The issue of Demonetisation is very much relevant to the residents of India because in the post independent India it is one of the most talked step by the Government. Demonetisation was partial in India as the government only demonetised Rs.1000 and 500 currency notes.People were give a stipulated time frame for deposit of their currency notes in the banks and the whole nation was in line leaving behind their regular work.
Now after 5 months of post Demonetisation period the time has come to analyse its effects on Indian Economy.
Demonetisation is a blunder by the present government as it was introduced without proper planning .Its objectives were neither finalised nor well defined.
As per latest analysis of the RBI and other financial institutions ,the government has huge negative Opportunity Cost of Demonetisation and as a resident of the nation we too have to incurre a very big cost in the form of Physical Cost of waiting for our own assets to be converted into liquidity.
In fact, the post Demonetisation period has resulted into slowing down of the economy by 2%of GDP. It is a very modest data because actual damage to the economy will be much bigger in the long run.
Furthermore, accelerated loss in the manufacturing , real estate ,and construction sectors is very much frightening as these sectors create jobs for the people.
As if this was less the government has further dealt another blow with the introduction of GST with such a high rate slabs.Although GST in itself is not a bad step but question arises was its timing correct?
In short future of the Indian Economy for the coming two years seems to be bad bad as growth parameters are disheartening.
Indian Economy consists of two sectors Organized and unorganised and it was unorganised sector consisting of medium and small businesses that was worst hit.Lacs of the people lost their jobs in the initial stages as most of the activities of this sector require lots of cash and most of these industries were forced to cut down their production and employment. Particularly labour force from rural areas were rendered unemployed and left for their respective places.
Later on when Demand fell in the economy due to lack of income generated by the unorganised sector , it has affected other sectors and as a chain reaction in the economy there was a fall in the GDP in the first quarter of the Financial year.
Now with the publication of RBI report on Demonetisation that 99%currency is back to the banks during the period of deposits, the story seems to be more complicated. Either there were little amount of Illegal currency in the economy or the illegal currency were deposited as legal currency in the banks.
The RBI annual report said that “subject to future corrections based on verification process when completed,” the estimated value of the banned notes it “received” was Rs 15.28 trillion. This compares with the Rs 15.44 trillion of the invalidated notes that were in circulation as of 8 November, according to data provided by minister of state for finance Arjun Meghwal to Parliament on 21 January.
It seems to be a matter of great concerns as if second part is true then our banking system needs complete overhauling. It is one of the BIGGEST SCAM of modern century in which a country flooded with illegal currency failed to dictate it.According to estimates provided by the Government on the illegal currency and black money, these are about Rs.400000 crores and if all this money was deposited in banks,now the banking sector will be under great pressure to pay interest on these deposits. Earlier this money was not in the banking system and was laying in the people lockers or in their custody and was not creating any problem for the banking sector.
Now the second part "What about unearthing Black Money "As per the Estimates of World Bank and other International Financial Institutions our black money economy is nearly three times of GDP at current prices.
Where has that money gone if it was not deposited.
Therefore Demonetisation was an unthoughtful act full of dichotomy and its dynamics are beyond the perception of common man.
The cost of printing new currency notes is nearly two times more than its actual gains to the RBI.
And at a time when92% Fiscal Deficit has already been created in just 5 months of the current Financial Year, coming time will face stiff inflation. Let us see what the government can do because it has to face election in 2019 and by any means next two Budgets will be Populist Budget..
Now after 5 months of post Demonetisation period the time has come to analyse its effects on Indian Economy.
Demonetisation is a blunder by the present government as it was introduced without proper planning .Its objectives were neither finalised nor well defined.
As per latest analysis of the RBI and other financial institutions ,the government has huge negative Opportunity Cost of Demonetisation and as a resident of the nation we too have to incurre a very big cost in the form of Physical Cost of waiting for our own assets to be converted into liquidity.
In fact, the post Demonetisation period has resulted into slowing down of the economy by 2%of GDP. It is a very modest data because actual damage to the economy will be much bigger in the long run.
Furthermore, accelerated loss in the manufacturing , real estate ,and construction sectors is very much frightening as these sectors create jobs for the people.
As if this was less the government has further dealt another blow with the introduction of GST with such a high rate slabs.Although GST in itself is not a bad step but question arises was its timing correct?
In short future of the Indian Economy for the coming two years seems to be bad bad as growth parameters are disheartening.
Indian Economy consists of two sectors Organized and unorganised and it was unorganised sector consisting of medium and small businesses that was worst hit.Lacs of the people lost their jobs in the initial stages as most of the activities of this sector require lots of cash and most of these industries were forced to cut down their production and employment. Particularly labour force from rural areas were rendered unemployed and left for their respective places.
Later on when Demand fell in the economy due to lack of income generated by the unorganised sector , it has affected other sectors and as a chain reaction in the economy there was a fall in the GDP in the first quarter of the Financial year.
Now with the publication of RBI report on Demonetisation that 99%currency is back to the banks during the period of deposits, the story seems to be more complicated. Either there were little amount of Illegal currency in the economy or the illegal currency were deposited as legal currency in the banks.
The RBI annual report said that “subject to future corrections based on verification process when completed,” the estimated value of the banned notes it “received” was Rs 15.28 trillion. This compares with the Rs 15.44 trillion of the invalidated notes that were in circulation as of 8 November, according to data provided by minister of state for finance Arjun Meghwal to Parliament on 21 January.
It seems to be a matter of great concerns as if second part is true then our banking system needs complete overhauling. It is one of the BIGGEST SCAM of modern century in which a country flooded with illegal currency failed to dictate it.According to estimates provided by the Government on the illegal currency and black money, these are about Rs.400000 crores and if all this money was deposited in banks,now the banking sector will be under great pressure to pay interest on these deposits. Earlier this money was not in the banking system and was laying in the people lockers or in their custody and was not creating any problem for the banking sector.
Now the second part "What about unearthing Black Money "As per the Estimates of World Bank and other International Financial Institutions our black money economy is nearly three times of GDP at current prices.
Where has that money gone if it was not deposited.
Therefore Demonetisation was an unthoughtful act full of dichotomy and its dynamics are beyond the perception of common man.
The cost of printing new currency notes is nearly two times more than its actual gains to the RBI.
And at a time when92% Fiscal Deficit has already been created in just 5 months of the current Financial Year, coming time will face stiff inflation. Let us see what the government can do because it has to face election in 2019 and by any means next two Budgets will be Populist Budget..
