Here’s How The Common Man’s Life Would Change After Demonetization

So, the pale-brown Rs 500 and Rs 1000 denomination notes are consigned to history now. It would be a Herculean task for banks to store and transmit the notes received to Reserve Bank of India (RBI) and an even more onerous exercise for RBI to destroy these notes in due course. The noise over availability of the new notes would die in a few days, once the supplies improve and the ATMs are recalibrated. Life would move on… but some things would change as they have never done since India won freedom.

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The Prime Minister has shown the power the Government wields, provided there is someone who not only has the courage to exercise it but is also prepared to face the consequences. With this decision, the PM has shown that he is ready to take the plunge. The measure has upset the political strategies of the entire opposition and suddenly brought the black money issue back to centre-stage.

The banks are certainly going to be flush with funds, as they have never been before. CASA (current account savings account) deposits would swell. Interest rates could be headed south. The next RBI policy review could also see softening of the repo rate. The corporate sector could benefit significantly by these developments.

In the coming months, real estate sector could be in for a price decline, as the supply of unaccounted cash would be affected. The inventory of built-up units, which is already at an high, would come under pressure and builders may be left with no option but to bring down prices. It could also boost housing demand in due course. The demand of luxury goods such as luxury cars, gems and jewellery and high-end branded fashion products is sure to receive a setback in the short-term. Ostentatious expenditure, especially on weddings and the like could take a beating.

It is obvious that the entire amount of money demonetised would not come back to the banking system. There are different estimates about the quantum, though. But whatever the size, it is clear that the Government stands to gain as the money that doesn’t come back extinguishes the corresponding liability of RBI to pay. The ‘profit’ that RBI earns on this count would ultimately be transferred to the Government. The increase in tax collection would be a welcome by-product of this exercise. This would lead to certain reduction in fiscal deficit and may even bring a situation of no deficit. It would give the Government more comfort and flexibility in its forthcoming budgetary allocations.

Netbanking, use of plastic money and e-wallets would get a boost and the banking system increasingly used for monetary transactions. In fact, this has already happened and is likely to grow in the weeks to come. The PMs tough-posturing post demonetisation would also send a message to those indulging in black money to be forewarned. A culture of compliance towards regulatory measures seems all set to grow.

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