 Hello, everyone, and welcome to the NDTV weft debate right here in Davos. This is one of the features here at Davos. We try and take a look at whatever issues there are that are really concerning India in particular and India's place in the world. And our theme today is going to be India's turn to transform. And transform specifically in this case, we're going to be focusing not just on growth and growth rates, although those will come up, but specifically the current steps that are being taken against black money, against corruption, and specifically demonetization, that banning of high value currency notes that took place three or four months ago has had a major impact. And the jury's out. Was it good? Was it bad? Was it a wonderful idea, but not implemented correctly? Was it as good as it could have been? Was it not necessarily the greatest of idea? So on this particular panel, we're going to take a look at what India has just done and its implications. And because we heard at Davos, we're going to be getting a lot of global advice and expertise and some of the top experts in the field, giving us suggestions on what could have been done better and what can still be done to ease any residual pain there is. And then we want to move on to something else, which is perhaps an even more important question. The stock of black money is all very well, but what happens to the flow? How do we prevent corruption in the future? How do we prevent the further generation of black money from coming in? And that's something that, again, we want to take lots of advice. I will be taking questions from the great audience that we have out here as well, and you can be sending us questions on social media. You can tweet us with hashtag NDTV and hashtag where we'll be taking all of that as we go forward. Let me start now by welcoming the panel that we have. Nirmala Sita Raman, Minister of State for Commerce and Industry of India. Thank you so much for being with us. Somebody who's been dealing with the entire aftermath of what's happened with cash. We have Kenneth Rogoff here, who's famously written a book called The Curse of Cash. So I guess the Indian government could always say all they were doing was taking your advice, although I know you have said, although I know you have said that didn't exactly follow your playbook. And I'll get you to tell us why. So, okay, so it's not all your fault is what I think you're trying to say, Kenneth. Right. I don't think the chairman of the State Bank of India, India's largest bank, and again, has had to deal with all those long queues, which are now starting to diminish a little bit, but we'll get your sense and your perspective of it. It's a great pleasure to have with us Federico who's the governor of the Central Bank of Argentina and a young global leader, somebody who's also thinking about something very similar in Argentina. And we want to get your sense of what lessons you may or may not have learned from India. And if you're doing it, would you be doing it slightly differently? And Carmen Reinhart is a professor of the international financial system at the Howard Kennedy School. Written a book also, or a couple of books, I think, with Ken Rogoff. So we have a large Harvard contingent out here. You were also at Harvard once upon a time, so large Harvard contingent out here. You'll perhaps be helping us with some of the theory and how we can put all this into practice. Maybe if I could get a minute each from all of you and then we'll go into a freewheeling discussion on this. Nirmachi, why don't I start off with you? Here at Davos, everyone would be asking this question. Look, here you had India chugging along really nicely, the fastest-growing economy in the world. And suddenly you decide to take a step. And as for the IMF again, we're no longer the fastest-growing economy, we're now just a step behind China. It will recover, no doubt, within a week or a month. But why did the government feel it was necessary to do this? Well, it was part of our electoral promise. And even soon after coming into power in May 2014, we started doing a lot of things which were till then not even touched in spite of a Supreme Court order. And if steps were to be followed, we followed it up with many other steps which were necessary, like coming up with an income disclosure scheme which ended as of September 30th, 2016. Whereby people were asked to declare non-tax-paid assets, assets which were otherwise kept away from the system. Besides that, we've also been negotiating with countries where Indians have kept accounts abroad, where non-tax-paid money or assets had been created. We wanted the information to be shared, agreements have been signed, double taxation, avoidance treaty, which was becoming a big issue because a lot of investments were happening in India. I do not know if that expression is common outside, we call it as round-tripping of cash, Indian money going outside and coming back as fresh investment back into India, neither paying tax in India, nor paying tax in the host country from where they were coming. So these were issues one after the other the government has done in the last two and a half years. Other than of course bringing such laws which would very clearly not entertain holding of assets which are not publicly tax-paid and declared. Now, this step of demonetization was absolutely necessary because we are talking of an emerging economy, we are talking of a country which could send Mangalayan to the mass, we were doing a fantastic lot of research, but yet 87% of our economy was in the informal only cash-driven segment. And if when I say only cash-driven segment, these transactions were not even getting captured anywhere. The money wouldn't go to banks, the money wouldn't come out of banks, the transactions were not getting recorded anywhere and as a result of which the number of people who are paying tax as per the existing budgetary announcements was very, very small. In fact, this is a famous statistics which we keep quoting nowadays. Only about 50 lakh people say that they earn over 10 lakh rupees annually and therefore are subject to some kind of a tax. All others who file their returns, file their returns but pay no tax. Can a country which is aspiring to grow manifold in research, in innovation, in bringing newer technologies on the one hand and on the other which has a bulk of population which still needs a lot of entitlements to be provided to them? Can we survive if this is the kind of tax-to-GDP ratio continues? And the two denominations of currencies which were made no longer legal tender, the 500,000 in value terms constituted 87% of the entire currency floating in the country. We had to do it, we owed it to the country and we don't regret it. You owed it to the country and you don't regret it? Absolutely not. It was required and we took a bold step and it is, let me, even if it sounds a bit propagandised, I'll say this, you need a leadership which has the courage and the vision to do it and also the stamina to stick with it, to say that it