PM Modi’s currency ban is a Rs 60,000 crores scam?

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After the ban of Old High Denomination (OHD) currency notes on 8 Nov, 2016, there are widespread allegations of leakage of this news much before it was announced. If the allegations are correct, it presents a clear case of front running based on the insider information to make easy money from this move.

Lot of people have lost money overnight while some have made money post this decision. Anyone who had prior information of this would surely be on the profiteering side. Hence we will have to analyse set of people who are making money by this decision to separate out people who had no prior information of this and second set of people who had insider information with them.

Rs 60,000 crores scam

People are making profit by accepting OHD at discount or selling their assets at very high price in lieu of OHDs. We are hearing news of gold selling at Rs. 50000 per 10 gram in exchange of OHD and old 500 and 1000 notes selling at 20-30% discount (Old Rs. 500 notes being exchanged with new currency of Rs 350 to 400). At a time when people want to get rid of old notes, a fundamental question comes to mind – who are these people accepting the old notes and what will they do with such old notes.

They are the agents (with or without prior information) who will ultimately earn huge profit by depositing it in the banks for full value. There are two ways in which large sum of these notes can be deposited in the banks by these agents:

Cash deposit method number 1: OHD up to Rs. 2.5 lakhs can be deposited by any individual without getting any tax demand. Hence, these agents will scout for poor people who will deposit the black money in their almost non functional bank accounts to earn a 10-20% commission on the amount deposited. Later these poor people will slowly withdraw the money and hand it over to the agents after deducting their commission.

This is equivalent of redistribution of wealth to the extent of 20% from large money hoarders to the poor people of the society. If these set of agents knew the decision beforehand, they would have never paid 10-20% to the poor people to convert it post the announcement. Hence we may classify this as profiteering by agents with no insider information.

Cash deposit method number 2: Large size deposits by businessman, firms and companies to the extent of cash in hand in the books of accounts as of 8 Nov, 2016. There are two category of businessmen who have cash in hand in their books of accounts: A) Physical cash in hand equal to or more than the declared cash in hand in books of accounts; B) Physical cash in hand significantly less than the declared cash in hand in books of accounts.

A) Physical cash in hand equal to or more than the declared cash in hand in books of accounts: A businessman who is having physical cash in hand equivalent to or higher than the cash in hand declared in books of accounts will never accept any old notes at any price as he will not be able to deposit these OHDs due to limitation of declared cash in hand. Hence, we may classify this as no profiteering by agents.

B) Physical cash in hand significantly less than the declared cash in hand in books of accounts: A businessman who is having physical cash in hand significantly less than the cash in hand declared in books of accounts can always accept the OHDs from market at discount to deposit it into his bank account for full value. The question is why will he have less cash in hand compared to what is his cash position in books of accounts. This raises suspicion about these people having prior information of the OHD ban. Hence, we may classify this as profiteering by agents with suspected insider information.

To cross check our suspicion, let us first analyse the possibility of leakage of this information. A move to ban the Rs 500 and 1000 notes would have involved lot of policy makers, politicians, bureaucrats, hundreds of employees of currency printing press involved in actual printing of new notes.

It is human tendency to pass on this privileged information to your near and dear ones by those involved in this process. Hence, there would have been hundreds of people with knowledge of this ban. Whether any of these were involved in front running on this information can be analysed by first understanding the expected behaviour of person with prior information of the OHD ban decision.

Expected behaviour of person with insider information: Suppose, you are a large black money hoarder and you get the information that Rs. 500 and 1000 notes will be banned after 10 days. What will be your first reaction to benefit from this insider information? Below are the steps which a greedy frontrunner is expected to take to benefit from the insider information:

Step 1: You will immediately try to dispense off the OHDs. You may do so by either depositing it in your bank account or by spending it immediately. However, depositing it in bank is not a solution as this will be noticed by the taxman and you may have to pay tax and penalty on it. Hence, the only solution is to go and spend this money on gold, silver, other precious items, business expenses, personal expenses etc. After doing this, you are left with no old notes and hence you are happy that you will not lose any money after this decision is announced 10 days later.

Step 2: Once you have avoided loss by spending/investing your money, you may be little greedier and will try and think of ways to make money based on this privileged information. Hence, only option left is to withdraw your entire bank balance and spend/invest all withdrawn notes of Rs. 500 and 1000 immediately. Assuming you have withdrawn Rs. 10 lacs from bank and invested this physical cash in precious items (without bill), cash business expenses etc.

Now you are left with no physical cash and a cash balance of Rs. 10 lacs on papers. Once the ban is announced, you may buy these notes worth Rs. 10 lacs at hefty discounts for Rs 7-8 lacs and deposit it back in your bank account against your accounting cash in hand position. You have clearly made a Rs. 2-3 lacs profit on Rs. 10 lacs transaction with the help of insider information.

