GST : deceptively uncomplicated everywhere it looks like.

Last Night I had a dinner with a Dutch Govt agency person in Indian Accent, supposedly Top ranked amongst Delhi’s fine dining restaurants – an endless procession of snacks and starters. Great taste but beyond sometime gets more on your nerves than stomach. I ordered the set menu to avoid spending time on choice and then they kill you with choices at each stage.
In between he started discussing Modi and it veered off to GST and I said that he is taking a big gamble in implementing this huge tax exercise.
Me: Where you there when Netherlands implemented GST; when did your country implement GST?
Him: Hm.. don’t know it has been there as long as I remember.
What’s the GST rate?, I ask.
Him: 6% for most food items, then there is 19% for some luxury goods and 21% for some more items.
Me: How many such rates? You mean there is no one rate.
Him: There are three. And then they vary it in certain years to 18.5 or19.5 depending on the budget situation to mop up more or less money. Or say 21.5%.
Me: You guys move around freely between various countries inside the European Union. Do you pay GST when you arrive back in Netherlands everytime. Are the rates same in all these neighbours.
Him: Dont know… cant recollect.
Him: But I know that it is cheaper to buy Cars in Germany.
Me: No taxes?
Him: No, we pay taxes on them But it depends whether it is a 2nd hand car or 1st Hand. They collect it when you go for the number plate. Then there is an Import duty which is non vattable … meaning you get no credit or offset.
My breadth was beginning to sigh and hopes sag. I did not ask him about alcohol, petrol, services …
…the conversation went off somewhere.
Looks like GST is a deceptively uncomplicated soul everywhere.

Triple Talaq – a practical view


Triple Talaq – a practical view

My driver in Kolcutta 2 days back was a frail middle aged man. From the Airport, a couple of times i egged him to go faster in somewhat empty roads since i was getting late for the dinner i was supposed to attend.

He refused sternly saying 60 kmph is the limit prescribed. I got put off and lost interest in conversing with him further during the trip.

But after the dinner, i opened with ‘what do you think about Triple Talaq’?

The Driver: ‘Iss galath sawaal ko mea kya jawaab doon?

I did not know what to make of it. After about 30-40seonds i once again plodded.

“aap TT ke khilaaf hai yaa saath?’

‘Bilkul Khilaaf’

‘I confirmed that he is a Muslim (was a clear muslim name, nevertheless i wanted to be sure).

‘aap kya Bangladesh se or India se’

Patna se. My parents live there still.

I continued on TT.

What’s wrong with TT?

Sir. I am not only a husband. I am also a father to my daughter, son to a mother, brother to a sister. How can i turn a blind eye to them.

My eyes went a little moist; there was a small gasp of breath and i hoped he did not notice me.

Supposing the Government brings about a law to get rid of TT, would you support it?

‘If there are 25 others in the Mohalla who are for it, i cannot oppose it alone in public. It is difficult. There are some people who are taking signatures from ladies to present before court evidence against doing away with TT. But what use it is, when most of them are putting their thumb impressions. They cannot read or understand what is written. They simply over power them into signing. Even so, i have told ladies in my house not to sign any such petition and tell them to wait till i get back home. I will tell them what the paper says. I know from their small talk that almost all ladies in the Mohalla are against TT. If my ladies are also against it, let it get it reflected.

How many families are there in your mohalla – 25? or more?

There are 83 families.

How many such divorces TT have taken place so far in your lifetime in your Mohalla?

‘Three. He was jigging his memory. In all cases, the husbands were bevdas, who used to while away their time thru the day and when there was no food when they returned, maar peet.

‘TT is a responsible provision and meant to be used responsibly. And ladies are also given option to ask for compensation for living maintenance. TT is meant to  be used only against betrayal, proven acts of infidelity, or where they just cannot be compatible. It is meant to be done after all counselling by mohalla elders  fails.  Not that you had 10 years, sired some kids and things become difficult just dump them and go.

‘How many people in your Mohalla live with more than one wife?’


What do the ladies do after TT.

They go back to their parents if they are live and able to support them. In some cases the male siblings support them In most cases in our community, they start working as domestic servants cleaning utensils, household work, baby sitting etc. But some are left in the lurch.

How many children you have?

Two – one is in class 3 and the other too young to go to school.

