Future of Digital payment and Black moneyThe Most burning issue now a days is Demonitisation drive for curbing black money and transformation to digital economy.The Deadline to submit invalid notes was till December 31 2016 and as per the statistics from RBI 90% of notes which became invalid tender by November 8 2016 had found its way back.We are not going detail into way of Genuine & fraudulent exchanges or way back or time to get back to re-monitisation as they remains as topic of controversy,We could go into exam point of view– point by point.

How to go about chasing black money?

Context: The flow of tax evasion every year is what should be the focus of any drive targeting black money, rather than the caches accumulated from past tax evasion.

1.  Those stocks certainly existed, but the really large holders of these assets had long ago moved on from physical forms (like cash or gold or real estate) to financial assets.

2.  Cash came in particularly handy to pay the wages of construction workers.

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Underdeveloped Bond Market in India:

1.  We did not develop bond markets in the country as we should have, to the point where large construction projects could easily access formal financing.

2.  Infrastructure construction worldwide has been bond-financed, including the rail network in colonial India.

3.  Because the bond market today remains so poorly developed that there was such buoyant demand for loans in cash, and therefore for accumulation of black wealth in liquid loanable form.

4.  Lending rates on these channels are astronomically high.

5.  The borrowers would have much preferred a regulated bond market where rates would have been far lower, but that market was quite simply missing.

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Need for RE-monetisation with special focus on credible rating agencies:

1.  Bond markets today call for a whole ecosystem, with credible rating agencies to give lenders the confidence to move into that dis-intermediated financial space.

2.  The thing to do is to remonetize the economy fully, and to reduce cash dependence in a planned sector-specific manner.

3.  Unless remonetization is complete, growth cannot be restored, employment cannot be generated, and the political popularity of demonetization will get eroded.

4.  Moving everyday transactions to a digital platform cannot be done overnight.

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The future of the cost of service in digital payment space:

1.  Mobile wallets are in business in pursuit of profit, so if they provide a service they have to be paid for it.

2.  What the digital move has done, therefore, is to introduce friction into the payment system.

3.  When you digitally pay just the value of your purchase to your vegetable seller, the cost of the service is being loaded on to the seller.

4.  He accepts it willingly now, because he does not want his business to be restricted to those with cash.

5.  Over time, the cost of the conversion will be loaded on to the final consumer (and it already is, by milk suppliers in Delhi, for instance).

6.  Even though the user base of mobile wallets is expanding by the hour, they are reporting losses.

7.  While the volume of transactions has exploded, their total value is reported to have remained flat, because the average value of each transaction has come down.

8.  The losses are worrying because mobile wallets are essentially deposit-taking non-bank financial institutions.

9.  Another reason for retailers retreating from wallets is that their employees still demand payment in cash.

10.  Retail employees just cannot afford to receive their salaries any other way since their biggest monthly payment, which is rent for the rooms where they live, can only be paid in cash.

11.  House rentals will be among the last bastions to fall when it comes to moving away from cash payments.

12.  Doctors, tutors for their children, all demand payment in cash.

13.  These are the small channels for tax evasion which will prove stubbornly resistant to change.

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Black money and effective measures around the world:

1.  There are many millions who earn incomes well above the taxable threshold, who are below the tax radar and prefer to stay there.

2.  Israel in its early years needed tax revenue, and it had to do it in a way which would not alienate taxpayers since the country needed to stand united in the face of external hostility.

3.  For a big purchase like a yacht or a luxury car by an immigrant, there would be a presumptive taxable income estimated at some multiple of the value of the transaction.

4.  Restaurant owners would be taxed on a presumption of taxability based on capacity.

5.  Those that did not meet the presumptive income had to pay the tax anyway, and eventually closed down.

6.  The presumptive tax worked as an efficiency incentive.

7.  These methods are on survey-base and formulaic, and thus prevent the caprice and intrusive character of tax terrorism.

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