Demonetization: A paradigm shift

November 8th 2016 was a usual for me. Had CA final class in the early morning,had usual day in office with Transfer Pricing work and some compliance assignments after which it was time for re-union of my friends, 1st after  Diwali Vacations, but we never expected that the end of the re-union would leave us in a situation of anxiety, happiness and speculations.

It was around 8.30 when we all had our cell phones vibrating or ringing, signalling      whats app messages and calls from the home of the hostelites notifying with the news of our Hon’ble Prime Minister announcing that the old currency notes of Rs. 500/- and Rs. 1000/- would be no longer pertain to be as valid currency note w.e.f. the midnight of the day itself. No wonder, on our way to home, we saw ATM centers having a huge line, petrol pumps were crowded and everyone around us had the same question, Ab kya kare?

No doubt, such a bold decision requires tremendous planning and it has manifold impact on the economy of the nation as whole. Not only it affects nation from the economic perspective, but also political scenarios get on high!!! With this immediate analysis, I hereby have tried to put in my opinions of the situation and analysis of its impacts..

Before we continue, lets revisit history and take a note about when these currency notes were put into circulation:

The  1000-rupee banknote  was a denomination of Indian currency since it was first introduced by Reserve Bank of India(‘RBI’) in 1954. With a  realization that such huge amounts were the source of generation unauthorized and unaccounted income, the currency note was demonetized. Later, it so happened that it became a necessity to contain the volume of banknotes in circulation due to inflation and the the banknote was reintroduced in the year 2000. The 500-rupee bank note narrate a different story and it didn’t face any demonetization until the one of 8th November since it was first introduced by RBI in October 1987 in order to contain the volume of banknotes in circulation due to inflation.

Now as it is time to bid adieu to these notes, lets sail through the oceanic impacts of the same decision:

  1. Unaccounted Income : Heads I win, Tails you lose situation:                                                   With ample of time given by Modi Government through Income Declaration Scheme to account for all your unaccounted income, such a step would be a huge blow for those who refrained from declaring such income and still possess any unaccounted income in the form of currency note of ₹500 and ₹1000. The reason behind it being the timing of the announcement, which was late evening of 8th November and the decision being made effective from the immediate midnight. which would provide no exit for such persons to get productive rid of unaccounted cash.
  2. High potential business opportunity: Always losses comes with gains:
            It was surely a great evening for Big Bazar and certain other malls who had texted their consumers about the supermarkets and malls being open till midnight would have witnessed a large public there. The similar condition was seen at the petrol pumps too, wherein people had come to make away their possession with the to be demonetized currency notes.
  3. Income Tax Department: You were always warned, right?
    According to the news, RBI is going to keep a tight watch on the persons depositing high amount of money or exchanging the huge amount (as ID would be required for exchanging) and pass the news to the Income Tax Department who would be ready till then to utilize the opportunity to the fullest.
  4.  ₹ can see a good days ahead:
    Speaking with Shreyas Godbole (my team mate of Polinomist)   the same evening around at 9, the discussion turned took a sharp turn from all panics and dilemma, and we started analyzing how these immediate measures would help revive and retain the value of ₹.   It is very well now known that such a dynamic move would now stop the flow of unaccounted income and also would bring in frame huge amount of income, earlier undisclosed or unaccounted or unauthorized, lying in cash.Further it would also help curbing generation of unaccounted income with the news coming in that the new ₹2000/- note would be equipped with Nano GPS chip, which if, turns into reality, take the economy to new scales. This now, may help the Government to collect huge revenue and put a check on illegal transactions. This is turn would boost the economy, usher transparency,Retain confidence and help large business flooding and progressing smoothly in the economy. This would aid increasing exports. Further with rejuvenation of economy to such an extent, foreign business would also start exploring opportunities in India which in turn would make our foreign exchange reserves strong and boost the value of ₹ in the Global Market.
  5. Stock Market Analysis:
    Being sensitivity prone stock market, the impact of the above decision would be surely seen. It also can’t be forgotten that American Elections would affect the Indian stock affect and this news currency notes would act as neutralizer if the market reacts adversely with the American Elections results.

    Apart from this analysis, let’s also take care of following things to never part from our hard earned money :

    1. Make sure in these days, till you get your ₹500/- and ₹1000/- notes exchanged, make the maximum usage of debit cards, credit cards and net banking facility.

    2. In a discussion with Ameya Limaye, we also thought it would be a great option to deposit money in bank (as there’s no limit on this transaction), and use the same to expend vide card or net banking facility.

    3. Keep a watch on the timeline as follows and start taking quick measures to ensure a smooth transition:

    a. No bank would function on 9th November for public.

    b. ATM’s would be closed on 9th November and at some places at 10th too.

    c. Currency notes of ₹ 500/- and ₹ 1000/- can be utilized till 11th November at
    Government Hospitals, railway ticket booking, ticket counters of government
    buses and airline ticket counters at airports, Petrol, diesel and gas stations                      authorized by public sector oil companies,Consumer co-operative stores                          authorized by State or Central government,Milk booths authorized by State                    governments,Crematoria and burial grounds.

    d.There will be a limit on the withdrawal of Rs 10,000 per day and Rs 20,000 per                week. This limit will be increased in the coming days. This would be effective                  from 10th November and continue till 30th December.

    e.From 10th November to 24th November  the limit for exchange will be four                      thousand rupees. From 25th November till 30th December, the limit will be                    increased.

    g. In exceptional circumstances, those who couldn’t make it till 30th December to             get their currency notes deposited can ensure the same by 31st March 2017 by                 going to specified offices of Reserve Bank of India and by submitting a                               declaration form.

    f. Foreign tourists will be able to exchange foreign currency  notes of not                               more than ₹ 5000 into legal tender.

    Surely, if any more implications can be seen, we are open for suggestions. Let’s stay connected.

                                                                                                                         -Anup Bipin Shaha

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12 thoughts on “Demonetization: A paradigm shift

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  1. There is another point that can be added above. There would be a short term recession in the market due to decrease in the demand as it will take some time to fill up the crunch caused by making 500 and 1000 rupee notes ineffective.

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