He himself  has studied upto 7th (fail) in Hindi medium and his wife is a 10th pass.

Changing topic, how is Didi doing.

‘Buss woh hi goondagurdhi what CPM was doing but saath saath some good work also’.

What do you think of Modi.

‘Sincere fellow trying to do something. At least not messing up things’.

Will he come from WB next time.

No chance. Didi knows how to manage them. She will ensure he does not come from here.


PS: during the SBI Dinner i met some industrialists who once again reiterated that big industry can never come up in WB. But in the last 2 years, the Jute industry has come up very well. Although it is not creating as many jobs as previously, it has created additional 2 lacs jobs in the last 2-3 years. That’s a hell of a lot of primary employment. But i could not figure out what the sudden surge in demand for Jute products.




Why I am a Fan of IPL… from Yday.

The Girls predicament and Why I am a fan of IPL…. from yesterday.

Happened to get a couple of complementaries to an innocuous IPL match – DD vs RCB. Went with a ex-cricketer and friend of mine. Going into a stadium for the first time since 1986 to watch a live match. Some ironies and some obeservations.

1 When the Toss is done you see just the 2 captains and Ravi Shastri (RS) on your screen + may be someone else. But in the middle there were almost a hundred people. Both teams in full practising and markers, groundsmen, cameramen, etc. It more looked like Churchgate railway station at 7 am.

2 Players scoring hardly registers. I thought Kohli would be about 10-11 and when i looked at the score card he was into his 30s and when his innings ended i thought he would have made 30 but it was 58. S Iyer, i thought would have made 10-11 but the next day papers showed 34. Only Gayles registered full and proper. He swings like a golf drive and most of his shots were saved on the boundary by well positioned fielders and hence it sort of registered but Kohli swatted his sixers like swatting flies and hence perhaps did not leave an imprint. Mind does seem to have a metrics system of its own. Does not add up arithmatcially but goes by impressions, it seems.

3 Almost after each over 1-2 boys run in with liquid refreshments and towel; i am sure old timers – players or spectators would be loathful and envious of such transgressions on the sanctity on the Cricket religion and its rituals. The Dinner spread was heavy and lavish; wonder how the players would be able to keep awake and play after such a meal.

4 Zaheer Khan seems an involved captain. He was changing the field almost after every ball. He was for almost all the time in mid off or mid on constantly discussing and instructing the bowler. I would perhaps have handed him the ball back and told him ‘you only bowl’.

5 The Attendant ‘Girls’ hosts

In the Box there is a ante room where snacks and drinks were being served and the door opened into a box of 20 seats. The ante room had 2 girl hosts and 2 from caterers. The one we saw when we went in looked serious and slightly harrassed. It was hot and humid outside and for portions we were watching the match from the ante room. I asked the girl if she followed Cricket.

‘No Sir’

‘How come then here?’

I’ have come back on vacation from Philipines and trying to earn some money’

‘Are you from Philipines’

‘No sir. Here from Delhi – Rohini’. (with so much make up and slight north eastern looks I could not figure out).

So what are you doing in Manila?


Why Manila.

My dad decided that I should shift abroad and we searched and found the best offer from there.

How is the education quality and life there?

Good sir. Life is safe there (i have heard so many stories about the unsafety of Philipines from several others); good education.

On the TV screens most of the girls look well dressed and chick with well fitted cloths. But from a foot afar, the dress looked almost funny. They must be having some standard sizes and these attendants fit into it by lots of pins and needles i guess. I could not help a smirk or smug at the looks of it all.

I thought it would be improper on my part to drag the conversation endlessly. But then she was standing by and looked relaxed for the first time and seemed curious for further conversation.

How did you land up with this opportunity?

‘I know the head of this agency who is recruiting and I asked her and she put me on this’

How much will you earn, if i am not inquisitive?

Rs 900 per match. Today is the last match and i have done 7 matches in all.

So when do you report for duty.

‘we have to report at 3 pm’ (for a match starting at 8 pm!).

She opened up a bit.

‘But then it is not fair sir. The other girls are getting Rs 1800 and only i am paid Rs 900. I asked the head girl who put me on this. She just shrugged and said ‘once its negotiated and agreed it is done; no scope for changing it’ ( when crores are spent what was the need for cringing on the Rs 900 or was it some intermediary running away with the Rs 900 – shd be).

