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DeMonetisation – 16 side, upper and lower effects

DeMonetisation – 16 side, upper and lower effects

The narrative in India has changed since 8th Nov 2016. Money and cash are the only topic people are interested and they are talking. Going to the banks is everyone’s daily schedule. Queues, frustration, waiting, life on hold, poor affected, business are at a halt,  rich are worried, marathon working by bankers, many example selfless volunteering, instigating political leaders and media and what not. Media, opposition all are crying as per their allegiance/alliance/bias/prejudice with the Govt. and the PM.

In a country which is largely illiterate about economics, dynamic economic decision faces many hurdles especially from the opposition parties with selfish motive or opposing for the sake of opposing ignoring the national interest. Increasing railway fare for a loss-making railway is also a challenge in our country.

Some pointers on Demonetisation:

  1. Most bank accounts in the country will be deposited on an average Rs. 1.0 Lac and mostly Rs.2.0 Lacs.
  2. In India, ignoring multiple accounts, there are 200 million SB accounts.
  3. Total money, if we consider 60% utilisation, that will be deposited in the bank accounts will be 200 million x 60% x 1 Lac = 1.20 crore, crore i.e. Rs. 12000 billion, i.e. US $ 179 billion.  Most of us can’t even calculate it.
  4. These cash deposits may not be all black money, but assuming 50% of which is, about Rs. 6000 billion of money not in the system will be introduced in the banking channel by the people.
  5. This is kind of Voluntary Disclosure Scheme (VDS) for small tax payers’ upto Rs.2.50 lacs deposit. They will be happy as all earlier VDS schemes had benefited rich only.
  6. For small account holders, who will allow their account to be surrogated to launder black money of others, they will get a 30 to 40% cut. This is an income for small account holders. In a way this is direct tax payment by black money hoarders to the poor. All Jan Dhan account holders will be benefited. More accounts will be opened. They all will be happy.
  7. All the money that is deposited in the bank, most will remain in the bank as now it has become white upto Rs.2.5 lacs.
  8. Banks will have a huge increase in deposits. This will make them lend more, that too at a lower rate as they are flush with funds. Oversupply.
  9. Govt companies and agencies will also borrow to speed up infrastructure projects.
  10. Many may not be able to justify their cash deposits above Rs.2.50 lacs, they will pay tax. Govt’s tax collection will increase.
  11. Many will be afraid to deal in cash in the future and will adopt plastic/e money or cheque & therefore increase in taxpayer’s base and tax collection.
  12. More tax collection triggers lower tax rates.
  13. Counterfeit notes and hoarded large black money will be evaporated.
  14. A currency not deposited in banks will become extinct. The RBI’s balance sheet will improve as currency issued is shown as their liability.
  15. Our annual GDP is Rs. 4480 billion. Our external debt is Rs.32535 billion i.e. US $ 485.60 billion , and as per the budget 2016, Rs. 4,92,670 crs has been provided for debt and interest servicing. This is the highest component of non-plan expenditure. Double of our defense budget and double of our subsidy bill. Education and healthcare get budgeted share of about only Rs. 20,000 crs. This shows how our lower tax revenue and corruption is impacting our economy. If with demonetisation we can improve the tax base and tax collection this will have far reaching impact on our country’s finances and economy. Common sense suggests when Govt has money, more share will go towards the poor and needy, whether it’s for vote bank politics or otherwise.
  16. Those who have made the country poor by evading tax and corruption will be punished by making their earning remained in cash zero.

There will be some other peripheral effects also which will be known as and when it happens.

This may not be the only step we all know, but this is a very important first step.

Inconvenience, Yes, that RBI , Govt and even PM know. We were proud of our RBI and banking system during the 1997 Asian crisis and 2008 Lehman brothers crisis but now questioning the competency of RBI.

Bankers are doing and executing a mammoth task and some issues are bound to happen. We all must support the system and make it easier for the Govt and RBI to get over the short-term problem, rather than creating and spreading messages of panic.

People (3/4/5) are dying in queues and we are sorry about this. But people are also dying on borders and in terrorist attacks and for poverty and hunger. All the three categories can be saved with this measure.

Rs.2000 notes will enable more corruption. Well, apart from our mindset, stricter laws and its implementation will eradicate corruption, not currency denomination. Present exercise is to bring out the fake/black money and make a new beginning. (Corruption will not go as long as we pay the constable at a signal when we break the law.)

Everything for the nation is inconvenient; be it fighting on the borders or fighting for the freedom or fighting black money. Do people who think and talking about the inconvenience thinks soldiers on the borders and freedom fighters were fools or less inconvenienced?

We want to end corruption when it hurts us, but we indulge in it when it helps us.

Some media journalists are showing inconvenience and hardship of the poor as a focus of the demonetisation. But in a corrupt country, poor remaining poor is a greater hardship than hardship for a few days for the larger good. These journalists, hope so not biased, do not understand whom they are supporting and what harm they are doing to the economy, by their myopic views.

Some people fought against corruption and after coming to power stand with people supporting corrupts and creating panic in the guise of poor people.

One selfless leader is doing some good for the nation, support him at all cost and inconvenience. One can check the RESUME of the opposition leaders who are opposing the move. You may look around the alternative leadership available in the country and make up your mind with all the inconvenience who should we support?

“Leadership is not about the next election, it’s about the next generation.” Simon Sinek

Sunil Gandhi
Sunil Gandhi

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