is for the good of the country, maybe long term, short term, yes you may have pain, we are willing to redress the pain as soon as possible, but I'm sorry we have to do it. Alright, we'll come back and discuss a lot of what you have said but let me just get opening comments from everybody else. Kenneth Rokoff, so in the curse of cash, you were really addressing it more to the United States, you were addressing it more to advanced countries, but you were pointing out that high denomination notes such as a hundred dollar bill, essentially used more in the underground economy, it's not used by the vast majority of Americans, which is why you said it needs to be done away with, so to that extent you were echoing part of what she said. What was your sense though of overall what happened in India and why you think it deviated from your playbook? I want to underscore some things the minister said that the Modi government had a broad array of measures at trying to deal with the black economy, trying to deal with tax evasion. My books about advanced countries, it doesn't, you know it sort of says, I don't see doing this yet in developing economies, but it actually talks about some of the policies India did that were very clever, for example, requiring in many cases licenses to be paid online instead of in cash, which, you know, the whole idea of the license, Raj, and everything, it was a brilliant, very simple, brilliant idea and there were many things. On the demonetization, I think certainly the idea behind it was good. What they were trying to do of address black money, terrorism, crime is hard to argue with. I would say some of the tactics, if I had been asked, I might have said to do differently. First of all, there are people who recommended doing it overnight. I point to someone in the 70s, but I say five to seven years is better like the Euro system did in order to avoid collateral damage. A second point is one could question, and I just didn't look at the evidence. I have India treated in my book, but of course the largest bill was about $15. And, you know, is that worth doing? And if you're doing that one, should you also have done the 500 ruble note? I mean, I don't know. I haven't been presented with everything, but it's smaller than my threshold. Probably the single biggest thing is this question of how much do you want to capture the black money, stand there ready to arrest them if they can't say what they did with it, versus avoid collateral damage in the economy. And I think a big problem is that almost nobody knows this, but it actually takes time to print currency. You think I just run it through a Xerox machine. Actually, these machines are like rocket science. It's very complicated. Six to 12 months, also in Europe, everywhere. And so you need the new currency printed before you replace the old currency. And I think that was the single biggest problem that they had. But, you know, I do think it's going to take years to see what the long run effect will be. Right. Imagine, before I come to the others, maybe I can get a quick reaction. So, A, Kenneth had said that his preference would be to do it over a longer period. And I understand the reason you didn't do that was because you wanted to catch the people with black money unaware, which you couldn't have done. But the other point that he made about printing the notes in advance, and that is a question I've asked you and many others in the past, it was theoretically possible to have printed 500 rupee notes weeks, months in advance, had a stock of 600, you know, 6 lakh crores of new notes printed in a warehouse somewhere. Say it's a new design that we are coming up with, print the series, and then after demonetization you could re-monetize really fast. Why is it that the government never did that? No, I appreciate this observation and all things being equal. Yes, we could have done that. But then the same argument holds good here too. Indians are very sharp in these sort of things. They would have smelt it saying, oh my God, it's being printed. You don't do it for fancy. There's something coming. Much before you would have imagined people would have stashed. So I think on all scores we have to keep factoring the brilliant Indian mind. Well, you know theoretically, theoretically, just to play devil's advocate in this, theoretically you could have run a children's design competition and say new 500 rupee note to be designed, and say it's going to be a pink note with the mangalyan on the back. So when you're printing it, people would have said, yeah, we know they are printing it. They wouldn't necessarily have anticipated demonetization. I'm not smart there. Vikram, I'm not going to be holding a philatelic competition for children. I'm printing rupees. No, I'm just saying how you could have got over the secrecy question. Well, that's one way of getting over the secrecy question. That's the only limited point. Okay. Arundhati, the basic philosophy of what was done and having had a rather harrowing three months in retrospect are things that you think, A, the government could have done differently, a bank of India could have done differently, or banks like yours could have done differently? Well, starting with banks like ours, I don't really think we could have done anything differently. I think we put our best foot forward and really fought it out from the trenches almost, so to speak. Regarding the Reserve Bank, I think what has been said earlier and in many other forums that probably more communication would have been good, because as you know, when there is a situation that people don't understand, there's a lot of angst, there is anxiety, there is fear, and it's important to have official communication in order to sort of assuage people's fears and to ensure that things don't go out of control. In fact, I personally have done a lot of communication mainly in order to give that sense of comfort to people that things will work out and it's a matter of time only. Regarding the government, I think the only thing that probably they should have done is to have more stock of new notes printed before this whole thing came in. The minister has already said why that was not possible, so that's for anybody to accept or not accept, but probably that is one area where things could have been better. But having said that, you know, if I can just add that what was amazing was this 1.3 billion people strong country. 