ELE Times December 2016 Electronics News in India | Online Electronics Mag | Page 4

Notion A t the stroke of an hour of the midnight of 9th Nov 2016 Rs 500 and Rs 1000 legal tender ceased to be the legitimate medium of exchange and India lost 86pc of its monetary base. In this single move, the Government has attempted to tackle all the three issues affecting the economy i.e. a parallel economy, counterfeit currency in circulation and terror financing. The black money in circulation is like a steroid in the economy which keeps the demand going gives a feeling that everything is working well. The problem is that investment is not taking place in the economy and the rate of growth of capital formation is down. The only way to bring this up is to divert more funds into investments which will happen when the cost of capital comes down. Short-term impacts: There will be a disruption in the current liquidity situation as households are likely to get affected. There will be a negative GDP impact in the current quarter as consumption gets a shock in the immediate term. Unorganised sector proceedings, including small trade market activities, will remain volatile in the short-term. Commodities and agricultural sector, including the market for consumer durables and non-durables is expected to feel the heat. This will impact the retail sector adversely. The real estate sector is likely to see a significant negative impact in the medium- to long-term. Areas of sub- sectoral impact will be felt in luxury cars, SUVs, gems, jewellery, gold and high-end branded products. Long Term Benefits: Black money will be taken out of our system and will uncover up to Rs. 4 to 5 lakh crore in black money. By unearthing the black economy RBI will get on its liabilities and the sort of deposits commercial banks will get will lead to a rise in the deposit and later on there will be decrease in lending rates plus fiscal deficit. Terror funding: Fake Indian Currency Notes network will be dismantled by the demonetisation measures, thus affecting the funding of terror networks in Jammu and Kashmir, North-eastern states and Naxalite hit states. Political parties: Big corporate who used to donate huge money to political parties in the name of election funds with some vested interest won’t be able to contribute any money and thus political parties won’t extend any favors to them ultimately curbing crony capitalism leading to creation of atmosphere conducive for perfect competition. Digital payments: Demonetization will likely result in people adopting virtual wallets such as Paytm, Ola Money etc. The gradual transition towards digitization and a cashless economy will definitely help curb corruption in the long run. Businesses in the fin-tech sector, including payment banks, mobile wallets, electronic transfer providers, etc., are expected to see gains. Internationally, the government is likely to get a thumbs up for the move. Boost deposit: With this move, people are forced to deposit money into the banks. With lots of cash with bank, this could drive a virtuous cycle in the economy where industry could borrow money at cheaper rates from formal financial system, boosting production and demand and giving employment which in turn will feed the cycle. Non-Performing Asset will go down: The NPAs of banks will go down as the cash coming in will lead to higher CASA (current account, savings account), in turn declogging the system. Lowering Interest Rates and Inflation: The flood of cash deposited is bringing the interest rates down. Lending rates will fall. Lower interest rates would produce a stimulus to the economy. It can be said that this is a historical step and should be supported by all. One should look at the bigger picture which will definitely fetch results in the long term. Enjoy Reading ELE Times. Devendra Kumar Editor [email protected] With Demonetization Financial terrorism comes to an end @devendra1963 ELE Times | 04 | December, 2016