(while the discussions were on, a caterer boy came and asked us if we wanted a can of sprite. We said no.

‘Sir can i take one sir’ with an enquiring tone.

We said go ahead feeling a little sympathetic. He took it and soon one after the other water bottles and beer and other cans started disappearing. Just about anyone in caterer uniform walked in and helped himself. By three- quarters of the match all the shelfs were empty. Worse was when we saw some security staff stuffing cone ice creams kept for desserts into his pant pocket – in just one go 5-6 of them. Could only pity him!. There seems to be tiny politician and kleptomaniac inside each Indian – why blame the politicians alone.

We continued with the girl who still seemed interested and relaxed now.

‘So what how you learnt in this stint. To control the crowd better, how to keep them in check. (the hostesses are supposed to be serving food and drinks but ensuring that they are not taken out of the door into the seats, control use of equipment, unruly behaviour or fights, etc.).

‘No not much’. How has the crowd been – any rough and rowdy elements?

‘Only one day there was a rough man. But otherwise ok. But thats not the problem. The main issue is carrying water bottles and drink cans into the stadium when there are clear instruction on the wall not to do it.

‘And the annoying habit of taking selfies with us. ‘they ask us first. We refuse. But then they will pretend as if they are shooting something else but we could easily make out that they turning the camera slyly to get us into the frame. Very annoying. (her tone summarised it better).

‘And most people use foul language (again expressly prohibited in the ticket itself, plastered on the walls and the seating area). Very annoying.

Me: Who do you complain to in such cases?

My Friend intervened: Who can they complain to? And what action will be taken?

We thought taking more time with her would be improper and said ‘bye then. have a great time’.

6 Why I am fan of IPL from y’day.

When we went in, there was some security gate (4-5 of them) with frisking. There must have been about 15-20 guards. And then within another 25 yards one more gate and light frisking. Another 10-odd guards there. Then the ticket checking and exchanging for the wrist band (6 of them) and then you enter the iron gate (5-6 security staff) and then before the building. Gate and scanning another 4-5 entrances with 3-4 guards each.

I would have counted at least 50-60 guards in my approach.

This is just for Gate 1 alone. And there were 18 gates in all. Imagine the total security including inside the stadium, players area, in the traffic control, etc. There must have been at least 700-800 of them overall.

Then the ground staff (100s of them), the TV crew, cheer leaders, caterers (must have been at least 300-400 of them), coaches to the teams, umpires, attandants, … there is an endless list i reckon would be in excess of 4-5,000 of them. Plus the equipment suppliers, contractors for fans, coolers, recruitment agencies, …plus the conveyance of spectators, etc.

There is at least 100 players who would be making Re 1 cr per year thru this. Fees and endorsements, many from interior areas capable of being role models for their area. Umpires would have never seen this kind of money. Extended careers for the ex-cricketers thru commentary stints…

That day’s play would have employed at least 5000 people apart from the 22 on the ground.

Thats a huge employment creation.

The biggest failure of Indian reforms is the lack of jobs. Its jobless, senseless and heartless… much like a female model going extremely anorexic or male body builders going to extremes without a sense of balance in life. Jobs which is the prime delivery mechanism of individual benefit from growth is absent in the equation.

I would vote with both my hands for anything that creates such scale of employment… even if not permanent. But i am aware an army of people are at it thru the year.








Singapores Economic Woes


Singapore’s Economic Recession

Singapore has been a powerhouse of economic growth and icon of modernity and innovation in the East.  As recounted by everyone I met, it has been in recession for the last two years. One of the foremost and lead sectors of services is the oil drilling and exploration, oil rigs, and transportation of cargo.  These have been sluggish of late and seem to have affected Singapore also significantly. The sector has seen staff shedding of significant numbers as a result. As a result other service providers to them like legal services, audit services, banking, etc have shrunk a bit – may be quite a bit and have had to down size some staff themselves.

A significant amount of investments by outsiders into Singapore was in real estate. This has caused the real estate prices to climb up steadily. In the recent years native Singaporeans have complained of unaffordable real estate prices and living costs. The minimum house price for a middle class is about SG$ 1 million. They have contended that it is not possible to support such a capital cost/debt on a salary of SG$ 6,000 – 8,000 average salaries and started migrating out of Singapore to Australia and elsewhere.  To tame it down or reverse this, the Govt has put a 15% stamp duty – to discourage runaway property prices due to purchase  by outsiders. This in order to help the ‘locals’. Due to this extreme measure (this must now be the highest stamp duty anywhere in the world), the outsiders have virtually stopped brining in investments.  And construction industry ahs seen a steep slow down and large layoffs.