86% of the cash that you had suddenly goes out of the system and you have these huge crowds in every single bank outlet, but in spite of all of that, not one riot, not one loss of life through rioting or law and order situations, there could have been some people who fainted in the lines or even lost their lives on account of very many other things, but that could have happened in any situation. But the fact that nobody in the country actually took law and order in their hands in the face of such a huge situation. And also, you know, this was the first time being a very large bank I am used to receiving at least a dozen complaints of misbehavior every day. This was one period when I didn't receive a single, a single complaint of misbehavior throughout this entire period. So, you know, there was a lot of what should I say, a popular feeling of support for the step that has been taken. And obviously, you know, people who were serving them, that is our employees as well, they were sort of, you know, it became a kind of doing a kind of national duty almost. So it was a very different feeling and I do not really know how that came about. But probably there is a feeling that not enough is being done in order to ensure that the gains of prosperity is being given to all. And this was seen as one of those steps that would be required for that kind of a thing. So psychologically, people put up with hardship because they thought this was a decisive blow against the fat cats and the others who were. So in a sense, it is almost like standing in the line and signaling that same protest that we've been talking about so much in Davos, that this is the way that people with ill-gotten gains are going to get it in the neck. And I think it's very important, you know, one of these surveys in India said that 58% of India's wealth is concentrated in 1% of its people. So you can imagine the division between the haves and the have-nots and that when it keeps getting wider, it's going to result in a lot of pushback. And these sort of steps probably answer those people to the extent that, yes, something is being done in order to ensure that that gap doesn't widen. So you would probably have the clearest finger on the pulse of the situation on the ground. Would you say things are 90% back to normal, 80% back to normal? What sort of queues are you hearing about? What sort of stress levels are your bank officials under now? Queues are now a thing of the past in metro, urban, semi-urban areas. They're still there in rural areas. Mainly because in the rural areas there are many more people to be served and less people to serve them because our branches in the rural areas are typically small branches manned with very few people. Turnover-wise, I would say people are up to 92%, 93% of where they were before the demonetization. So about 92% is where I would put it. What the problem really is, is that in many small businesses that were avoiding taxes, they were doing legal business, but they were not really paying taxes because they were not reporting their revenues. For them they feel that some of their business models may have become unviable because their margins were so thin that they feel that once they become included in the regular system, in the official system, then their margins will not give them the ability to carry that on. Now these businesses are literally reimagining their business case and the business model. So I think this is one area where we will have some time lag before they come back in and start operating. But I guess when it comes to those businesses, if somebody has been evading tax all this time or making a business model by not paying tax, I guess the government and the minister would say, that's too bad, you should have been paying tax. You know one other thing that is not generally known is that the cash intensity in the Indian economy has been going up tremendously. If you look at a bank like ours, we were giving cash to the extent of 3.4 billion rupees per day in 2013-14. In early months of this year, that had gone up to 6.9 billion per day. So from 3.4 to 6.9 in a matter of three years. If you look at cash with public in the last two years, cash with public had gone up enormously. Not only that, in 2006, the higher denomination notes comprised only 46%. From 2006 to 2016 and 10 years time, it had come from 46 to 86%. So the cash economy had become immense, absolutely. Before I come to Frederico, I think you would also, the prime minister said it in his last speech, applaud the resilience of the Indian people, that they actually, this entire period, two-month, three-month period of what must have been an intense amount of hardship for many people, done in surprisingly good grace. Not just that there were no riots, you talked to people in the queues, they said, well all right, we are there as hardship, but it's probably all for the best for the future. So I guess you would be joining the prime minister and applauding the people. Absolutely, absolutely. And that was part of the country because all of us ministers, MPs were moving around to different parts of the country to understand and take the feedback. And that was one of the reasons why the DEA, the Department of Economic Affairs, almost on a daily basis had to come and respond to some of the messages that we were sending from different parts of the country, saying would you do this please, would you redress this little bit of difficulty and so on. So through the 50 days you had the DEA coming out and speaking every day to respond to those calls which we heard on the ground. But even as we were sending these messages, I'm absolutely shocked and I pay my respects to all the Indian citizens who put up with this hardship with such grace. You were right, absolutely graceful conduct. There wasn't any bitterness. If anything, I can say that we drew a lot of motivation from it by a common citizen telling you, we understand why you're doing this. So I would take that as an endorsement to the fact that there is a great amount of popular will to crack down on corruption and to crack down on black money and that is where the next part of the chapter, because this is a one-time exercise and we will debate how much of a positive benefit it's given on cracking down on black money already. What happens in the future is going to be perhaps even more interesting which we will come to and you do therefore have popular mandate and popular support for steps that you will take against corruption and against black money. But if I could just come to you and looking at what's been happening in India from the point of view of Argentina and as the governor of the central bank of Argentina being tempted to do something very similar, what would you do similar to this and what would you not do and why do you think this has not been, by you tempted to do something like this? Well, I'm not here to give any advice. I'm just here to share our experience because we've been thinking about this issue for a while. In fact, a couple of years ago I wrote an article in Argentina saying that we had to face out the high-denomination bills, created quite a bit of a stare. So I'm very sympathetic to this and I also admire the boldness and the stamina, I think you said minister, to carry through these policies. Why is this an important issue in Argentina? The first one is because we want to bring people into the formal economy and for that, that has to do with fairness which is something that the minister already talked about because we have a system where only a few pay taxes and they have to pay very high taxes and you really want a system where everybody pays lower taxes and that would be a fairer