trust in governments actions. Most big money people money I know today trust only two things to park their money: Gold and Real estate. Worsening the home affordability problem.
>>Many of the roadside merchants who used to be exclusively cash only, have started accepting dizital payments.
Their business was destroyed so badly that they had to use digital wallets just to fill their stomachs.
>>All those on-record transactions are now part of formal banking system, instead of earlier don't-bother-about-tax approach.
They were temporarily. They are back to being normal again.
>>Combine this with the recent roll out of GST, we are on a very progressive path and with good momentum.
Some people even say the current government doesn't even have a clue what it is doing, and it will take somebody prudent next time to fix the mess created currently.
yeah I think thats the best outcome of the whole exercise. I went to India in the middle of that shitstorm and it was really painful to travel around. Currency exchanges/banks only gave 2000 rs notes the nobody wanted to accept.
As far as I can tell this is simply what success looks like.
Depositing the money is just phase 1 and worked as expected. Phase 2 is tracking back large or unusual deposits to find criminals. Phase 3 is to discourage other from trying to doge taxes in the first place.
Even if they only catch say 5% of people and don't directly gain money from this exercise, the indirect effect of scaring that many people is huge.
EU is about to make their 500 EUR illegal http://www.bbc.co.uk/news/business-36208146 in a sense. If you're a drug dealer or a politician (no need to add the corrupt label in certain countries) I can help you with a few of them ;)
Yeah, making your cash illegal--it is unless you're willing to explain in year 2032 how you ended up with a 50 gallon drum full of 500 euro notes--will help. But in many countries where the government is corrupt and cannot provide the basic needs, IMO, they need to let the people try to make a living. Social contract: we cannot give you much, but we will not impede you as you try to feed your kids.
This is nonsensical. The only even remotely rational implication is that it makes crime more difficult because large sums of money weigh more and take up more space. If you're accepting cash to evade taxes at your business though, you can just accept a bunch of 100 EUR notes as easily as 500 EUR notes. The same article says they're considering banning the $100 USD note, after they'd already pulled $500 USD from circulation many years ago.
I'm not a tax evader or a criminal and I've used $100 USD notes and 500 EUR notes during my travels simply out of convenience. It's ridiculous to implicate the users of these bank notes as criminals purely on the size of the denomination.
Not sure about the above, but nonetheless, corruption certainly exists in the open in the EU. Look to Portugal for a recent prominent example. All it takes are the right conditions and motivations:
So I can understand the €500, as I definitely wouldn't feel comfortable carrying that much cash around. But the articles also said there were calls to abolish the $100 (?) and £50 notes. Which I find really surprising.
The £50 note is not that different in value from the €50, and there's a lot of atms here that simply will not stock up €20 notes and good luck finding an atm that still dispenses €10 notes.
(Maybe it's a deliberate move by the banks to force people into using digital payments, if they can't get smaller denominations easily - it'd definitely be a 180)
Yeah BUT you can bet your last dollar or euro that they will ask questions if you show up at a local bank with a few 500 euro notes, 20 years from now. Lots of questions and reports to the police will follow.
And they will not be accepted as "legal tender" to settle drug /illegal deals, so they are out, in a way.
Wouldn't you be asked some pointed questions if you walked into a bank with a stack of 500s? I know in the US there are people who run cash based businesses (construction/landscaping for example) that end up having to make special arrangements with their bank to avoid getting the third degree every time they bring in a deposit.
It doesn't cease to amaze me how the finance minister can say these things with a straight face. Ofcourse this was the original plan all along, but since one cannot say that upfront to the people, one has to resort to all kinds of propoganda and hence the shifting of the goalposts from corruption/black money, fake currency to ultimately a cash-less society.
The major sources of black money in cash(which is a very small % of the total black money) are from
1) capitalist - industry owners, builders
2) politicians/bureaucracy
3) SME - small & medium enterprises, doctors
4) Informal sector - smaller shops, daily labour
By definition, 1) & 2) are not affected by this. Those that get mentioned in the news are mostly anecdata/propoganda. It is the 3) & 4) that are mostly hit by this which, alongwith the government, is one of the biggest employment generator. The wealthy among them get away by variety of means. 4) are the worst affected even though most of them don't earn enough to be taxed.
All the talk of fighting corruption is doublespeak when, in the finance bill, they allowed for unlimited anonymous corporate donation to political parties
The cost of printing & distribution of new notes was 80 Billion Rupees [0], up from 34 Billion Rupees the previous year.
The amount of fake currency detected from all the notes which were returned was .... wait a minute ... 400 Million Rupees [0]. Though this was a statistical detection mechanism and even if you double the estimates, it is barely 1% of just the cost of printing new notes. To speak nothing of the economic destruction it caused.
utterly terrible idea. I was in india in Dec/Jan and the amount of chaos resulting from demonetisation was immense. The outcome was obvious - noone was ever going to let a high value bank note become obsolete. Worst case is you sell it for close to face value and some poor person stands in line for 6 hours to be able to deposit it.