Added to this, Singapore has signed off on Fatca and other money laundering agreements spearheaded by US. As a result of tight monitoring and policing and KYC requirement, the funds that were managed for private wealth clients out of a liberal and efficient Singapore have seen a steep decline. And this has led to layoffs in this sector of high salaries curbing further their spends.

‘Singa’pore is a highly dynamic and innovative society. You can’t keep it caged for far too long. I understand that the DyPM who was handling economic affairs so far has handed over to someone else (i forget the name) to put back the economy on rails. And his mentor is Dr Y V Reddy who commands a high respect there – RBI for the way it has handled several world- wide crisis 1997 East Asia, 2002 internet bubble and 2008 by their conservative approach is respected the highest by Singapore Monetary authorities I was told by at least 3.

It will be interesting to see how they bounce back. I am sure there will be some lessons for all the rest.

It stands to reason the first thing to be hit in a recession will be the discretionary expenditure. Usually when i walk from my usual Hotel Park Royal to Komala Vilas, MTR, Ananda Bhavan etc – all within 100-300 meters for my dinner, i will hear the blaring music belching out of many Music clubs and Dance bars – Hollywood songs, bollywood songs, Tamil, Hindi, etc. But this time there was just a solitary one. I am sure one day the magazineEconomist will develop a Karaoke index to measure the level of economic activity a la the Big Mac index.   Or use the level of vouyeuristic activities to measure the Economy. 


Roads alone dont mean Development

Roads and Connectvity alone may not deliver rural development.

Got 2 days to drive around in Rayagada district in Southern Orissa, amongst the poorest 3-4 districts in India. One could not but admire the great strides Roads have made in the region. Govt also seems to have made a lot of progress thru residential school for tribal children which seem well maintained (I saw 3 of them within 20 km stretch). A few takes and lessons.

1 Our first stop was a plantation nearby under the aegis of co-operative group. while the increase in tree growth was visible due to better farm practices, what was not visible was the government funding agencies which recoil at the first sign of trouble.  If risk aversion is the primary motive, development initiaves in such societies at the brink of economic existence will all fail. The Government has to take a more sanguine view – the farmers are never going to take advantage of legal loopholes a la a kingfisher nor dodge a bank manager, if he is solvent. if he has the money he will pay. counter party moral hazard is likely to be the lowest.

2 I met the farmers (slide 11) but it was a difficult conversation. My Hindi was not good currency; the accompanying colleagues’ local oriya was only a passable currency. Thank god we have one language across India. I asked the farmer in saffron T-shirt upto which class he has studied. He prevaricated but signalled something to the locals which was translated to Sixth Standard. (But barely convincing). The man in green T shirt seemed to own 2 plots. With some difficulty we could figure out it must have totalled 3 acres. I asked him what class he has been upto. He signalled to the first one and said something to the effect – to the same extent. (I couldn’t believe him either).

3 Visited the training centre of local SHG which had trained itself in book binding hoping to get some contract jobs in the local banks, factories and shops. (see the videos and the group conversation). We are not just short in financial inclusion alone. Of the sample of 20 i saw, none had been inside a train, only one had been upto class 10, 19 out of 20 did not know 3rd table, only one had gas. Surprisingly none of them had worked in NREGA.  2 claimed to own cell phones (but they all knew what i was talking about) and 2 others cycles. All had electricity and claimed that they toilets.

But i was deeply touched by their guilelessness and genuine warmth. The meeting had been arranged with just 15 minutes notice. They gave a locally made flower bouquet and coca cola (to everyone).

4 Many villages seem to be independent land locked republics within India. I could only with difficulty hold myself from asking if they knew that they belonged to a country called India or that it was once ruled by Moghuls or british and that it has got its freedom. (I did not know if it is lawful or will be deemed instigative; hence i stopped). But as you can see from the video they had very little to do with India or its development. The only ‘Indian’ they seemed to know was Naveen Patnaik.

