Demonetisation update 23 – views that matter

A.K. Bhattacharya has come up with a tool kit to measure demonetisation’s eventual success. There are parallels between what he had written and what I wrote on the same matter here. Mine was published on Dec. 20, 2016 and his on January 3, 2017.

At long last, one of the few sensible articles one has read on the topic of the government’s currency swap. Written by Omkar Goswami.

I did not know that TCA Srinivasa Raghavan had already concluded that PM Modi had made a ‘colossal mistake’ with respect to the currency swap exercise:

Mr Modi is too clever a politician not to realise that he has made a colossal mistake. Even if it works well for the country eventually, which it will, it may not work so well for him personally over the next two years.
He now has to cope with the irritation of his party people and the anger of the voters. It will be very interesting to see what damage control measures he initiates. [Link]

I do not know if it is a foregone conclusion – I am referring to the anger of voters.

On December 19, Andy Mukherjee wrote a column for Bloomberg that PM Modi should have opted for a telecom-led model to get rid of cash, citing some research from Tufts University and also a digital currency, before going ahead with the decision on currency swap on November 8.

Neelkanth Mishra of Credit Suisse has come up with two very thought-provoking columns – one in Business Standard and one in India Today. The article in ‘India Today’ is about the outlook for 2017. It is sobering, even though he had tried hard to look past the short-term uncertainties.

The article in Business Standard deals with the question of information sharing between tax departments. It needed a MoU to do that between the departments in charge of direct taxes and indirect taxes – under the same Ministry of Finance! I had mentioned it in my column in MINT today.

His piece is a reminder of why the suggestion for presumptive taxation made in this brilliant article by Indira Rajaraman is a non-starter. I think it is not just a matter of state capability and incentives system, etc. that prevent data sharing. These are standard textbook maladies and there are remedies for them.

The underlying truth – which economists have no room for – is shallowness driven by ego which is driven by insecurity and inferiority complex that does not want anyone else to get credit for the action. So, forget about acting.

Her warnings on the mobile wallet companies could also be very important:

Even though the user base of mobile wallets is expanding by the hour, they are reporting losses. While the volume of transactions has exploded, their total value is reported to have remained flat, because the average value of each transaction has come down. The costs of mobile-wallet companies are a function of the number of transactions they put through, while their revenue is calibrated to value. The losses are worrying because mobile wallets are essentially deposit-taking non-bank financial institutions. I am unclear as to whether the regulatory structure for these new enterprises is in place. A crash of any one of them will be catastrophic. It is also possible that the losses have arisen because of extravagant sponsorships. In the recent cricket Test series between India and England, the name of a mobile wallet sponsor is displayed prominently even on the stumps.

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