The heading of this post was
inspired from the quote by Rohinton Mistry:
“Black money is so much a part of
our white economy, a tumour in the centre of the brain - try to remove it and
you kill the patient.”
On 8th November 2016 at 8.00 p.m. Indian
Standard Time, Indian Prime Minister announced Demonetization of Rs. 500 and
Rs. 1,000 notes. This move was initiated with an intention of reducing Black
Money in the Indian Economy. The move is welcome in terms of select sectors
which have huge unaccounted money.
Demonetization
According to investopedia “Demonetization is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.”
This will cause short term inconvenience to many of the ordinary citizens in India as Cash is extensively used in unorganized sector and major employment is in unorganized sector.
Impact on Sectors
I wish to list sectors which
are going to have major impact because of the demonetization:
- Real estate – In metropolitan cities and suburbs surrounding it every house purchase of Rs.100 involves Rs.30 (average) as black money. And this black money is paid in Rs.500 and Rs.1,000 denomination notes.
- Jewelry shop – Indians have an unending appetite for Gold ornaments. Majority of the payments are without receipts and hence nonpayment of tax on this sales and huge source for black money.
- Medium scale shops – Medium scale shops such as Clothes, gift / toy shops huge cash payment is made and similar to Jewelry shops there is nonpayment of taxes on sales.
- Political parties – Use of cash during election.
- Bureaucrats / Government officers – Palm greasing.
- Terrorist / Mafia – Self explanatory
Impact on Average citizen
- Today value of currency has fallen and Rs.500 is used extensively. Even banks were dispensing Rs.500 notes. Example if today morning / evening (before 8 p.m) Rs.10,000 is withdrawn ATM s dispense 19 notes of Rs.500 and 5 notes of Rs.100.
- All this cash will be useless by midnight today and tomorrow for purchase of Rs.1.000 or more average citizen will be stranded.
Is this the appropriate date?
Government should have introduced
this demonetization around 25th of November as salaries are paid and spend
by 25th. Reason being 1st to 10th has following problem:
- Salary in many industries / unorganized sectors / companies are paid by 10th of month. This will have impact for people who will be paid by 9th or 10th as they will have to wait for salary for few days, as banks will be closed on 9th. Further, there will be heavy rush in Banks for next few days and this will cause delay in making salary payments.
Easy Steps
Banks should have been informed two months in advance to dispense more of Rs.100 notes vide ATMs / Branches and reduce substantially Rs.500 and Rs. 1,000 notes.
Is this move beneficial?
This move will be hugely beneficial in the short term for example 6 to 9 months. After a year, with new currency i.e. Rs.500 and Rs. 2,000 note out in circulation, real estate will be back in business of black money. It will be interesting to see how real estate sales will be conducted from November 9th onward.
The sales figure of
flat sale will be down to zero on November 9th and few days at many places. Best place to know is Registration Office, which will have no work since tomorrow for few days.
We can assume that real estate stock prices will be dropping heavily tomorrow at bourses.
Participatory Notes
Definition of Participatory Notes:
Participatory notes, also referred to as "P-notes," are financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India (SEBI) to invest in Indian securities. Any dividends or capital gains collected from the underlying securities go back to the investors.”
According to financial experts participatory notes are extensively used for bringing black money stashed outside India. To have better idea on how participatory notes are dangerous please read Why Participatory Notes are dangerous by R Vaidyanathan , The Hindu , October 24, 2007.
For those who do not enjoy reading listen to interviews by Subramanian Swamy by typing Subramanian Swamy and Participatory notes in YouTube.
Questions over actual black money
How money worth billions of dollars stashed outside India will be brought in?
I hope, if not entire black money, a decent portion i.e. 50% of black money outside India is recovered this will be great achievement for Indians.
Trivia / Hint/ Coincidence / Food for thought
Did Chandrabhabu Naidu (Chief Minister of Andhra Pradesh, India) got a whiff about demonetization of Rs.500 and Rs.1,000 notes long before i.e. by October 12, 2016?
Source / References:
http://www.thehindu.com/news/national/live-narendra-modis-address-to-nation/article9320548.ece
http://www.investopedia.com/terms/d/demonetization.asp
http://www.hindustantimes.com/india/how-much-black-money-have-indians-stashed-abroad-govt-has-no-estimate/story-aoNV8Rip28KDYefLcv5YbO.html
http://www.thehindubusinessline.com/todays-paper/why-participatory-notes-are-dangerous/article1672845.ece
http://www.thehindu.com/news/national/telangana/naidu-wants-centre-to-withdraw-rs-1000-and-rs-500-notes/article9213264.ece
http://www.goodreads.com/quotes/tag/black-money
Interview : Subramanian Swamy on Participatory Notes
No comments:
Post a Comment