Demonetisation rumours that you may have taken as truth


Photo credit: @saur008

After five days of demonetisation decision, queues were not to be seen outside banks and ATMs for a day on Monday in some parts of the country.

Not because the cash crisis is over, which will anyhow persist till the end of the year- even Prime Minister Narendra Modi admitted this.

The queues vanished because banks finally have a day off in certain states, which is celebrating Guru Purnima or Kartik Purnima.

In the meanwhile, rumour mill is running overtime. Cash crisis is genuine and grave, but there are rumours that you may have believed as truth.

Here are some of them:



1.      Delhi Police received 4,500 calls informing violence outside banks and ATMs. This is not true.Delhi Police issued a clarification about the calls 

2.        Some reports also suggested that stampede took place outside banks and ATMs in Delhi, which turned out to be false.

 3.    DCP’s authorisation is required for exchanging or withdrawing money from RBI counters in Delhi. People were seen rushing to DCP South Delhi. Police were forces to issue another clarification denying such reports.
4.    Transporters to go on strike. The word is there in retail markets that in the aftermath of the demonetisation move, the transporters are going on a nation-wide strike, which will lead to acute shortage of essential goods. (One such pic is attached obtained from Google) This has been denied by the transporters association and the road transport and highways ministry.
5.    Salt scarcity in the country. All over the market place, this sentiment is very strong that the country doesn’t have enough stock of salt. The belief is that the demonetisation would lead to crashing down of salt production in coming days. The food and supplies ministry has debunked these reports but the quintessential kitchen item was sold at over Rs 200 a kg not very far from the national capital.
6.    Shopping mall looted in Delhi. A video went viral showing some people climbing the stacks in an upscale grocery shop and grabbing bags of grains, sugar etc. The rumour has it that people were desperate as they were running short on cash and hence broke into the shopping mall. Delhi Police issued a clarification saying that the disorder in the self-catering mall located in Seelampur area was due to some miscreants.
7.    
Photo credit: @NNaseemahmad071
Congress spokesperson Sanjay Jha retweeted this photograph showing humongous queues. This tweet attributed the queue to cash crisis.This photograph has subsequently been many times aggravating the panic, the public is already in. In reality, this photograph was taken in 2013 during Kenyan presidential elections.
8.    (Three deaths (reported numbers have gone up now were reported due to rush for cash after demonetisation. In two of the cases, family members later clarified that the deaths were not linked to cash crisis. In Mulund, Mumbai the 73-year-old suffered from health complications, his family members were reported as saying. In another case, a woman jumped to death and it was attributed to cash crisis. But, the family members did not later link it to rush for cash. )


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Do you know about demonetisation gains of Modi government

Rush for Cash: Waiting in line for hours at banks (Photo credit: @globalissuesweb)
After a day's break queues were back outside banks Tuesday morning. SBI chairperson Arundhati Bhattacharya claimed that the queues were getting shorter. However, these are still huge.

But, while the nation stands in queue to get hold of valid currency notes, did you wonder what benefit the government would have from demonetisation move? No?

The next few minutes will help you grasp the benefits for the government and also the immediate negative impact of what is being hailed as a historic and bold decision of the Nrlarendra Modi government.

We begin with the immediate and perhaps negative implications of demonetisation move, which the Congress and former union finance minister P Chidambaram call as mere note change policy implemented poorly.
DEMONETISATION PROBLEMS

Demonetisation has come as a nightmare for the cash logistics industry of the country. To pull back invalid currency notes from over the vast expanse of the country; to fill over 2 lakh ATMs along the length and width of India and to recalibrate and fill all the ATMs have come as a crippling challenge to the relatively new sector.

Long queues outside banks and frustration of people with the empty ATMs are the obvious effects of the entire process. Banks are not functioning the way they should despite the exemplary dedication and resolve shown by the bank staff.

The demonetisation is likely to slowdown consumer spending impeding growth of the FMCG sector due to limited cash availability.

Real estate, jewellery, electronics and other cash dominated and luxury items related sectors would also slow down.

The next quarter GDP figures may also report a slowdown with rural India showing major decline as villages and small urban pockets are hugely cash dependent. Low consumption would entail low growth figures for industries and development statistics of the government.
But, after initial hiccups, the results are likely to outweigh the inconvenience caused to people. It is expected that over the period of acceptance of invalidated currency notes in banks, some Rs 4-5 lakh crores will be deposited - money that was not in the banking system.

DEMONETISATION GAINS

A substantial portion of the deposits will be withdrawn as people are frantically depositing their money in banks but they will need money in immediate future. Still, some Rs 3 lakh are expected to remain with banks.

Now consider economics. Every currency note issued by the RBI is a liability on the government. So, those who, likely to be unaccounted money holders, don’t deposit their stacked cash will help government shed off fiscal liabilities.

Those who declare their unaccounted cash thinking whatever they get after paying taxes and penalty is better than burning the stock of old currency. Declaration of black money will make government richer by 60-70% in each case.

Still some people will try to find ways- if reports are to be believed they already are in the business- to short circuit demonetisation and launder their money. But, even this goes in government’s favour as hidden money will come into circulation.

So, where all this leads to? Some enthusiastic calculators have estimated that approximately 50 per cent of the 86 per cent of money in circulation as represented in Rs 500 and Rs 1,000 denominations before being demonetised, was illegal or unaccounted or in simpler terms, black money, for which tax was not paid.

This means around Rs 7 lakh crores will either be extinguished as liability or 60-70% of it will come 
to the government coffers by means of tax incidence or penalty for not paying tax in the year of earning. It will enrich the RBI-government combine by approximately Rs 5 lakh crores over the years - the income tax department is bound to take years for calculating the tax liability of each individual depositor after assessing their case. This amount looks an exaggerated one but even a half of it will be enough for the government to wipe out half of the fiscal deficit.

As per the 2016-17 budget document, the fiscal deficit target is to keep it below Rs.5.33 lakh crore or 3.5% of the GDP. Some experts haveestimated that the demonetisation decision will bring something to tune of Rs 3-4 lakh crores.

If such a huge fiscal deficit is bridged this year, it will provide windfall gains for the government in subsequent years.

With inflated chests, the banks will be in a position to reduce interests on both the deposits and loans. This would entail cheaper EMI on various loans. It would may push investment, which, in turn, lead to employment generation.

However, if backed with adequate tightening of loopholes in laws dealing with black money generation, the demonetisation move is likely to pay better dividends in post-2019 years.
Further, with limited cash in circulation, the inflation figures will favour the government.

And, finally, the demonetisation move is likely to give fa fillip to the banking system. An estimated Rs7-8 lakh crore new money will enter into banking, which may multiply by 3+4 times on account of re-circulation. But that may take, again, years.

But in any case, the Modi government can easily go to 2019-elections with good growth figures on its CV.

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