DECODING DEMONETIZATION

This post is for persons who despite having EARNED their degrees on pure MERIT and know what is black money but still are not willing to understand how demonetization/ currency-recall is going to impact BLACK MONEY. Ask any ordinary folk and his opinion will be very different from what the supporters of this step wants everyone to understand.

Some people prefer the term CURRENCY RECALL, but I love the term demonetization since it starts with demon, and must have some real black magical powers to wipe out the black money.
Also, part of the confusion is due to the term MONEY, people equate MONEY to CURRENCY NOTE and rightly so, but if you use BALCK ASSET or WEALTH instead of BLACK MONEY, then it becomes very easy to understand.

For the benefit of less privileged people, let me explain in simple terms what BLACK MONEY/WEALTH is.

Black money/wealth is of primarily of two types –
1. Earned through criminal means e.g. drug/gun running, bribe etc. And of course can’t be declared and taxes not paid; and
2. Earned through perfectly legal activities but due taxes are not paid.

What would be the impact of DEMONetization on the BLACK MONEY/WEALTH earned by these two classes of BLACK MONEY/WEALTH.

In my opinion, a VERY LARGE number of small fish will get impacted but their per- capita impact will not be high also, and ALMOST ALL of the big fish will escape any impact.

Lets us understand this with few examples.

First let us analyze the first category i.e. Criminal Black Money/Wealth.

Who believes that big criminals have MOST of their profits stocked in Indian currency notes in warehouses? Yes, illegal transactions may be 100% currency transactions but the majority of profit proceeds are not kept in currency notes but in other types of assets. It is their working capital that is in CURRENCY and not their profits. They own massive real estate and LEGAL businesses too.
Some well known exceptions that really hoard large cache of currency notes– Hawala operators, Big Ashram Baba’s , Political parties, Mafias, Traders of illegal items etc. - do have 100s of crores of currency holdings.

This segment certainly gets impacted by DEMONetization but what is their size and scale compared to TOTAL Black money/wealth? It is not hard to guess.

Also, it is important to think and question, why other alternative and more effective ways of bringing them to books and recover their black wealth (and not just their CURRENCY holdings) is not being done and what we can do collectively to bring them to books.

Now, let us understand the second type of Black Money/wealth that is EARNED LEGALLY but due taxes are not paid.
I will explain the first case in details, so that even the less priviledged can understand.

CASE1 – Mr A at the age of say 20 years becomes an entrepreneur and arranges 3-4 lakhs of legitimate tax paid money from his family/relatives and starts a small business e.g. a grocery store. But since he is new in the game and wants to be competitive or otherwise, he purchases all his supplies without bills and sells without bills and does not pay any taxes. During initial years, his turnover and profits are within taxable limit but after 2-3 years, his turnover and profit rise and cross the taxation threshold. Now, his monthly sales are approx. 10 lakhs, inventory are worth 15 lakhs and profit is approx. 1 lakh per month. Still, he continues to avoid all taxes, but now he also makes payments for some of his supplies by cheque and keeps some money in bank accounts. His daily sales are 30-40 thousand (of course all cash) and his total cash holding is approx 1 lakhs. Rest of his profits is re-invested in inventory and some are in bank and some in insurance policies etc. After another 5 years his savings cross 30-40 lakhs and he invests them partly in Gold and say 20 lakhs in a small plot of land, but pays stamp duty at guidance value of 7 lakhs and pays rest in cash. His Total currency holding is now about 2 lakhs only. Then after another 4-5 years, his area witnesses urbanization, population and inflation increase, his business grows, now his turnover and profit is now 2-3 times i.e 2-3 lakhs per month. But he continues to evade tax, most of his purchases remain in cash. Still, his total currency holding does not cross 4 lakh. Now, he starts filing income tax returns and declares income of 5 lakh p.a. in place of 25-30 lakh p.a. Then, he decides to sell his land that he bought 7-8 years ago, and now the market value of that plot is 50 lakhs and guidance value is 15 lakhs, He gets 30 lakhs by cheque and 20 lakhs in currency cash. He pays capital gains on 15-7 = 8 lakhs with indexation benefit and invests part of 42 lakhs again in gold and remaining he parks in bank in multiple accounts of his family members. He takes a small loan of 20 lakhs and buys a flat of 1 crore – 50 lakhs on records and 50 lakhs off the records. His total cash holding is still around 4-5 lakhs.
Now, after approx 15 years of his entrepreneurship his BLACK wealth is approx. 2-3 crores of which CURRENCY holding is only 5-6 lakhs.

Can his black wealth including the currency holdings can be impacted by Demonetization? NO.

