What will happen after the ban of BIG notes?

My phone usually be quite in the night suddenly became clattery, it was around 8:30 PM and was about to start my dinner, people from other side of the call was asking to me switch to news channels in the TV. I changed the channel to some kannada news channel from Gemini Comedy, yes the news was in fact a real “Breaking News”, this time it’s a breaking news for everyone, rich, poor medium or whatever category one may belong to in India. It’s an informal speech by the Honorable prime minster Mr. Narendra Modi addressing the nation and casually announced decision to demonetize Rupees 500 and Rupees 1000 currency notes. A historic move announced by Narendra Modi on November 08, 2016 around 8:30 PM in a casual manner, shattered many. The breaking news came as a casual notes just like a twig in the tree. I was wondering what would be falling out in the minds of black money BABU’s with this announcement, whether they cognized already?

Let’s analyze what will betide in short and long term about this move on our overall economy, GDP and per capita value of our nation. Let me remind you the current conceptions about our economy right now, The Gross Domestic Product per capita in India was last recorded at 1805.58 US dollars in 2015. The GDP per Capita in India is equivalent to 14 percent of the world's average. GDP per capita in India averaged 675.38 USD from 1960 until 2015, reaching an all-time high of 1805.58 USD in 2015 and a record low of 317.07 USD in 1960. GDP per capita in India is reported by the World Bank. It is reckoned that, the total black money in India is 479 billion USD.

Fragile Economic Condition: Blackballing of the 500 and 1000 rupee currency notes impact can be apparently seen on medium to long term income tax cash flow to the government. Indeed the income tax volumes will increase, which leads to more spending potential of the government on republic India, which in turn guides to the increase of our GDP. Later government can boil down on Infrastructure, Employment etc. So there is a sealed wallop to bring down the inflation.

Tax & GDP: Subsequently all unaccounted cash has to find a place in banking, the tax bucket will be filled with huge money, if government enforces perfect long term tax plan, with abbreviated cash trades and proper effectuation of the direct tax schemes. As government has already declared that unaccounted income will attract anywhere between 30% to 120% in terms of tax and fine, this will bring in immense money to the government. Right now only 5% contribution to the GDP out of direct tax scheme (TDS is the biggest contributor to the GDP from tax sector).  

Public (Government) Sector Investments: Public sector investments will heighten for due gist reason of trust on the government has brocaded with this move. Since last two years the savings of the government has increased mainly owing to diminution of subsidy on the petroleum sector. As the private investments are already sluggish, there is certain possibility that investments in public sector will be high on the cards. With this increase in employment and addition of income to the common public will be attested. 86% of the transactions are being done in the form of liquid cash per the private research analysis in the years 2013, for the year 2012. Now government is treasuring transaction through bank accounts only, as a matter of fact; even the labor defrayals for Nrega (National Rural Employment Guarantee Act 2005, an initiative by UPA-1 government) is also being done via account transfers only (NEFT/RTGS).

Speculation of Tax Simplification: This move will sure enough convert lot of black money to currency for the government, authorities can print those black money and can spend on country. Also the rigid tax guidelines can institute more income to the government. Government may consider making tax slabs dearer, this will in fact lucre the government back in long haul. Diminution of tax will enable more spending potential in the common public, and will reduce the bank interest rates and eventually it will lead to better GDP and better economy.

Severe impact on Liquidity: In coming months, the cash flow will be reduced in large magnitude, this will have direct negative effect on Housing, Transportation and Spending on Food industry. The impact will be more on rural areas than urban regions because rural junctions will almost depend on cash for transaction whereas urbans will use electronic money as well. The effect will banged up in long term but there is unequivocal effect in short term for sure.

Effect on Gold: The impact has already seen on gold vertical due to recent stern rule implications on high volume transactions, this will further hit gold imports, but since we Indian’s reckon gold is also a juster investment, we cannot deny the fact that people start looking gold as an investment terminus also.

Effects on different sectors: Till today 86% percentage of transactions chancing through the cash only , the most impacted sectors due to diminution in cash flow are, Real Estate, Gold, Hotels, Restaurants, Goods Transportation, Consumer Durables, high-priced particulars, Cement, etc. The impact can be ascertained on retail sales of all the consumes as well. Once the GST is enforced, the transaction will further increase on retail shopping and will make the retail vertical stronger in long term.

Effects on Real Estate: Already the real estate is slumping from past few years due to Land reforms act and fear of GST effectuations, the definitive negative effect can be seen on realty sector. Nation Capital Region (NCR) and rich dearer locations/cities will have mellowest negative effect due to high ticket size. We can’t cross off the conception that, under-construction structures may remain under constructions. Transparency in realty can be achieved in through Real Estate Regulatory Bill, overall the negative effect will be indisputable.

All-in-all any new implementations, new changes and revelations will not affect two category of the people first is honest people and second is bigwigs of the society, evidenced from the history.

Aravind Reddy| MD, Inpride Properties | www.inprideproperties.in