system. So for us it's fairness what's behind this. A second concern which I don't know if it's relevant in India or not but it's very relevant in Argentina is security. So we have kind of robberies and you have people which go around with cash and they get mad because they have cash so if you actually take that cash away then you have that disappear. And we also think that there's an efficiency gain to have the means of payments being done in an electronic manner so there are three very important reasons to which we could add a fourth which is that the cost of printing money, maybe people don't know this because people take it for granted, they receive the bills, they go to the bank, they use the bills, but someone has to print those bills, someone has to get those bills to them and this is a tremendous cost for the economy, it's actually very expensive. So basically we had this idea that we needed to face out cash for these four reasons. Actually there's a puzzle because we're so accustomed to use cash that nobody charges for cash. So in fact the current system subsidizes cash. So it's not that we're not kind of facing out cash, today we're subsidizing cash so we really want to get away from that. Now in Argentina we had an experience about three years ago where we said that from that and it was very quick, very much like in India but it was done for paying the buses, the transportation system. So the transportation system was not going to use coins anymore, you would have to get a card and you would be able to pay with a card. And that was tremendously successful, in fact we faced out the demand for coins. For example in the central bank I have barrels and barrels and barrels of minted coins that nobody wants because people don't use coins anymore. And people took this and this eased their lives and it saved a tremendous amount of cost, it was a very successful experience. In the case of bills we decided to do a different strategy. So let me tell you what we're doing because we're kind of in a different process but in the middle of the road. So we decided we were going to provide an alternative to cash. The first thing we were going to do is prepare a digital alternative to cash. So we asked the banks to provide a network for transactions which are called direct transfers where people can transfer money from one bank account to another account over their cell phones. And these networks came in operation, they have to be interoperable meaning that you can actually hook up to the network regardless of what bank you have your bank account in. Again, I don't know if this is similar to India but in Argentina you can do this because cell phone penetration is very high and smartphone penetration is very high. So you actually have the technological platform in order to do that. So our first step was basically to provide basically an equivalent alternative to cash but in the digital world. And those networks started operating in Argentina the 15th of December of last year. So it's just right there. Now the second step is how do we push people to operate into the digital world because you can open up the accounts or you can have this mechanism but if people don't use it you haven't done anything at the end of the day. So here is where we've taken the idea of Sweden. One day I was talking with the president of the central bank of Sweden, only 6% of transactions are done with cash. 94% of transactions are done in the digital world. And then he said, how did I get people to move to the digital world? He said, I had a lot of troubles convincing the Swedes. The Swedes typically are farmers, we're very conservative and they love cash so how do you push them to go to cash? And he said, well I go back to this idea that cash was free, why is cash free? And I'm going to charge banks when they want to use cash. So he started charging banks for using cash and the banks themselves did the work of basically taking people to the digital world because for them it was costly to use cash. So what we're doing as a team and I finished with this basically what we call phase two. Phase one was to have in the platform phase two is we stop receiving cash from the banks. So now the banks have their vaults full of cash they don't know they can't use it as reserve requirement. It's a cost for them. So this is the incentives we're providing to have them move people to the digital world. We've opened up a market for cash, an electronic market for cash. So one bank has a supply of a cash and another bank has a lower. They will trade between them and the central bank will not intervene anymore. But that will make them more cumbersome to work with cash. And at the last phase and with these finishes we're going to have a new bank for the cash. And we hope that with that will kind of seamlessly kind of move people to the digital world. So your plan does not ever involve doing like what was done which is just to say okay it's banned. High denomination notes are banned. You can't use them as legal tender. You didn't consider doing that. For example we are not keen on surprising people. For us I mean the problem for the real no I mean the real problem for us was stock was really moving the economy to a new kind of way of doing transaction. So we thought perhaps it was much better to kind of make sure and of course India will be successful because the example I gave of our card for so it will be successful. But we thought our focus was on how do we move the economy to a more formal economy and we were not so much concerned with the current stock. I think I understood from the minister that for them it was a very important, it is a very valid concern as well. Some of those examples and I'm sure you must have been studying other examples like this elsewhere which did not quite involve that short-term pain that the surprise element had which is to just say okay from tonight you can't use it anymore. That has a surprise element and the reason for that surprise element is that one time strike on the stock of black money not on the generation of black money not on the flow of black money not even on moving people to digital ways of payment because you can do that through other methods as was just suggested. The only reason to have that surprise attack was a one time strike on the stock of black money. With all these months having gone by in the data there how successful do you think that strike was because we still from whatever we are hearing a lot of that money has now come back into the system. So it's possible that that stock of black money ended up getting laundered. In which case? I think the question itself assume that that's the argument in now going to be available so that is one thing and therefore there is no distinction between attacking only the stock and not thinking about the flow. Both are being targeted the moment the money has come into the banks it means there is a possibility now you can think in terms of what is going on. It is no more anonymous it has to be identified with money so that's one thing. The