Prime minister Mr.Modi checkmate move to curb down black money was appreciated by common people, even though they where the epicenter where the policy burst open.
As 86% by value and 20-30% by volume are the 500/- and 1000/- notes circulated, from the day of surgical attack on black money till date, almost 2 lakh crore has been deposited at the bank and counting. So all the talks about India GDP figures are inflated, I believe if the black market is added to the GDP calculation, the figures as of now is highly undermined.
Now coming to short term effects, I believe here are some:-
1- Filling the void created by banning the notes, is a behemoth task for the logistics division is transporting the money to the destination.
2- short term inflation would be seen as people are creating scarcity as seen in Salt etc. Other day I was at the Chinese stall, looking for a quick bite, the shezwan rice which normally is sold at 50/- was sold at 80/-, reason citing, " weak business and home rent payday is nearing I have to make business atleast to breakeven". So the CPI figures for the November month would be a great metric to watch out for.
3- I am too curious to see how the ppf of the country would have turned out to be, for the present month as herculean task as be centered around to transmit the money to the destination.
4- Real estate would be badly effected. As the sector was seeing a notch up growth after FDI regulation and better exit policies for investors, the one time effect would be felt and it would be fascinating to follow how the business would turn out to be in the following months. Now the safe heaven after the surgical attack on black money would be financial assets such as gold which did see being sold at 30-35% inflated price than the normal and real estate where most of the black money is stacked up.
5- Share market did see a uptick in investment, but the real reason was vanished when sensex tumbled. Coming days would make it clear
6- Now 2000/- note, would that Create a uptick in inflation as it is having higher value than 1000/- is to be known, as higher money sometimes leads to people compromising for higher value for a product.
7- Day to day wages would be hit for short period of time. But the way the weakness in knowledge of daily wages workers was misused was a saddening sight, and the outcome was sudden bump in Jan Dhan banks, where the account was stagnant with very minimal savings, suddenly had 49,000/- in the account, below the pan card requirement threshold, and the size was almost 30% of the present accounts, which almost all the account holders where daily wages.
8- there would be one time effect on fmcg goods, as sudden scarcity in money ( limit being 2000/- per day, the cap would be raised in the coming days of the month) via atm and banks withdrawl creating a chaotic situation, people would save more for short term, which puts a cap on marginal propensity of consumption and increase in marginal propensity of savings and decrease in velocity of money. So the expenditure on fmcg goods like High end shampoos etc might be treated as luxury. This scarcity is created because of long que before the atm, and most of them Return empty handed and by evening all the atm runs out of money.
CONCLUSION:-
The degree of black money tapping that would happen would be interesting to watch out for. But this is the bold move by our beloved Prime minister, which would be first step towards the cashless economy ( other steps might be infrastructure facility, cyber security upgrading and creating awareness along with knowledge as to the importance of going cashless and how to go cashless) and towards hammering down the black money hoarders one by one.
India being emerging economy, first needs to unearth all the money stuck in black market which can be used to create employement, increase the per capita income and propel the GDP, which attracts the investors and instills confidence in them.
I feel proud to be present in the generation to witness the demonitisation ( last one being in 1978 and in 1946), but this time the cycle where technology is, the pace with which paytm, freecharge, ola wallet etc are being used to put up money which is a step towards cashless, the speedy implementation of payment banks and putting up right infrastructure to make this happen, I Do not think, there would be another demonitisation.
I believe demonitisation move was at the right time and would reap results in the long run and would help India in improving corruption index and be a beacon to the investors.
Jai Hindh!
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