Demonetisation in India

Demonetization                                                  By Mekala V Reddy on 3rd Dec 2016

What is Demonetization & impact in India?
            Money notes in circulation is going to be invalid Legally is called ‘Demonetization’!! ~86% of Indian currency notes (of Rs. 500 & 1000) are called back by Govt. of India on 8th Nov ’16. This exercise helps to get complete currency to Banks (~16 L crores) …Govt. can spend ~5 L crores on infrastructure domain and also know how many are taxable people. This helps to improve Govt’s revenue in future years.

What is Black-Money ??
  Income illegally obtained is called Black-money using following ways:
  • Expecting money (bribe) for the service they do – by Govt officials & Politicians
  • Extracting more money, than eligible (hospitals, lawyers, real-estate, education etc.,)   
  • Selling items with high price (above MRP). Most items MRP itself is too high.
  • Accumulating money via illegal ways – chit’s, interest business, smuggling, extracting etc.,
Who oppose the demonetization policy!?
            Parties, people (business) who are impacting due to demonetization and anti-Modi folks (irrespective of Party & religion). On top of these two types, some people opposing it because they know the subject well or they don’t know J

Govt of India’s strategy (based on my understanding):  Recover 86% of currency from market and release new currency in less quantity (~50 – 60%) and encourage people to transact via other on-line modes. These steps helps to track people/organizations financial transactions closely.
·       Major Demonetization benefits are: lower budget deficit, lower interest rates and also lower inflation
·       Politically, it’s big blow to parties who ruled states / country for more than 15 years!!

News channels on post Demonetization:
            Most of the news channels not understood the demonetization and they primarily focus on issues faced by people & other opposing people views !! Instead of showing how to use alternative payment methods.
            In the recent days (~1st Dec ’16), they came-up with imaginary story on gold storage per family. Govt. of India explained what was the policy on holding gold but channels passing mis-leading news that Govt of India introduced new Gold policy. In reality, there is no change in gold ownership policy in year 2016.

Summary: Demonetization is good move for country which is moving towards long pending tax policy – GST in the coming months. Pain faced by people will realize the need of earning wealth in ethical ways!!

Disclaimer: Above article content is based on my understanding from news & speeches of economists. Feel free to correct the content, if the content is wrong. 

Demonetization: Statistics as on 14 Dec ’16  (by Mekala V Reddy)
  • The money deposited so far - 12.44 lakh crores - is about 80 per cent of the 15.44 lakh crores (Analysts had estimated that ~ 13 lakh crore of those abolished notes would be deposited in banks)
  • Banks have so far issued 4.61 lakh crores in new currency to people over the counter and through ATMs. i.e. 30% !!
  • There have been over 200 searches across the country for black money since the notes ban!! Banks have taken action against (~50) errant officials.
  • And Govt. may release ~40-45% currency for circulation, compare to Oct ’16.

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