second thing is Argentina is probably based on some of the background realities. In India the question of holding cash unaccounted cash black money is a major issue we could not have absorbed the five thousands over several years and waited for the impact to bear it on itself on the economy. So obviously you had to look at not just drawing five hundred and thousand over a five year period but to make sure that that is hit at. You were talking about Argentina having about five to six percent of cash whereas international average the average is about seven percent cash to GDP. And Argentina is a light cash country that's right completely different and now the point that Argentina is making and which sounds very convincing is the kind of trajectory that we are taking also. We are going in for mobile transaction, mobile based transactions and India has great mobile penetration not smartphone there is some section of smart phone users but they are not very many the other phone is what is dominating every mic seems to help so even those who do not have smartphone something I think both mics are on is that final should I continue good okay great those who are not having smartphones the mobile app that we've come up with called Bheem Bharat interface for money is really so popular and the ussd transactions which don't depend on internet availability it doesn't depend on a smartphone it can be done anywhere through simple sms texting but not many people are using it right now 5000 transactions a day when we last got the data how many days after the monetization are you talking about it can't really reach Indians within two days to prove that oh my god this is what success is the success is people are ready to adopt it and if I don't sound cynical I've found many of us sitting in Delhi or Mumbai hesitating to see have I got to use my phone using my biometric I'm okay with my card whereas my shopkeeper in my village or the vegetable vendor in the village who sits on a pavement and sells says madam whatever it is you can do this QR put your phone, show the QR you get my payment and that humidity is faster among them before I get comment don't misunderstand me I think that going after the stock is a very valid objective and as Ken was saying Argentina comes from many years of high inflation so our cash is 1% of GDP that's why for us the stock was not a so relevant issue as opposed to kind of moving to the digital so I think given those different circumstances you can understand every country has their own circumstances we've heard lots of the arguments pro and con I just wanted to get your expert view before we move on to what should be done for the future your take on a lot of what's happened so far so I concur with the view that it's short run pain and long run gain I think the signaling that we are becoming serious about playing the big league with an integrated economy reducing the underground economy reducing illegal transactions I think a good characterization is indeed short run pain long run gain now I'd like to put two things on the table one was when in November I like everyone else was surprised by the move I tried to see are there comparable experiments and if you look at the historical examples of currency conversions you could find basically three different types one was a fairly moderate approach Ken has written about this Canada facing out the $1,000 bill or sing up or doing away with a $10,000 bill but these are small compared to India's 86% of the outstanding stock of currency the second type of experiment is currency changes that usually and Ken and I have written about this you can look at them by the dozen and these typically come after high inflation in which you have wholesale currency conversions I believe Brazil may hold the record they had four currency conversions in less than 10 years no no I think don't take issue but I think Brazil still wins but the main critical difference and Federico has mentioned this and Ken have is that after a high or a hyperinflation nobody's using currency whether it's legal or not the whole issue that India has faced that currency is such an ingrained part of rural transactions small businesses and indeed entire industries that after hyperinflation or a long period of high inflation you don't worry about that people have either moved to dollars or some other currency or you know perhaps indexation or they have found alternatives to currency now the third example is the closest thing to India only in intent not in magnitude and this is what the military bases I know this sounds far-fetched but just bear with me the military bases US military bases in World War 2 during Vietnam would upon surprise change military certificates change the color why because they knew those military certificates which were not legally used outside to try to shield the economy were being soldiers were paying with these military certificates in bars and in all kinds of places and so there was a very active black market and they would abruptly change them to kill the black market you know those episodes were successful because usually the bases would be attacked afterwards as the locals retaliated for the capital losses that so where does this leave the India example I have to say this time is different this time is really different and I can say that because in terms of the scale and the impact potential impact on economic activity now let me just add one more thing I still have a pet peeve on how it was conducted this is strictly in the backward looking and it has I think the issues here have been discussed by experts on the issue of whether currency should have been ready or to what extent was a surprise, a total surprise a good idea but my pet peeve is India is also undertaking another extremely bold initiative the GST the introduction of the GST which I think will deal also with the problem of flow it's broadening the tax base it's closing loopholes it's getting at segments of the economy that have never paid taxes I would have preferred the GST to be introduced before rather than after the currency conversion because I think you think that it might hold up the introduction of the implementation of GST some opposition leader saying that and it also concerns me that some of the snags with the demonetization may be connected to the GST in a way that they may have no connection they post GST first I just want to get any before I come back and then move on to the flow part of it your sense any of you your sense of how effective a strike this is going to have been the stock of black money you are I'm sure hearing the same stories and I know that in a sense it has been tagged it's back in the banking system sooner or later those who laundered their black money will be found and will be identified so therefore that stock aspect which is the only reason to have done it in this surprise manner will eventually come to life are you as sanguine as that or are you doubtful still because you can understand with so much of stuff having happened with the kind of numbers of