Villagers (see slide 5) in this tiny hamlet had erected a bamboo toll gate and refused entry or exit unless we paid their toll. Toll collectors were 2 young girls of may be 9-10 yrs. There were chawls on the side each having rows of houses sharing walls with others on both sides. each such house would have been around 10ft by 10. I could see 3 or 4 ladies sitting inside and 1-2 hanging outside besides the children baking themselves in the sun. I could see a solitary hand pump, the cemented platform around which served as a open bathing spot for a village adult in full view of all those who cared to see.

5 We wanted to visit the solar pumpset which was to be inaugurated to supply water from below 200 ft to some 26 acre of land. we reached the spot at around 5 pm but found a group of people (nearly the population of the entire village) walking towards a spot very near the solar system, with 2-3 of them carrying what looked like spears. Later i learnt/saw that it was for the pre-marital prayer to thier chief temple/diety (see slide 3). After their modest prayers were over they perhaps ascertained from our guide the purpose of our visit. (Our guide knew the villagers since we had sponsored the project). There was quick confabulation amongst the villagers. They took some time off their routine to give me a ululating welcome (local custom) and performed an impromptu folk dance for me. (see video). Meaning i was told ‘bahooth dhoor se aaye hai our guest; lets welcome him’. Nice of them.

6 On the way we stopped by a hostel schooling tribal children. (see slide 4). I started asking the most grown up looking amongst them (the one to my right and the one in yellow T-shirt). But they were hardly able to speak but were stoic. the care taker intervened to say that it was their first day in the school and where they have come from and circumstances; I had difficulty preserving my tears within the countours of my eyes.

Some lessons:

1 The region is poor and crop mainly cotton, hurhur, millets and in some places Rice. Recently they have added tree plantation to their kitty. Area is rain fed which imposes its own limitations.

2 False pride is good: Although efforts from several CSR activities, govt initiatives, etc seem to be on the area is largely illeterate. You can get a sense of what they mean by literacy in the video of SHG group. The men in slide 11 claimed they had done upto class 6 or 7 before dropping out. I doubted both. But on reflection found that kind of ‘false pride’ a welcome sign. It only indicated that thay have accepted that education is a desirable end state and they are craving for a better end state than they currently were in; this desire and higher aspiration is a prime requirement for any development initiative to succeed.

3 Thank God for Hindi: The areas were hardly 12-30 kms from the district headquarters. Imagine that we had not integrated India with one language formula – with every district and sub district speaking different dialect or variations and so much time and effort lost in translation -it would have been a massive waste of national energy. (Thank God we have saved ourselves this much at least due to proper actions on independence). Our politicians have done somethings right.

4 Can Roads and Connectivity alone achieve progress: I have been visiting nearby places for the last decade. The roads have come up very well. Most village roads are concretised. The times on most roads, district, sub district and state highways have become 1/3rd and it is much more certain and lot less damage on your spine and vehicle parts. Communication connectivity has also improved greatly. Most villages have someone or the other with cell phones. The progress in literacy and living standards seem nowhere commensurate with the progress in govt infrastructure. (guess not even 15-20%). We seem to be miscalculating the linkages between the 2. (I am not saying these are not important; but how much they are able to use them at this stage is questionable. Looks like a 25 terminal airport for 2 flight landings a day). Roads in most parts seem ready for the next 25 years. (see the photos).

Government may need to work on assessing the skill levels of each village and work on each village to boost their income. The focus has to be on increasing their ‘marketable surplus’. (elaborated later).

TV in each home (still a pipedream in many villages) and programmes for social change, advisories on agriculture, personal health and hygiene will all serve great purposes.

Gas seems economically misplaced. The payment for Gas goes out of the village system whereas the fire wood they were using was ‘manufactured inside’ the village boundaries. (this needs to be studied and validated)

5 There is great potential in increase in crop yields. Our scientst told me that soil should be so prepared that the loosened soil should just about envelope the aura of the root system. It will enable the root system in absorbing the nutrients and fertilisers without running off. Tight soil wastes them on top and loose ones enable run off. There is different requirements for different plant species but most places in India resort to uniform ploughing. Soil nutrients are different from place to place – may be even within the same village. Fertiliser and nutrients have to be adjusted accordingly. He claimed that such care alone can improve the crop yields (physical or financial) by about 60% in India.