CASE2 – Ms X, a rich business woman, owns a small company and her income is approx 20 lakhs per month. But, her CA shows only net taxable income of 40 lakhs per annum, post allowed deductions etc. She invests her un-declared savings in Gold, Dollars, Real- estate and declared savings in equity and enjoys tax free dividends and tax free long-term capital gains etc. She has a credit cards and her personal CURRENCY holding is not more than 10-20 lakhs.

Can her black wealth including the currency holdings be impacted by DEMONETIZATION? NO.

CASE3– Mr Z is a professional (CA, Doctor,lawyer, architect etc.) and earns 50 lakhs p.a. but declares only 20 lakhs and invests in gold and real- estate and equity etc. He has a credit-card and his personal currency holding is not more than 4-5 lakhs.

Will he be impacted? NO

CASE4 – Mr AB is a film star. He earns approx 20 Crores per annum but declares only 5 crores. He gets part of his payment overseas and parks it there in Panama/Swiss etc. bank account. When, he needs those money in India, either uses Hawala route or uses the P-Notes route. His currency holding does not exceed 10-15 Lakhs.

Will he be impacted? NO.

CASE5 – Mr MA is a business is tycoon. His turnover runs into lakhs of crores and he owes 1000s of crores to Public sector banks. His official income is in 100s of crore but actual income is in 1000s of crore. He enjoys 1000 of crores of tax subsidies, gets private land acquired by Govt and leased to his company at nominal amount (read 1/100 th of what we have to pay if taken directly from market) or given almost free. He manages the difference with under and over invoicing and parking funds in tax havens.

Will he be impacted ? NO.

I think these cases cover most of the scenarios. I welcome criticism and you are free to disagree.

My 5 weeks journey to PMP Certification

PMP certification offered by PMI is one of the most sought after and popular certification for Project Management practitioners. The primary objective of writing this blog is to make people aware of scare-mongers and help them prepare for the PMP certification. Once you have decided to go for PMP certification please keep in mind that PMP examination is not that difficult as it is made to appear by some unscrupulous education providers and in-sincere bloggers. It is neither rocket science nor a piece of cake. I would rate the difficulty level at 3 on a scale of 1 to 5. It might be tricky for some people who do not have real experience of full life cycle project management.
Mentioned below are the details of what I did in those 5 weeks to achieve my PMP certification.

WEEK 1 - I attended a 5 days full-day class-room training program offered by a PMI Registered Education Provider (REP) viz. SABCONS, Bangalore, India. Key benefit was the orientation on how to analyze a question and select appropriate answer. They also provided a question bank of roughly 500+ good quality questions by Knowledge area with answers explained. I would not have attended any PMP prep training had it been not funded by my employer.

TIP-  It is NOT mandatory though helpful to attend a training program from PMI’s REP. You can fulfill the education  requirement, if you have received education/trainings on Project Management from other sources as well e.g. took courses related to Project Management during your university education or attended Project Management Training by your employer.
TIP- If you can fulfill the education requirement otherwise and have real PM experience and fair understanding of concepts , then you may consider skipping attending any prep training program and save your dollars.*
TIP- In case, you plan to attend a training program, then it would be very helpful if you finish at least quick reading of PMBOK® Guide before attending the program. Also, choose your trainer carefully!

WEEK 2 –After finishing the training, I started with studying the PMBOK® Guide 5th edition. It has 13 chapters and I finished first 5 chapters of PMBOK® Guide in this week. I read the chapters thoroughly focusing on any new concept/information/terminology that I did not know earlier. Some of the concepts or the terminology of PMBOK® Guide may be quite different from your company standards or from what you have been practicing in your day-to-day life. So, it is important to understand PMBOK® Guide language and terminologies. I did not memorize ITTO (Input, Tools & Techniques, Output) and usually there will be very few questions on ITTO in exam.
After finishing these chapters, I took the chapter-end tests from Rita Mulcahy’s book PMP Exam Prep 8th edition and the question bank provided by my training provider. I also submitted my application to PMI during this week.

TIP- If you do not have a good quality question bank provided by a training provider, you may also go through the chapter-end tests from “Edwell PMP-Exam-Preparation-Boot-Camp-Participant-Manual” in addition to Rita's Book.
TIP- First Pass of PMBOK® Guide needs to be thorough and line-by-line. Mark/highlight all the important concepts and the concepts/terms new to you. Second Pass is needed only for your not so strong areas (where your score was below 65% in chapter-end tests).
TIP- No need to memorize ITTO (Input, Tools & Techniques, Output), however one needs to understand what Tools & Techniques are appropriate for a given process and also the relationship among ITTO.
TIP- It is advisable to take the chapter-end practice test for 3-4 chapters together after finishing the studying instead of taking it after each chapter. This way you can test your retention power.
TIP- You need not study the chapters in any specific sequence, but it is advisable to go through the first four chapters of PMBOK® Guide first. 