people that we have in our country and the number of accounts that may have been used to study all of this and to come up with the right kind of questions to the people who need to be asked them is actually a humongous task of course technology is going to be used in order to understand the patterns and stuff like that but even then it is a humongous task the second thing I think which will actually tell us whether this is going to be a success or not is what happens going forward and how much of digital is actually actually used by people for doing their transactions henceforth I can tell you that say just for cards we were doing about 9 50 million rupees worth of transactions per day for the demonetization today per day we are doing 3.9 billion so we have gone up 4 times in this space of 60 days the card transactions however the moment the withdrawal limit in the ATMs went up to 10,000 rupees the very next day the number of card transactions the amount of card transactions came down so you know you have to make a lot of efforts to ensure that people don't slide back into their old ways of doing business and things like GST actually come in very quickly in order to plug the loopholes so that people actually are enthused or pushed and incentivized to actually remain in the white economy Ken Rogoff the only reason to do it the government of India where as opposed to the Ken Rogoff where would be that strike on the stock of black money you think it's been effective in short probably not that I think they had a weak hand because not they didn't want to have chaos and they realized that problems they couldn't really be that strike the numbers are big but I want to underscore something Carmen said which is it's a long run thing it's a question of the follow and have you changed the Carmen said this may change the mindset a wake up call do you have to be careful if you're using cash but then you have to follow in other ways and there are many examples across the world for example putting limits on the size of cash transactions changing other reporting requirements at least with major department stores or larger stores you can require them to put black boxes and wire their cash registers which is done in a number of countries including Sweden now right did you ever consider taking comments point forward waiting for GST or you know saying that the phasing should be done but are you reasonably confident both these big bang steps can be taken simultaneously well the GST is going through a process now and we hope to conclude the discussions so that it can be rolled out from 1st July but you saw and everybody saw the way in which the negotiations or discussions with the states were going on the GST council got formed after the constitution amendment itself so there was a trajectory that this whole debate of the GST was taking on its own in the sense it was becoming more political dialogue whereas the mandate with which we've come we've got 5 years within which we have to show maximum intent to curtail black money so there was no choice you wouldn't put GST before or after GST depended on so many provinces agreeing with you so many ministers from the states agreeing with the details of what went into GST so to even have a calculus that the GST first then this wouldn't be fitting into the framework of things as to how GST gets negotiated and how the demonetization which had to happen so there was no choosing between the two in terms of time if I can now move to the basic core question of future suppression of corruption and preventing further black money there are two possible ways of doing this and the government has referred to both aspects of this in the last few weeks one is to say yes our tax department is going to go after people who are laundering money and there's going to be lots of vigilance and officials are going to do it which is fine that probably needs to be done all these records need to be studied but going forward to expect that tax inspectors or inspector Raj or people are going to be able to monitor and check and figure out where who's corrupt and where the black money is coming from probably not going to work because many of those people are the very same people who are the cause of corruption in the first place so the minute you give any inspectors any government officials full power to go out and check who's making money you can almost be certain that it's an invitation for them to make money themselves and that is why maybe something else is required better systems streamlined systems what is the government's thought process in this? Well I think partly Mr. Bhattacharya very clearly said about it it is not to go back to the days when the income tax commissioners or his staff would be going and visiting people and say we suspect something is wrong with you there is an immense technological capability which is now available in place without human interface it can go by a certain pattern certain flow your average you know deposits in the bank yearly average and so on has its own matrix and then randomly picks on people where some entries have been noticed which are unusual based on which the question is going to be asked of people to explain for themselves first of all what is happening so it is not as if somebody is going to knock at your door and ask you questions the system is going to highlight those who have to be contacted they are going to be asked questions they are going to respond to it probably through email probably through whatever through their chartered accountants and it is only after that if there is a need they are going to be asked to explain it before a commissioner so I think the narrative is now moved over to depending on technology minimum human interface and therefore going back to a system of inspector Raj does not arise at all that is probably something that Davos would be particularly delighted to hear use technology, use artificial intelligence and no inspector Raj the theme of this early very much fourth industrial revolution just looking at that theory and I am going to come back in reverse direction what would be the steps and the best way if India is to transform they are going to be cracking down on black money this entire system of number 2 money, illegal money black money, corruption this is going to be a decisive war on all of that what are the steps you would take going forward you are asking me? I am starting with you ok there is a number of things and much of which is already as I said connected to the GST I think the broadening of the tax base getting to pockets that were completely underground economy have never been anything other than underground economy is extremely important because India is moving and keeps ratcheting up in its world position and so the idea of relying on tariffs or relying on the financial repression tax or other forms of taxation that are not longer seen as attractive is filling in those holes is extremely important secondly I would have to say is what are the alternatives monitoring gold is gold going to be