Demonetisation, De Notifying specific Currencies

We have crossed one third of the 50 day limit set by our PM to bring back to normality the disturbances caused by de-notifying the Rs. 1000 and Rs. 500 Notes.

Before I delve into the pros and cons of this action as a sequel to my earlier blog, I have a declaration to make. I had no serious issues at business and personal. I am likely to be affected as I am planning to sell a flat and the real estate price as per some opinion may correct a tad lower.

It is clear to me now that this move is going to bring in a major transformative change in administration and banking as per governmental practice. Cash payments and handling is going to be a big challenge and it is clear that anyone who dare indulge in it must be prepared for severe punishment including spending time in Jail. How this will be done needs to be seen.

Another major development is the use of the receipts to the government exchequer. I tend to agree with the view that the liability cannot be extinguished as the 'Promise' by Governor is not time bound.

So technically, even after a couple of decades I can seek exchange and RBI cannot deny it. They may harass me and try to dissuade me - but they cannot say No to the exchange. That being the case the liability will remain in the books of RBI.

So the amount that will be available to the government is the punitive tax(50% last I heard of!) if it is announced and accepted by the persons who have deposited their excess cash and the withheld amount. Nothing more.

Banks in the meanwhile will make merry as they have huge deposits in savings account which is the cheapest form of borrowing. So rate cut is imminent and so is the lowering of interest costs on borrowings. Other than that we have to wait for the New Year and additional measures that may be taken by the government to react.

I still am hopeful that the move will turn out to be a big positive. Having observed politics for a while, though from a distance, I would like to be on the side of willy politicians like Nitishji. He is for Demonetisation and he has his ears to the ground where 23% persons of our country and mostly poor people reside!

Indian economy, was running too much on cash. The only tax payers, had to shell out much more because many didn't pay. How do we correct this? A major benefit, through demonetisation, should result in better tax compliance. Till Nov retail margins in most of the segments included a large portion of the evaded Sales Tax. When would this be corrected and how? The only methodology is to ensure better compliance. But to start you need to disrupt and send a shocker. And that is one of the missives in this act. I would hold my comment on demonetisation till the next year's budget, when the full impact and the follow through actions must start showing. To trash at this stage is premature. Changing course of the Tax compliance of India's size needs time and efforts. Some of these could be minor with disruptions at the core. GST and Demonetisation, I believe are together and I would wait for it to pan out.