The villagers also require better linkages to the markets (for many of them the universe ends at the village boundaries and their Government is the Village headman). Such increased linkages with partner end user corporates will bring them better technology, softer credit, better information, opportunity to add more value (like sorting and grading, washing and preparing them for markets and these can sometimes be significant 30-40% of mandi values) at village level itself. Government need not relax land ownership rights at all; just more facilitative of contract kind of farming will do.

6 Corruption to me seems a secondary issue in these places. For most of their transaction with the ‘outside’ world they need transactional interpretors who can (and do) take them for a ride in every possible way – be it in religious conversion, NREGA money distribution, freebees from government, etc. It is this that they have to be liberated from first even before corruption.

7 Trapping more income inside is essential at this stage: One of the  villages had an electrical repair shop repairing fans, TVs, motors and pumpsets, and lighting earning Rs 4-5k per month. In most other villages this amount is paid to external people. Govt has to analyse such possibilities of retention of income within village as well enhance values of what they sell outside and prepare them for newer activities like vegetable growing, fishing, water harvesting, solar panels, sanitary pads making (may be for a few villages in the nearby areas), poultry and milch cow raising. This requires external help and may be investments. Government can rope in retired civil servants, local students, corporate and wealthy individuals as Village development sponsors and draw up a village level development plans and guide these villages along the path of development. India has just 6,00,000 villages.

8 Compared to what the individuals, NGOs, judiciary and media and voluntary systems have achieved, the work of the government in these areas is so far starkly ahead, at least in the last 10 yrs. The remedy of our constant carp may be redesigning the election systems so that it becomes lot less expensive and faster administration of punishment for political misadvantures. What can u achieve from a justive system which passes judgement on disproportionate wealth accumulation after 20 years and after the person has died). If these 2 can be addressed and we give the politicians some space, perhaps we can make faster progress.

If judiciary and Lawyers can together ensure that delivery is not derailed and delivered within 2-3 months for cirmes, crimes and thefts etc might even vanish. Even Politics will become a lot cleaner. Will our Lawyers accept the challenge. In fact the media should also concentrate on exposing lawyers who delay justice infinitely by misuing their priveleges.

9 India should perhaps have gone for European type co-operative model of corporate existance than English and American type Limited liability company types. We are high social animals and more susceptible to social policing and peer pressures than top down relatively more impersonal legal governance, audit and rules based systems, court trial and punishment systems. social pressures would have achieved the end result at a far reduced cost. (may be, I am foolish, but when no one can prove it otherwise let me take some liberties in being expansive).

(Sorry no videos in this piece)

Demonetisation Lessons from Brazil

An edited version of this article appeared in Financial Express today. Link:

Public policies are best when a lot of reason goes into their formulation and passion into their implementation.Those looking for an effective recipe for formulation could learn a lot from Brazil. It has demonetised its currency 8 times since 1942 and thrice simply knocked off the last 3 digits of its currency overnight i.e. like a 10,000 Cruzeiro (then Brazilian currency) will be 10 Cruzeiro from next day morning.

Lessons from 1830s to 1942.

Even before from 1830s it has been compelled to experiment with its currency due to evolving politics. The early experiments are to do with metallic convertible bases like silver and gold, metallic copper coins, birth of parallel paper money,  etc.

In early 1830s in order to stabilise the external value of Mil-Reis (then currency), the centre starved supply of currencies reducing the circulation of copper coins in the provinces. The provinces responded by issuing their own notes to neutralise demonetisation. Promissory Notes issued by Commercial banks valid for 15 days by law began to be accepted far beyond their due dates. (Source: Page 39-43,  Monetary Statecraft in Brazil: 1808–2014, Kurt Mettenheim)

Some other time commercial banks were allowed to issue bank notes (like in Hong Kong where currencies were issued by Standard Chartered and HSBC till accession). This led to loss of control of central authority and dilution of monetary policies.

Brazil through its history has clearly proved that no one can ‘starve’ the people of currency for far too long.


This period was mostly about high government expenditure, unbridled fiscal gaps and high inflation. Brazil demonetised 8 times before the last one in 1994.