another source an alternative to cash then there is an area, a nebulous area of bitcoin we have seen in periods for example in China and in Greece in periods of extreme stress at capital flight has really ramped up activity in bitcoin so what I am making is the generalized point that monitoring what alternatives could be out there monitor the alternatives and see where else that black money and proceeds of corruption and really going for the implementation of the GST that you perhaps have learnt because Argentina and many other countries in Latin America have also been fighting those similar wars against corruption and black money what has worked? I go back to the example of our card for transportation it was very successful but why was it successful because it was so convenient that people embraced it willingly back in 2001 we had a fixed exchange rate regime and the money left Argentina so we had a huge monetary contraction and actually people started creating their own money so if you don't create and if you take money out of the system and you don't create a system by which people can do transactions the idea of people creating their own money is not just a fantasy it has happened in Argentina it has happened so I think this is a very important thing you won't solve it legally for example in Argentina we have restrictions you can't do with cash it's above a certain amount but it's impossible to enforce that absolutely impossible so I think again the focus in our case in our experience is to build a digital way of doing payments which is better than the physical cash I'll just give you two examples of how fast things are moving I told you in December 15 we started having this interoperable network of digital payments at the same time we basically forced the bank to offer their client something which is called an MPOS it's a dongle it's something that you hook into your cell phone and then you can pass the credit card well that already two months later that's obsolete now the way you do the payment is that you have the grocery store or the cab driver or whoever to print on a printer a QR code and you basically take a photo of the QR phone and then the money goes directly you don't need a machine you don't need a connection the seller needs nothing just needs a piece of paper with a picture and he gets the money or she gets the money I'm seeing Amitabh Kant here in the audience he'll probably tell you some of what India is trying to make all of that actually you can get a mic to him perfect time to perhaps get you and Amitabh what India is trying now with biometrics and thumb scans does it go even further than that India is the cusp of a very very major technological revolution which will make everything irrelevant because you'll just use your thumb or your iris to transact all debit and credit and this has not happened anywhere else in the world because 110 million Indians have biometric today and this will by 2020 to my mind make all debit card, credit card, ATM all dongles, all ATMs posh machines all redundant totally redundant and India will really set the trend of technological leapfrogging across the world by 2020 so that's only three years away you actually think there'll be enough biometric sensors out there that becomes a dominant method of payment in India actually every single mobile will have either your thumb or your iris so each one of us in India will be a walking ATM, we will all be transacting through that mobile and this will probably be the biggest technological leapfrogging ever in the history of mankind wow you're going to be having to implement some of that as the largest bank in India how realistic is that? that's very realistic and I think it was in 110 million so it's 1.1 billion 1.1 billion people already have their biometrics on Aadhar and as a result of that this is something that's eminently doable the dongle for scanning your fingerprints comes at a paltry 2000 rupees and if you buy in bulk that price will go down further so you just add it to your smartphone and you have something which can do all transactions okay so let me put you on the spot right now if you had to be and you must be doing forward predictions for the state bank of India and others and saying in 2020-2021 are all of our branches, our ATMs, our cash machines is all of that almost redundant and should we be basing ourselves on those amitabh's biometric sensors? this is merely the payment system that we are talking about banking goes way beyond payment system so to that extent you cannot replace banks but obviously what banks need to do is to digitize processes very very quickly which we are doing and we are at the cutting edge of all of this so we are very much a player in all of these things I told you regarding the card transactions how they had quadrupled over this period of time at the same period of time our mobile wallets which used to do transactions of 10 million per day is currently doing 70 million per day so you know all of this is going very very quickly and we are now on the UPI where you can do your transactions merely if you have the phone number you don't need a bank account number you don't need the bank number nothing see there are two other things or other three other things that I really want to talk about in demonetization over and above the bringing into the tax net those who are avoiding taxes there are three other very distinct benefits one of course is that today the liquidity in the banking system has gone up hugely now as a result of that what has happened is in a space of 60 days the bank interest rate has fallen by more than 100 basis points in a country that is plagued with high interest rates that's saying a lot so it has brought in a huge amount of lendable resources into the bank the second thing that is there is the push of digitization what we have done in digitization in 60 days I have not done in the past three years so there is nothing like an emergency to bring out the best in you where innovation is considered with adoption of something new and the last thing I want to say is that financial inclusion which started with the opening of accounts that has really been pushed a lot I was just recently in one of the tea gardens in a sam there the tea garden workers get paid every week for the last 200 years they have been paid by in cash every week for the first time this time we opened all of their accounts and one person from media in fact was telling me that would you say that for the first time freedom has come to these workers after 200 years so there is definitely a push towards financial inclusion one example of how fast everything is moving digital so we do have Chandrujeet Banerjee the head of CIS sitting right here in the audience but has preferred to send his question here on the iPad so an interesting question yeah it's up there so you know we will rely digital actually ask the question you've got on the mic now I just got my attention digitally will allow you to ask it in a good fashion manner I just posted it but two issues actually one