2016 just ended.
Welcome to 2017.
While the US citizens will remember 2016 for bringing Donald Trump to power, the Indian heads and hearts will never be able to forget the year 2016 because of the Indian banknote Demonetisation done my Indian Prime Minister Mr. Narendra Modi (aka NaMo).
Withdrawing High Denomination (500 & 1000) Currency Notes [aka demonetization] was also done before [1946, 1978 - by British India, Morarji Desai]. But the very fact that NaMo government was able to do this so secretly in such a connected manner speaks volumes. Indira Gandhi tried this in early 1970s, but could not as the move leaked out and the bad guys quickly changed over the notes. The government had to back out of the move then.
Lets look at some numbers first:
1.
Total banknotes in circulation valued to $250B (17 Lakh Crore) of which ~90% ($200B or 15 Lakh Crore) was 500 & 1000 banknotes.
2.
India’s total tangible wealth is $5Trillion (300 Lakh Crores) of which 25% ($1.25Trillion or $1250B or 70 Lakh crores) is estimated by the World bank to be Black. Lets assume that 10% of it is in cash ($125B or 7 Lakh crores), & the rest is in real-estate or gold. See the image below for details:
Click to enlarge
Targets of demonetisation were:
- Bringing out black money stashed in economy. People have been asked to deposit old notes in their accounts - This will help gov track who has what - People who will declare crore(s) of black money, will pull the gov intelligence to come after them. If instead, people decide to destroy their black money, destruction of the currency notes will be very beneficial to the gov because RBI knows how many notes are in circulation - After the exchange time window would closes on 2016 year-end, RBI will tally the deposited notes with their records. The notes that did not reach RBI because they were destroyed will become a direct profit to the RBI and will be given to the govt as a dividend. The RBI will print new notes worth the same value.
- Having a lid on the fake money racket supported by India's neighboring countries. See the image below to understand the dynamics of the same.
- Making India to go cashless. The banks plan to not hand people wads of the new cash, but instead just credit the same to your bank. Also, the ATM machines plan to have stricter limits on withdrawals - which will drive the card usage.
- Moving the notes to a more secure standard - with better protection against counterfeiting.
- Reducing gold imports.
- Curbing black money & fake money means curbing corruption, smuggling & terrorism.
- This decision will help institutionalize the real estate sector; and curbing inflation in the same; by bringing more transparency in the Indian real estate industry - reason being that this sector runs mostly on black money. This step would give the Indian real estate sector more credibility making it more attractive to the foreign as well as domestic investors. As a result, the housing prices could witness downward pressure, helping revive demand in the sluggish housing segment. Summary is that the houses, flats, lands will come in reach of common man.
- Similarly, it will also help the common man by putting an end to the artificial increase in Higher Education and Healthcare transactions bringing them within the reach of the common man.
Most importantly, all this was to be done in a way that it should have minimal impact on normal users of currency. For the middle-class-people, this would be a step in moving their transactions that happen on 500 & 1000 to netbanking, cheque, cards. Poor dont use netbanking, cheque, cards as most of their transaction happen under Rs. 500.
NaMo
Sources:
happynewyear2017dp.com
quora.com/What-do-you-think-of-the-decision-by-the-Indian-Government-to-demonetize-500-and-1000-rupee-notes
terrornewsindia.blogspot.com
quora.com/topic/India-Scraps-Two-Largest-Currency-Notes-November-2016
economictimes.indiatimes.com/wealth/invest/karvys-india-wealth-report-2015-equity-scores-over-gold/tomorrowmakersshow/50330485.cms
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