WEEK 3 – I finished another 5 chapters from PMBOK® Guide and corresponding chapter-end tests from Rita’s book and trainer provided question bank.

WEEK 4 – I finished rest all the chapters from PMBOK® Guide , including Annex A1, Appendix X3 (Interpersonal Skills), PMI Code of Ethics and Professional Conduct. By the end of fourth week, I had finished first pass of PMBOK® Guide and only selected chapters from Rita’s book and Edwell Manual (HR management, Procurement Management, Risk Management and Stakeholder’s Management).
During this week, I started to feel confident about my preparation and knowledge. Hence, I went ahead and paid the PMP examination fees.

TIP- The chapters, where I scored less than 65%, I read those chapters again from PMBOK® Guide and also referred the contents from Rita’s book and Edwell Manual.

WEEK 5 - After all this ground work, I knew that I was ready for the PMP examination. But how do I confirm this? Here comes the role of full-fledged mock tests. I used the below resources as suggested by my trainer, that are absolutely free and of good quality. I, also did some research on google and found good feedback about his recommendations.

• 200 Questions by Headfirst Labs (Offline PDF)
• 200 Questions from Edwell PMP-Exam-Preparation-Boot-Camp-Participant-Manual (Offline PDF)
• 200 Questions test from www.pmstudy.com (Online)
• Oliver Lehmann’s 175 Questions (Offline PDF)
• 100 Question from iZenBridge (Online)#

I scored above 75 % in all these tests and that gave me the confidence that I am ready for the PMP examination.

TIP- It is advisable that you have read Chapter 15 of Rita’s book and/or Chapter 1 of Edwell’s manual before taking these mock tests.
TIP -  Without finishing the ground work and being clear about concepts, attempting mock tests may give false indications.
TIP- Objective of doing many mock tests is to orient yourself to how to analyze a question and gain confidence for the real examination. Please note that none of these mock questions will get repeated in actual exam. Also, doing mock-tests are not mandatory but advisable, since they provide good practice.
TIP- If your score is above 70% in any 3 of the above tests, then you are ready for the examination. Please avoid over study. Scores above 60 %  is also OK, but anything below 55 % indicates you need to re-visit your weak areas.

On the Saturday morning of week 5, I scheduled the PMP test on Prometric web-site for the earliest available slot that was for coming Monday afternoon. Now, I needed to relax for the next 48 hrs.
I went to the Prometric Center at the appointed time and finished the test in 3 hours. Last 1 hour, I spent on reviewing the answers. At the end of the examination, the message flashed on the screen declaring that I had passed the exam successfully. I collected the result from the Prometric Center and found that I passed with Proficient grade in four domains and Moderately Proficient grade in one domain.

TIP- Read the question carefully and read ALL options before you choose your answer. Please do not get misled by irrelevant details/red-herring in the question and answer what is being asked.
TIP- This is not a quantitative oriented exam, so do not expect more than 8-10 questions needing formula/calculation; however there may be another 10 -12 data based questions that need only interpretation and do not involve any real calculation/formula e.g  interpretation of CPI, SPI , AC and EV values.
TIP- PMP examination has no negative marking for wrong answers and has only one correct answer. So, do not leave any question unanswered.
TIP- Use the mouse’s right-click button to strike-out wrong options.

All the best for your PMP preparation!

EDIT 1 - *Due to my education and professional experience, I knew about 80 % of the concepts already. However, for people who do not have sound foundation of concepts or lack real PM experience of full project life-cycle , a prep training program would be a good start and very helpful. My trainer, Mr M R Sriprasad, is very experienced and he explained the concepts well with simple and relevant examples and provided a good road-map for PMP prep. 
# Not suggested by my trainer but of good quality.

EDIT 2 -  I have shared my experience and perspective of the PMP exam preparation. You may utilize other resources and follow a different road-map as suited to your context.
Image Source - http://www.whizlabs.com

The Counting Dilemma: Zero or ONE

Do you know counting right? So, where do you start your counting? Zero or one? Do you think that it was an easy question with an easy answer? Think again!

When was your first birthday? They day you were born or after completing one year of the life on this planet? Got confused? So you are also like me. Also, say you were born on 1^st January 1974. What would be your age on 1^st January 2014? 40 years or 40 years and 1 day?

These confusion arises due to the basic dilemma that where does one start counting. From zero or one. And we do not follow the same convention everywhere. We in India, normally mark ground floor as “G” or “Zero”. In the US, there is no “Zero” level, it starts from “One”.