Hence, to benefit from the insider information, one is expected to increase his cash in hand position in his books of accounts while having no cash physically.

Was there a widespread profiteering from this insider information?

As per government, preparations were on for this for last 10 months. Hence the decision would have been known 12-15 months back itself to selected bureaucrats, politicians, RBI staff etc. To benefit from this move, one should have immediately started to increase his cash in hand position in books of accounts by withdrawing maximum cash from banks (and invest/spend it on his cash business requirements, gold, diamond and other precious item purchases). If there was a large scale profiteering, there should have been a larger than usual cash withdrawal from banking system by all those trying to profit from this insider information. For this, let us try to look at the currency withdrawal by public over last one year and compare it to the withdrawal in previous 4-5 years to identify if there was an unusual pattern in this.

Table 1:

table1

Chart 1:

chart-1

Chart 2:

chart-2

As seen in chart 2 above, currency with public increased at an annual average rate of 10.8% in last 5 years as against this years’ 17.7%. This is almost 70% higher than the usual % growth for last 5 years.

Chart 1 shows that currency withdrawal this year was unusually higher at Rs. 2.56 Lac crores when compared to the last 5 year average of Rs. 1.16 Lac crores.

However, there was an income declaration scheme under which Rs. 65000 crore of black money was deposited/declared by black money hoarders in September. Hence, the current year withdrawal of Rs. 2.56 lacs crore was a net cash withdrawal figure after a deposit of Rs. 65000 crore under income declaration scheme. Adjusting for this, there was a cash withdrawal of Rs. 3.21 Lacs crore this year versus Rs. 1.16 lacs crore average in last 5 years (Refer to chart 3). Hence, currency withdrawals this year were a whooping 2.05 lacs crore higher than the usual number.

Assuming that if this fake cash in hand accounting position is deposited back by scamsters by purchasing the old notes at 30% discount, this would mean a Rs. 60000 crore benefit for the fraudsters involved in this front-running.

The chart above clearly shows that there was something suspicious about the way the currency withdrawals spiked up over last 1 year which worried almost everyone including RBI and economists. RBI had to resort to aggressive liquidity infusion in banking system by way of open market operations starting March this year to counter the unusual currency withdrawals which were puzzling even for RBI.

How do you catch the frontrunners involved in this currency scam?

The best way for the government to catch these fraudsters is to ask for the cash in hand position in the accounting books of all the businessman, firms and companies (who have deposited large amount of old notes now) for last 1 year. If there is a many times increase (In excess of 20-30%) in the cash in hand on books as of 8 November 2016 when compared to last 5 year trend, it will prove a clear case of wrongdoing and strict action including penalties should be initiated against such persons, firms or companies.

And this 60,000 crore is only one resultant scam because of insider information the currency ban. This article does not cover the benefits accrued by black money hoarders who used advance information of the currency ban to safely park their black money into assets and tax havens.

(The author is a senior AAP spokesperson. The views expressed here are solely the her own. The facts and opinions appearing in the article do not reflect the views of Janta Ka Reporter and Janta Ka Reporter does not assume any responsibility or liability for the same)

44 COMMENTS

    • You are a person who only likes his pockets filled. For once someone is thinking and making the rite moves only keeping the nation in mind… World bank president has praised our PM but instead of feeling proud, ppl like you talk crap. You are a DISGRACE.

      • Can we expect any better things from our opposition parties.. See the kind of unity they display against Modi..

        To expect a constructive opposition from these sick people is too far from reality….

      • I am guessing you must be modi’s psychic to know about his good intentions…Is it possible that he’s trying to bail the banks out of thousands of crores lost to Mallya and Lalit Modi ? You are right to use the word DISGRACE, but you should probably use it for beard-ji.

    • hope every one know one fake cinema maker kashyaps face book story of gau rakshak attack on him ..and when police investigated himself agreed tht its fake and he created it to make comunal clash in society…and he is exactly then arested with same writer…

      • just because you say “galat” it does not mean it is… can you not see the logical way the author has explained the whole thing?…this is the problem with Desis… too much emotional reaction and very little rational head thinking

    • All the datas r imaginary or wrong interpreted and give one negative side of the thing. Shame on AAP who do not fullfil their promises on the basis they elected and talking about other like Modi who is committed to the nation and non stop work for nation. We r not fool like u mr rajesh. You r one of the more harmful terrorist in compare one who infiltrate from PAKISTAN. India do not require any enemy till many more present like you.

  1. There is no leakage of the news and PM is very cleaver to hide it from everyone. It destroyed fake currency, Hawala, under the table educational donation, and money power in the election. People like you are anti-Modi and now turning anti-national. We support Modi’s action.

