The radical and path breaking steps taken by the Indian Government has been long lasting
impact on the country as a whole and more particularly on the long term economy. The Currency demonetisation is the most impact-full, bold and will-full decision taken by any government in India or in the World.
This Financial surgical strike not only has hit straight on the black money but also annihilated the fake currency in one go that shall break the linkages of terrorism and smuggling. It does not only resolve two chronicle issues at once but also boost the cash flow significantly.
Moody’s heavy, bothering and fearsome figure is blown away to shreds just by the housewives of this country
It provides relief to cash starved public sector banks. These banks give loans to public for their various needs. Credit Rating agency – Moody’s has stated that 11 public sector banks will need Rs. 1.2 lac crores till 2020. Lets analyse the effect of this move by the Indian government on such banks.
Out of 125 crores population, roughly 22% are below poverty line. That leaves approximately 97.5 crores. Out of this lets assume 75% are children and unmarried. That leaves approximately 24 crore. Out of 24 crores, around 12 crores will be females, majorly housewives. Assuming 10 crores housewives and a heavily discounted ladies savings average of Rs. 25,000 cash with each housewife, the total deposits in the banks will be an astonishing Rs. 2.5 lac crores. Moody’s heavy, bothering and fearsome figure is blown away to shreds just by the housewives of this country. Today morning (12/11/2016) newspaper publishes that State Bank of India has got deposits worth Rs. 60000 crores in just two days. SBI contribute 25% in banking system hence it is estimated that already over >2.4Lac crores are deposited in the Indian banking system.
The increased cash in the system should enable better business volumes, thus resulting in higher revenues to the government in form of direct and indirect taxes. This in turn will ensure higher government spending in infrastructure etc. As a result of all this, the Gross domestic product (GDP) will increase at a higher rate.
It has a potential to reduce the fiscal deficit of the country. This reduction in the fiscal deficit can get an upgrade from the rating agencies, which in turn will reduce the cost of borrowings of the government.
Inflation may be pushed downward, at least in the short term till such time the new currency notes are easily available. Lower inflation means lower interest rates on loans. Hence effects of lower inflation in positive for the economy.
Real estate and hard cash – the way country traditionally thought!! It will change now. The quoted rates of the real estate, which were always higher (at times multiple times) than the municipal rates, will settle at or below the municipal rates. Premium on real estate is set to vanish.
Boost in cash flow, higher credit rating, lower inflation, lower interest rate, lower real estate price shall have cascading impact on economy and ultimately would be reflected in industrial growth. The Rice industry shall also be impacted. In short run it may suffer on cash deals, but in the longer run it shall stream line the life of all stake holders including millers, farmers and commission agents. Improved GDP shall result into larger disposable income with ordinary person that shall augment the demand for packaged or branded rice. Improved affordability amongst consumers shall lead to price stability in Rice which will bring overall stabilising effect in the rice milling industry. It shall also encourage the rice milling industry to adopt structured and professional approach.
Historical biases in investments will give way to financial planning. Cash transactions will reduce. Unnecessary spending on ‘wants’ will be curbed due to non availability of piles of cash. The country is set to become financially smart.
For the people who have burnt their fingers and learned their lesson, keep the finances simple and straight, so that do not hamper any further, If the government comes out with other measures.