Narender Modi just converted all his intellectual haters to his admirers. And yes, this seems like the most effective measure that Mr. Modi has taken for the development Indian Economy.
But it is a genius plan! Announcing the ban suddenly and literally giving no time to the money launderers to react – nothing can go better than this. And this, evidently, will also capture all the black money floating around. Excellent plan and I am already in love with it.
Even before I could grasp and come into terms with this announcement, my social media feed had already flooded with some indigenous and not-so-originals feeds.
However, it is not really about us. We, the middle class people, are not the ones who are going to be effected in a huge manner. The ET has tried to answer few of the very basic questions that might be circling in your head, you can read about it here.
So, what is my point of writing about it here? I have never actually kept 500 and 1000 rupees note and it doesn’t effect me much at any level (yeah, broke much!). This post is about the sadistic pleasure that I am drawing because of what money launderers must be going through.
What I am curious about is the fact that most of our beloved politicians are the ones who possess the black money and isn’t it obvious that they must be having a slight hint of whatever was about to happen? Not that it makes this step redundant because they might be constituting a small proportion of the launderers. This is just a thought.
And my heart also cries out for the people, who are less fortunate and belong to the economic class where all their savings must be an amount which will be, for sure, looked down upon by the bankers and we all know how the bankers treat everyone. And given the scenario, where so much of “extra work” has come upon the bankers, I just don’t want to imagine the situation – the total chaos- and then the pitiful situation of the people coming with less money for deposits! It is just this.
As put by Kailash Satyarthi, this step is incredible because this will also bring a halt to other socio-economic issues that we are dealing with – human trafficking and child labour.
— Kailash Satyarthi (@k_satyarthi) November 8, 2016
Talking about that, if you are worrying that the economy might suffer – don’t worry, those effects are short term, like really short term. This is the biggest crackdown on black money in India and its going to be successful. It already is. And people who are worrying about the upcoming wedding season – this is a trivial matter, no?
How is it going to effect the common man and thus, the economy?
Though the decision might seem to change the Indian economic scenario over-night but the good things will take some time to take place. Inflation is a sign of a developing economy – but this demonetization will result in deflation in the short run. How? Suppose, you have laundered around INR 50 Lac. Now if you want to save the money and decide to deposit it, you will have to declare it as white. And then the Government will apply tax(30%) and penalty(200%) and you will have to pay some odd INR 45L. You would rather let that money go waste rather than standing in long queues only to have notice issued for you (this is my assumption) and thus the money circulation in the economy will come down resulting in deflation.
However, there are going to be people who will deposit the legally earned money and thus the bank deposits will go up. Now, the banks have to maintain a cash reserve ratio. To maintain that(assuming the CRR will change considering the present scenario), the lending by the bank will go up (at lower interest rates), increasing the money supply and thus inflation will happen. At some point, first the inflation will balance out the deflation and then come into effect. But inflation is a relatively slower process.
Heavy deflation is a layman’s indicator of knowing the extent of black money that was floating in the market before 8th of November!
The Indian real estate market is going to be effected the most. Come to think of it, most of the dealings happened with black money. Prices will definitely go down as the propensity to purchase is going to come down. The market will soar up after the inflation catches up(and the black money is there again in the market) – so good two years before that happens!
On the contrary, the price of the precious yellow metal will soar up as gold is seen as a good way to save the money. Of course, the gold shopping is subjected to PAN card availability – but still the prices will soar up.
The present situation is very chaotic but in the long run it is going to be helpful.
Just three words – Personal opinion alert!