the informal sector has been playing a very very important role in the economy in India and well while demonetization is going to bring a lot of efficiency into the system how do we deal with this current situation that the informal sector is going to play and the second is a lot of money has actually all the black money a lot of black money has come into the banking system how do we ensure that again does not get back into the black economy once again that's a round-tripping of a different manner that has gone into the banking system but is back out now again as black money and we keep hearing these anecdotal stories of raids being conducted and people being found with large stacks stacks of the new 2000 rupee notes that's one issue where the new 2000 rupees notes had to go to the people it hadn't and some black sheep in the banks have siphoned it off the government is after them we are going to get that back but the question of money which has come into the banks not all of it is white not all of it is going to go without being questions being asked and if it doesn't add up in terms of reconciling with your accounts it is definitely going to be declared black money and the quantum which hasn't come is definitely still out there as invalid currency anymore so the question is not about all money has come into the bank so where is your black money because everything that has come into the bank is still not assumed to be clean and white as regards the informal economy I think it is important now with the GST also coming in no transaction is just going to be left without if you want the credits from the GST transaction it has to be on board from one point to another digitally there is no human interface again there too the credits are going to be given online your payment will be done online and it is just one payment you are not going to be paying taxes to 5 different authorities so with all this happening I think with the demonetization with the informal economy being where it is with the GST even this is going to come on board and therefore I think we are talking about one go and the major enabler in this is the digitized approach using technology all right let me get a we are almost out of time now I am going to get a couple of quick questions other punawala I had a question other punawala from the biotech sector in India I am sure the demonetization will have its long term benefits but a very important point that both domestic investors and foreign investors are concerned about India and we feel it is far more important than even these issues that we have discussed about and that is ease of doing business in India today you talked about Vikram corruption going down we feel that unless we are able to do away with these 2030 permissions that you need to start a factory or a plant or a business you know once we get toward a single window type of clearance and all those reforms that Amitabh Ji has done already a lot and we are looking forward to achieving I think that will really truly bring down corruption once we do away with those areas my question would be in this is can you perhaps shed some light on what has been the progress in that area and what can we see going forward in this area because that will you know it is all related to then jobs investment the business thriving and India reaching its full potential Mr. Jakan has a quick last question and then I will have to wrap up I think we are out of time I request all the three non-Indians to give their perspective on basic income transfers if that is going to transform India that's a question that Indians want and see ma'am this is regarding the banking sector you say interest rates will come down but millions and millions of farmers have fixed deposit accounts and their income goes down this is what India is asking because economists want interest rates to come down for loans while the depositors want interest rates to remain high for the saving bank deposits so can you please clarify on that okay I am almost out of time I am just going to come back to get just throwing that question that I started by asking prevention of black money and corruption for the future and I think other Punevala touched on one of the aspects of it the easier it is to do business the less complication you have prevention and discretion that there is potentially that is the single most powerful weapon that exists to crack down on corruption and black money going forward would you agree with that and what else would you say I mean I think the reason that there are so many forms required is the officials want to collect bribes along the way I mean that's been the classic interpretation and digitizing putting it online as the Modi administration did early on I am going to say I mean there are many dimensions to cracking down on the black economy and energizing the whole populace to think about this as good cash is important you can look at the advanced economies which are in a different place even in places like Germany the level of digital transactions is growing growing cash is declining in the legal economy but the demand for cash is exploding because of the underground economy you see that's dramatically in the advanced economies I think it's right to identify cash as particular Bitcoin is just not a substitute for cash because it's not legal and all the same places so it was right to try to address this all right Nimesh I am we are out of time but one final quick word on you so I think that one of the basic lessons looking forward that is coming out and taking again at this point is just the more you simplify the more easy it is to do business the fewer permissions you need forms you have to fill licenses you need to get people coming and bugging you the more that would be probably the single most decisive blow you can do on black money and corruption there's no doubt and we are at it in fact almost on the everyday basis we are releasing the progress in this work where you required eight now you require one and you don't do on paper you can do it from where you are digitally and so on it just doesn't stop with just the central government we are working with the state governments we have even gone down one layer to the local authorities who actually issue the permits at the ground so the work on ease of doing business is ongoing and with customs at the port we have man we've clearly concluded having a single window portal through which your phytosanitary inspectors your customs officials whoever has to be there to certify any export check any imports are all falling in place it's an ongoing work I don't think it's going to finish just yet but it is happening alright we look forward to that process going forward ease of business cut red tape give 1.1 billion Indians biometric sensors through which they can pay and if all of that does happen in the next three years India will have transformed I think that's something which we can all agree on thank you so much for having joined us and that was the NDTV we have to wait 2017 thanks for having joined us