World View: India’s PM Narendra Modi Declares 500-1000 Rupee Notes Worthless

Indian Prime Minister Narendra Modi speaks during a joint press conference with Nepalese Prime Minister Pushpa Kamal Dahal following a meeting in New Delhi

This morning’s key headlines from

  • Only 1% of people in India pay any income taxes at all
  • India’s prime minister Narendra Modi declares 500-1000 rupee notes worthless
  • Many wives face hardship because their ‘hidden cash’ is now worthless

Only 1% of people in India pay any income taxes at all

Man holding a wad of 500 rupee notes that have now become worthless paper (Reuters)
Man holding a wad of 500 rupee notes that have now become worthless paper (Reuters)

In May of this year, India’s government released a report on tax compliance for the first time in decades. According to the report, only about 1% of India’s population paid taxes on their earnings in 2013. By contrast, the figure is 45% in the United States.

Here are some reasons for this:

  • Indians earning below 200,000 rupees per year are exempt.
  • 80% of the economy is the “underground economy” or “informal sector,” where income is not declared or tracked.
  • The only people who do regularly file income taxes are believed to be salaried employees at big companies whose bosses file for them.
  • India’s largest industrial sector by far, agriculture, which employs literally hundreds of millions of people, is completely exempt from paying income tax.
  • Wealthy people are keeping billions of dollars in banks in Switzerland and Singapore, out of sight of New Delhi.
  • Tax evasion is rampant.

India Today (2-May) and International Business Times (6-Jun-2013) and CNBC

India’s prime minister Narendra Modi declares 500-1000 rupee notes worthless

India’s rupee currency fell sharply against the dollar this week, after prime minister Narendra Modi announced on Wednesday that all notes 500 rupee and 1000 rupee notes (equivalent to about $7.50 and $15.00, respectively) would immediately become worthless, in the sense that they are no longer “legal tender,” and can no longer be used for commerce. New 500-1000 notes with additional security features will be issued “soon.”

A person with 500-1000 rupee notes can deposit them in his bank account until December 31. However, anyone depositing more than 250,000 rupees will have to account for the money, and will be subject to tax, a 200% penalty, and prosecution.

The term “black money” refers to money that has not been declared to the income tax department. Someone who deposits a sack full of cash can expect to get notices from the income tax department demanding an explanation of where this money came from. The person will be subject to a full audit, and required to submit personal books of accounts. The income tax department will be conducting unannounced raids to look for assets like gold and property papers.

India’s government hopes that this desperate measure will bring in several billion dollars in additional tax revenue.

Hopefully, someone in India’s government will realize that this will work only once because of its surprise value, and that in the future people will figure out new ways to avoid paying taxes. India Times and International Business Times and New Delhi TV

Many wives face hardship because their ‘hidden cash’ is now worthless

Many people kept their cash for daily living in the form of 500-1000 rupee notes, and suddenly their cash was worthless.

People flooded the banking system on Thursday and Friday to obtain cash, but the banks were unprepared and ran out of cash, causing people to wait in line for a long as ten hours. Even worse, many rural areas of India have no banks at all. Commercial currency exchange businesses around the world immediately stopped accepting the 500-1000 notes, leaving Indian people stranded in foreign countries with no money.

Women in India are hardest hit by the new policy, according to the BBC Hindi correspondent Shivani Kohawk(?). She explained the problems that women in India have (my transcription):

Basically, women in India have traditionally tried to save money by stealing from their husbands, and this is something I was told to do when I got married. My cousins have done it, my mother’s done it. What they do is when the man comes back home, after a hard day’s work, he’s always carrying some cash, and they try and sneak out a couple of hundreds, and put them away, and that’s their way of keeping money aside, for things they might want to do which they’re not allowed to do, as part of the family remit, or buy extra presents for their close friends and family, or just even to tide over a rainy day.

And you will not believe it, but these sums can really really add up. And I think a lot of women now in India are wondering, oh my goodness, what should we do? How do we declare this so-called black money? That’s one part of why Indian women would be holding on to cash.

There’s also traditionally a culture of giving money as gifts, especially with weddings, close members of the family, instead of buying expensive presents would give you wads of cash, and the more affluent the relative, the bigger the sums of money, and as soon as the bride is done with all the wedding bonanza, she gets down to collecting her cash. And there she is, and obviously the more affluent the family, the bigger the sums. And again, this is her property. She holds onto it for her dear life. She doesn’t give it to her husband.

The third thing that women do in India is called a Kitty Party. And what they do is – they get together and they pool in money. So you have a group of women, say, ten women, they all put 1000 rupees in, and at the end it there’s ten thousands, and every month they’ll meet, and one of them gets to take the 10,000 home.

She said that many women will be worried now that they have to deposit their “hidden money” into a bank. Special Broadcasting Service (Australia) and Canadian Broadcasting and International Business Times

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KEYS: Generational Dynamics, India, Narendra Modi, black money
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