  2. As usual what else can one except from AAP. They are unable to govern just one small state. Their basic underlying basic philosophy is creating anarchy and instigating people. There is no one good thing they have achieved which is worth mentioning. Every day these people led by the leader the biggest joker levels unsubstantiated allegations just to be in news. If they are so serious why are they not approaching the courts against for these charges. They very well know these charges do not hold water in any court of law. The party itself was formed by deceit by riding on the poor old man Anna.

  3. Don’t worry RBI and FIU always have a list of non operational account and if all of a sudden this much amoun will flow in that account they can teach it easily.

  4. October 28 of 2016 is a day before Diwali, spending normally will be high only at least 2 double the size, so there is no difference

  5. Loose cannon shooting around.
    No proofs.
    Just to add the perspective that it was very close to Diwali so having large withdrawal amount does not seems to be something not unusual.
    Also, if you are mentioning withdrawals, please mention deposits as well for same period so that the difference can be understood and more clear.

  6. Deducting 64000 declaration is wrong as that was undeclared so never in banking system.

    Second, a person withdrawing such huge sum of cash comes in scrutiny of income tax officials. Easy risk of getting caught. So an unlikely move by anyone smart.

  7. Rubbish

    Preeti, Why can not you file a case in a police station or PIL in a court if you feel there is a scam

    Please do soon. Do not bark for the sake of it

    • The CBI, NIA and every investigative agency are Modi stooge and how can they do fair job. He is even trying to have the judges of Supreme court under his thumb. Blind bhakths can’t see Modi going Hitler way.

  8. For all the bhakths , here is another report of similar kind in economic times. ( http://m.economictimes.com/news/economy/finance/indians-sent-a-record-4-6-billion-abroad-as-outward-overseas-remittances/articleshow/52301330.cms )

    This is news appeared on May 17 2016. People who have little bit of grey matter up there can connect it to recent events.

    If the link gets truncated or missed, search for the following heading in google.
    Indians sent a record $4.6 billion abroad as outward overseas remittances

  9. For all the shoddy treatment given to Mysore Airport at Mandakalli over the years, it is the single runway at this airport which has come in handy to carry out one of the most earth-shaking policy decisions that the Indian government has taken – demonetisation of Rs 500 and Rs 1,000 currency.

  10. The calculations ignores 1 very imp
    aspect, timing of diwali. Typically people & cos have highcash positions 1-5 days before diwali. 2nd point salaries by most large cos was paid out earlier due to
    Bunched up bank holidays, wich was also withdrawn.
    Nos in this article have been used with an
    Ulterior motive.

  11. It is in the DNA of AAP to make unsubstantiated wild allegations. Their leader is facing the legal proceedings and could face indictment. Even that has not deterred their rank and file to desist from continuing the same practice and spreading canard. In my opinion the louder the voice of criticism, the more that person/ party has suffered at the hands of this master stroke of PM Modi.

  12. The situation is very ironical. The very parties and people who appeared to champion the the cause of the poor are opposing the move that will in the long run will benefit the poor . If people r ready to bear the pain and trouble of standing in queue why AAP, Congress , Mamta , Maya behen CPM are making so much fuss. It seems as if they have suffered a lot by PM’s move.

  13. One thing is that the liquid cash stashed (physical money hidden from normal circulation has come back into system be it a real currency termed as black money / hoarding. Fake / Jalinotes & money pumped in country printed by global vested interest would disappear or. get buried or burned To this extent money not under routine circulation.It for government of the day to find out what exactly the situation is and remedial action.
    After ten years or so we will be in the situation.At that point of time another bold political leader’s requirement has to be envisaged

  14. He has proofs of Swiss bank holders as said during election speeches in 2014 and he was going to work on the big fishes and every one was going to make 15 lacs out of it…Now it’s been past 3 yrs and just to show hes doing something he did this.. It is a great move but I am confident he will do nothing against Swiss bank account holders and Robert vadra’s kin.

  15. Don’t spread illogical & false news!

    It is a huge win for the nation and we are all with him.

    You better go off India to Pakistan.

  16. Look we all know every word from any politician is not true… It just that we have sure when we make choice…. Cuz every politician knows he needs fund to fight for election… No politician is greater than his party…. Modi himself said that Bjp is his mother like party… So if u consider all this… We can’t conclude the truth behind demonetization….

  17. I am too confident that modi will do nothing against Swiss bank account holders ,

    the rs 2000 notes he printed to save rbi of printing cost , will add fuel to fire among poor people

  18. Misses a major element. (1) How many new bank notes were syphoned off from the Security Presses itself? May be thousands of crores. Even bad runs i.e. notes with printing errors are normally cancelled but are circulated. Were such notes officially issued? (2) Again, how many ‘returned notes’ were re-circulated? (3) How much fake currency got converted into new notes? …….. The entire process need to be subjected to audit and stock reconciliation by CAG.

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