It really speaks to the masochistic nature of the indian people that despite the whole exercise being pointless and stupid, they still supported Modi here because his heart was in the right place. Sorry but when people were literally dying as a result of the chaos, having good intentions does not cut it.
I would not be surprised if one of the unstated goals was the removal of counterfeit high denomination notes from circulation. High denomination notes are the most attractive to counterfeit and such counterfeiting is often done by state level actors with budgets sufficient to produce high quality notes. The actual number of notes taken out of circulation is 1% of legitimate notes plus the number of counterfeit notes in circulation because the number of notes in circulation prior to the transition included counterfeit notes.
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).
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?
The wording is confusing at best:
" nearly 99% of the high-denomination currency notes of Rs 1,000 and Rs 500 that had been withdrawn on November 9, 2016"
My comprehension says all currencies withdrawn on the date - Nov 9, 2016, when demonetization was started has been returned.
I guess question is less of was it successful but rather was it necessary and did the move do any good at all?
One thing I can't understand is, when I look up all the countries/regimes/dictators in history that have tried demonetization, and almost always it was done for the same reason - curbing corruption, black money, counterfeiting etc., and generally it resulted in people losing confidence in the institutions/governments, no real dent in corruption, counterfeiting even decades later. Unless I missed something, it just puzzles me why we would try it now and expect a different result.
Basically the Indian government hoped that any "hoarded" undeclared (not taxed) notes would suddenly become worthless, and therefore not be deposited. Instead, almost all notes in circulation were deposited, meaning any undeclared currency managed to be declared in time.
"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.
That is assuming the whole stuff was done for the singular goal in mind. There could have been multiple reasons:
a. End counterfeit money b. Make a list of hoarders as everyone depositing money needed to show identification.
It is going to be interesting times ahead with the data they might have collected.
General sentiment is that the BJP government did this to purge the black money held by opposition parties to win the UP (Uttar Pradesh) state elections. Demonitization exercise did not come as a surprise to most BJP insiders, who had already made arrangements to stash their black money away.
An article[0] on Medium, albeit a thought experiment, offers an interesting take on the demonetization program the Indian government adopted. Here's a snippet:
"You [NDA/GoI] do two things — One, you neutralize the Congress with the only way you can neutralize their resources — Black money and Demonetization. Even if you don’t reduce their resources, you at least succeed in reducing their liquidity. You take a hit too but if you look at the damage you cause your biggest rival, this is a a shin graze."
The black and grey market are vital checks against government corruption and repression. The people arguing that eliminating cash is good because it prevents people from hiding their financial activity are basically taking the stance that we'd be better off without privacy and trusting all of our information to government officials. It's a dangerous delusion.
Somebody explain it to me how common is it among people to keep black money in cash form? Wouldn't they rather have it transferred to an off-shore account or invest is something, say gold?
i don't think any real dude having enough money would keep it in a local currency when he can just buy euro bonds or foreign currency $ or Euro etc ... it i guess only had effected small fishes to some extent, but at the end of the day, the question remain did it help at all curb corruption. Corruption like water will pave its way in terms of monetarily. they will find a way out ... it's not big deal ... such efforts despite looking promising, will be futile.
So my conclusion 'corruption' is not a monetary issue, it's a system issue, fix the system.... and in order to have a 'healthy' system just like we see in the 1st World, everyone makes at least what they deserve or can live good enough ... if not luxurious.
after you give them reasonable good salary keep a check, and hire 'educated' people.
This worked here in Pakistan, our traffic police 'was' most corrupt, Govt raised their salaries 3x .... no more bribe ... they inducted Graduate Students and trained!!! at least our Traffic police dudes are now at Lahore City of Pakistan ... corruption free!!
It's one of the most expected outcomes. But still for the government to go ahead and do this was primarily two reasons:
1. PR:
The current Indian Govt was suffering from Beefgate and PM Modi was criticised for not making any comments on it but touring the world. While Modi was seemed to be an economic reformer, nothing of that sort happened until that. Hence this Demonetisation came up to showcase "PM Modi has done that no one would dare to do" headlines. It's also notable that the Prime Minister himself appeared on Media and announced this, while a right approach would be the man who signs on the currency: RBI Governor to do. A PR win it was!
2. Digitisation:
One of the big concerns with Digital Currency (a non-decentralised one) is that it's really really hard to be private anymore. We'd just end up as another data point in someone's table and that's exactly what happened. This was very well explained in the recent SAS Forum happened in Mumbai, India. Data Scientists of Income Tax dept wanted data for analysis but didn't have one and got what they wanted with Demonetisation.
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