Thursday, November 10, 2016

Is a ban on 500 & 1000 Rs. denominations a first step towards Connected Economy?

Rs.500 & Rs.1000 Note(s) are no longer a legal tender. And, this has lead to newspapers, media houses & individuals share their grief & unrealistic comments. e.g. poor farmers will die, A woman died outside a bank, abolishing currency notes will leave poor people to suffer more, even news cover people burning their hoarded money in bulk etc.

Now, the reality is...The Govt. has made a provision to deposit any amount of money in one's bank account till 30th of December, there is only a limit on withdrawal.

If a poor man is worried, that what will happen to his/her crore of rupees stacked up in cash. We should rather focus on redefining the term "Poor".

Govt. has assured, that no person will be penalized, if they can justify their reason of hoarding up the cash they are depositing in banks.

How will this help all of us?

A lot of money will go off the shelf, demand for luxury goods will reduce & therefore a larger impact on demand & supply difference will prevail (possibly for the short term).

As, everyone is forced to open a bank account - even for the deposit/exchange of Rs. 500, banks can counter check on KYC validations- therefore closing down hoax/dead accounts- the ones with no claimants.

If handled judiciously, the next phase of "BAN ON GOLD" - "RARE METALS" can be expected, which limits any trade of jewellery with cash. It will be a valid step, because, by that time, most of the Indians will have active bank accounts- linked to their aadhar cards & systems would have been in place to track down any mismatches. Insight was driven from the fact that Govt. has limit the individual cash levels to up to 3 lakhs only.

Now, poor people can genuinely use Rs. 100 denomination notes- for small purchases without having any major impact on inflation. Whereas, anything exceeding their basic requirement will require a card swipe/ net banking etc., modes of payments etc.

A great boost, to ensure, that the currency is in circulation, secure, tracked & in genuine hands.

In long-run, this will reduce the burden of taxes & bring in simpler forms of Tax Regime. Every govt. or private project will be accounted wisely. Imagine a worker getting his daily wages, directly deposited in his/her account. Whereas, today, he/she might not be exploited by various middle-men to release daily wages in cash form.

Adding further, the next phase will also tighten its knot on Religious Institutions, NGO's with high volume cash spends with no valid tracks. Therefore, reducing high-value offerings & mismanagement by the Committee Members.

However, the impact of Rs. 2000 note is not to be ignored. It is one note, which can create a huge impact on reducing the poor-rich gap.

Let's hope for the best to come our way.

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