It has had to change its currency, the ultimate form of demonetization for every conceivable reason – to tackle black money (Indian objective), to tackle hyper inflation, tackle daily cumulating interest rates of 3% (which is nearly 50,000% p.a.), base erosion, commodity price volatilities especially in Copper or just to avoid confusion (if Brazil had retained its currency same as in 1942, it would be 1 US $ =  2750 followed by 18 zeros, a nightmare for the accountants). They have been far deeper than t he Indian type demonetisation – the entire spectrum was replaced and the currency itself renamed.

The last in 1994.

The most recent in 1994 seemed Quixotic. It was aimed more at breaking the psychology of inflation. With 100% inflation consistently for 14 preceding  years (in 4 years over 1000%), shops had to revise prices 3 times everyday. That is when the government decided to use two currencies simultaneously – one virtual for counting the real value of currency and another for payments and settlement – and every shop having to display its prices in both and revise it 3 times a day.

But unexpectedly, people started anchoring their values against the real value (which was set near 1 Real Value unit = 1 US$).  Within a quarter or so, it was clear people were not rushing any longer to shops to avoid their currency buying less than when they started from home. Inflation abated and the real value became the Real the official unit. It was perhaps one of its most successful experiments that has lasted till date.

Lessons from Brazil

People will seek ways to settle transactions in the most cost and effort efficient ways. For many transactions in much of India, using currencies across the counter is still the most efficient option. In 1970s and 80s, when there was a coin shortage of sorts,  Chintamani co-operative superstore in Coimbatore used to issue their own tokens. These slowly gained acceptance with public so much so that even government owned busses and offices used them.

The parallel systems will start issuing notes and IOUs which will be strictly ‘enforced’ amongst its members through extra legal authorities.

One thing Brazil has always got right (between 1942-1994) is to have the 1,2,5,10,20,50,100 note sequence – considered the most friendly from transaction settlement point of view.

Currencies are as much about psychology and convenience as values for accounting and transaction, as the 1994 experiment so decisively proved.

The best way to demonetise is not to have one – avoid inflation, avoid unjustifiable or un-implementable tax systems, and not to issue too much of it anyway. Brazil has about 3% as currency/GDP whereas India’s is11-12%. Government should have incentivised and reduced it by 1% every year rather than force it in one lump.

A parade of demonetisations has not exactly curbed either parallel economy or corruption in Brazil. Corruption and black money is so rampant, their President was recently impeached for corruption, their biggest real estate tycoon is behind bars and may have to spend the rest of life there if not politically rescued.

Why black money or parallel economy, there is a near parallel administration being run by the mafia through drugs, extortion, violent thefts (one murder every 10 minutes i.e 140 a day, down of course from 600 a day not so long ago), etc. none of which will be happening through tax paid cheque money transfers.


In summary Brazil offers 3 ground rules (perhaps not with successful examples as much as negative narratives):

  • the way to tame inflation is not periodic demonetisations but curb state populism,
  • the way to curb black money and illegal economy is not starving people of cash but well thought out tax policies and effective punishments, and
  • the way to protect free trade from causing domestic unemployment problems is to maintain the external value of the currency which in turn is achieved by restricting external capital inflows to just what is required for financing current account deficits. (Donald V Coes, Macro Economic Policies and Growth in Brazil, 1964-90)

One would definitely give credit to both the government and RBI for curbing state populism within FRBMs. But given the levels of corruption in tax collection systems itself, black money curbing through demonetisation seems an ill fitting solution. Unemployment is rampant and growing due perhaps to highly overvalued Rupee and extra terrestrial real interest rates.

The daily dose of RBI circulars does indicate that someone is extremely alert at the wheel but whether he knows the destination and if it will deliver enough gains for the pains people are experiencing, time alone will tell.

The writer is CFO and author of ‘Making Growth Happen in India’ (Sage Publications)

Cashless Crawford Market

Cashless Crawford Market

In between meetings got 40-45 minutes in Crawford Market (CM) (near VT station, =ent of Kotwal Chavdi and Moore Market of yore and Chawdi Bazaar of delhi).

I have not seen CM as deserted and lean crowded in peace time; the last I saw it like this must be 1992 and 1993 during times of frequent riots or shut downs when only the locals would dare to go there. The car park attendant was half way into the road trying to virtually garner cars into parking lots (see empty lots) – in normal times he won’t even look at you.

