Demonitization: A "Socio-Economic-Politcal" masterstroke !!

The last few nights, have been sleepless for a lot of “Aam Admi” (read “Khaas Netijans”), in the wake of the expiry of legal tenders for 500 and 1000 Rs notes. The Bold and swift move by the government has taken everybody by surprise, now this surprise become nightmare for the illegal hoarders of “Unaccounted wealth” and black money, at the same time an action of pride and decisiveness for every Indian.

As a common man with limited “Intellectual influence”, I thought of understanding the Economic and social impact of this move, but found myself in the jungle of “Media reactions”, “Political mud-slinging” and fake “Journo-economist” reviews, than what does this action is all about??? Simple I guess, if u have “accountable” notes of 500 and 1000 denominations, please change their look and feel and enjoy(read take selfies, post on twitter, Facebook and social media, and sound a notch more intellectual).

Simplified Impact and ice-breaking:

A.      “Terror Funding from across the borders”: The terrorist funding on western and eastern fronts, is largely set rite with the “fake currency” influx from Pakistan, Bangladesh and Nepal, it’s evident to note that state agencies like ISI of Pakistan are running printing press at Peshawar, with zero error printing of high denomination currencies, The demonetization “surgical strike” will break the backbone of such nexus and will create a psychological blow on the terrorists and ante- national elements.

• Naxal Funding: The in-house weed of “Naxalite”, will be uprooted with this move, as the resource funding in terms of weapons, cartridges, food and payments were largely funded by the “Black Economy”, a crackdown on economic spectrum will impact the governance structure of such group
• Smuggling and Drugs: The “Punjab phenomenon” and “Afghanistan-Pakistan-India” opium trade route of drugs will get shattered, with this move.
• Espionage, abduction and other social menace: “Black Money” is the crude oil to run the illegal machinery of all anti-social acts, the demonetization phenomenon will straight-away impact the planning and execution of any such move.
• Corruption: The bureaucratic corruption will be scaled down with people now feeling the pinch to spare the "White money".

B.     “Social Transformation”: The decision has created an environment of social transformation, peoples approach towards undisclosed black money will never be the same, the decisiveness in governments approach, has put the national leadership on a new pedestal. The next generation of the country are getting aware and beware of the consequences of “Black Money”, a complex “Socio-economic re-engineering” in process. I will say.

C.     Impact on “Parallel economy” : The removal  500 and 1000 notes and replacement of the same with new 500 and 2000 Rupee Notes is expected to remove “black money”, as the owners will not be in a position to deposit the same with the banking systems, so this demonetization scheme is going to overhaul the economic monetary engine.

• Effect on Money Supply: With the older 500 and 1000 Rupees notes being scrapped, until the new 500 and 2000 Rupees notes get widely circulated in the market, money supply is expected to reduce in the short run. To the extent that black money (which is not counterfeit) does not re-enter the system, reserve money and hence money supply will decrease permanently. However gradually as the new notes get circulated in the market and the mismatch gets corrected, money supply will pick up.

D.    Business Opportunities in “Online Payment”: With cash transactions facing a reduction, alternative forms of payment will see a surge in demand. Digital transaction systems, E wallets and apps, online transactions using E banking, usage of Plastic money (Debit and Credit Cards), etc. will definitely see substantial increase in demand. Forecast of a lot of FDI funding in this sector, should eventually lead to strengthening of such systems and the infrastructure required.

• Opportunities in micro lending, micro financing, on-line payment apps will see a significant rise (Advertisement by Paytm, freecharge, mobikwik makes it clearly evident) thus enhancing employment opportunities in this space.

E.     “Disruption in Political Management” for elections in UP, Punjab and Goa: The move has created wide spread havoc with the political class, may be the most “Corrupt class” with access to the undisclosed hoards of money, a stark similarity in the reactions of the leaders whether “Behanji”, “Netaji”, “Bhaiyaji”, “Pappu” or any other “Specialized Class” and party, the reaction and response on media by the elite class, clearly entails their frustration and agony, which is tried hard to be hidden under the veil of their concern for common man.

•   “Dhanbal”(the misuse of monetary power) getting evaporated overnight, the stacks of notes, converting into trash, strategies-plans gone for a six, aspirations-confidence-inertia shattered, has made the political class most vulnerable post the demonetization scheme, and unfortunately the scenario is quite hilarious J

F.      Effect on various economic entities: With cash transaction lowering in the short run, until the new notes are spread widely into circulation, certain sections of the society could face short term disruptions in facilitation of their transactions.

• These sections are: · Agriculture and related sector · Small traders · SME · Services Sector · Households · Professionals like doctor, carpenter, utility service providers, etc. and the nature, frequency and amounts of the commercial transactions involved with these sections of the economy necessitate cash transactions on more frequent basis. Thus, these segments are expected to have the most significant impact post this demonetization process and the introduction of new notes in circulation.

G.    Inflation and Effect on Demand: The overall demand at all levels is expected to be affected to an extent, thus impacting the inflation directly and all the chances of “Lowering the Inflation”, thus having a spiral effect on lowering of lending rates by the central banks. The demand in following areas is to be impacted particularly: • Consumer goods • Real Estate and Property • Gold and luxury goods • Automobiles (only to a certain limit), as these sectors are expected to face certain moderation in demand from the consumer side, owing to the significant amount of cash transactions involved in these sectors.

• Effect on Prices: Price level is expected to be lowered due to moderation from demand side. This demand driven fall in prices are expected to fall only marginally due to moderation in demand as use of cards and Cheque would compensate for some purchases.
• Real Estate and Property: Prices in this sector are largely expected to fall, especially for sales of properties where major part of the transaction is cash based, rather than based on banks transfer or Cheque transactions. In the medium term, however the prices in this sector could regain some levels as developers rebalance their prices (probably charging more on Cheque payment).

H.    Effect on GDP: The GDP formation could be impacted by this measure, with reduction in the consumption demand. However with the recent rise in festival demand is expected to offset this fall in overall impact. Moreover, this expected impact on GDP may not be significant as some of this demand will only be deferred and re-enter the stream once the cash situation becomes normal.

Challenges: The complete process will surely cause, stress on process, people and psychology of the end customer to an extent, a lot of social transactions will attract dissatisfaction from the common man, medical services getting impacted and high denomination cash utilities suffering, but for sure this is for another few week, and the process will be streamlined to arrest any unwanted fallout.

Expectations from all of us: Lets join hands in making this move a success, for us, for a better future for our kids and above all for this great nation.

• Help the poor people with limited access to bank accounts in opening the Jan dhan bank account.
• Educate the people of lower strata, about the monetizing schema, its impact, outcomes and play your part to arrest the rumour mongering.
• Help them get their hard earned cash, exchanged from banking system.
• Stop supporting corruption by paying bribes and generating unwanted cash at home.

Lets play our part as citizens and "Make India Great"

(The above mentioned views are strictly personal and individual professionals might have a different school of thought, towards the subject matter. It would be great to understand your opinion and inputs towards a more cohesive experiential learning, which remains the ultimate objective of all my posts !)

Do leave your comments and value addition