The first few – panwala, vermilion and turmeric vendor and dry fruit shop all mirrored what one has been hearing – yes it is difficult, acchaa kadam, and we are willing to bear the pain for the sake of nation, once sufficient new currency is out business will be back to normal.  Except the dry fruiter who has been using POS credit card instrument said that the usual transaction size is Rs 150 – 750 and try as he might he has not been to push the card based sales beyond 50%. Our customers collect cash from theirs and don’t want to deposit it in bank and draw against them – all involving waste of time. He would rather dispose it on us. The interest rate in their market is about 3% per month.

Then I bumped into Quereshi, the genius and his partner (he is the 1st one after about 25-30 people I have talked to who seemed to mirror my views on this subject… so he can afford to live with the insult of being called a genius. He switched over to decent and fluent English once he assessed my scholarship with Hindi).

He doubted if this would deliver anything concrete and was critical of ill prepared implementation. The fruit vendor gets his supplies mainly from Kashmir and Shimla and distributes locally with transaction size of 200-400 – 2-3 crates at a time. They must have put more 500 notes on the market (and even later Rs 500 and 1000 not 2000). Many of them give me Rs 2000 now and i don’t know how to conclude the sales… we don’t have change to give. Sales have gone done from about 60-70K per day to 12-13K per day now.

But the bigger problems are the banks. They are not clear – lot of indiscriminate questions which serve no purpose. We did not have a bank account here in the market only near home in the suburbs. But we opened one after the announcement to make sure that from our end upwards dealings are in cheque – we have no hope our customers will be able to give cards. We are trying to deposit 12-13 k per day each last 5-6 days and everyday they ask same and different questions and we are spending 2 hours in queues and questions. Not an encouraging welcome to the world of banking and credit.

I asked him why his customers can’t give cards and pay thru Paytm etc. We don’t want to take credit risks on our customers – tomorrow he will cancel payments claiming fruits were rotten, etc. (think they were confused with cheques) and we also hear that Paytm and Cards take 3-4% charges and pay after some 15-20 days. Kaai Ko Junjut? (it was my turn to look confused perhaps ignorant for i have no knowledge of how the merchant reimbursements from Paytm and Cards take place).

I asked him about the benefits of wiping out black money … desh ke bare mea koyi nahi sochtaa … modi yaa Rahul. The last genuine politician was Vajpayee. He was doing something… building roads. Creating jobs and there was progress. Now there is nothing happening … no jobs.

About terror funding … aap kya sochthey… inke pass 1-2 lac crores hai that we want to immobilise. Kya bakwas? Excuse. They must hardly be having 6 to7,000 crores, at best. Isko nikaalne ke liye itna natak? So many people having to run around for so many days wasting precious time? Most of the funds are there with politicians and a few rich people.

But one benefit … the rich were getting richer fast. This will stop it getting worse. But at the same time he opined that more and more rules and controls that the Government is putting is to facilitate the rich; why disturb routine of the poor? (seemingly contradictory).

These apples used to cost 2-3 at the farm gate 15-20 years back and cost another 1-2 rs to get it here. Nowadays it costs rs 10 at the farm gate but costs Rs 15 to get it here and foreign apples are continuously getting cheaper, so we are earning less and less. Imports should be banned outright and we should get it from Shimla for far less here. (Trump would readily agree with his trade theories).

But he was also dismissive that the cash will have any adverse long term effect on their business. 6-7 weeks. Maximum by 1st Jan, things will be back to normal. Not a big bother.

The following from the Fund Manager of the 2nd largest private sector mutual fund.

  • Workers in Maurvi which supplies much of the ceramics for the construction industry have started in droves to go back to their home town in Bihar, Orissa and J’Khand …lost hopes about construction industry’s immediate revival prospects … cash now and GST later in an industry where nearly all transactions are in cash.
  • We have no data for analysing the long term consequences … if it will last 2-3 qtrs or 2-3 years and permanently pull down growth rates by 2-3 %.
  • More than half of our GDP comes from unorganised sector. They give 70% jobs. They all dodge tax in varying degrees. If you impose 18% GST on them, they will all become uncompetitive and a majority will have to shut down. This will leave lots of people at the lower most level jobless. This can create a huge social issue.


If the exercise ends up trapping at least 3-4 lac crores, it could be deemed a success. If it ends up mopping up 1 lac cr or less, Modi might end up looking a modern day Quixote and Jaitley his able assistant  Sancho Panza.