AFTER EFFECTS OF 500 AND 1000 Rs NOTE BAN

Deflation Due to Less Currency In Circulation

In the next few weeks, there would be shortage of currency as people would be depositing their cash into banks. Besides, Rs 500 and Rs 1000 notes constituted around 80% of the overall currency notes in the country. Suddenly, there would be less cash around, which will lead to short-term deflation.

Low Rate Of Interest

Gradually, as banks will be filled with cash deposited by eager customers, there would be surplus of money with the banks, which will lead to easier loans and less interest rate. Over a period of time, inflation can rise gradually, which will infact balance the increased deflation.

Low Prices of Gold

Investments like Gold are primarily conducted in cash in India, as both the jewelers and the consumer tries to save money by hiding the transaction from the Govt. (and by not paying tax). This would become things of past, as most of the gold related transactions would now happen via cards/internet banking (for atleast the next few months). Less sales of Gold would mean less price of gold in the coming days.

Low Real Estate Prices

Besides Gold, real estate is another sector which is dependent on cash in India. As all cash transactions would stop, there would be more supply than demand, and this will lead to low prices in this sector. Note here, that due to less sales of Gold and real estate, there would be less currency in the market, thereby increasing deflation as we shared above.

Immediate Stop To Black Money Hoarding

The timing of the announcement related with banning the currency notes was a master-stroke by PM Modi, as black money owners couldn’t get any chance to relocate their money. Their only option is to safely deposit the money in banks, and thereby attract tax liabilities. This will immediately stop hoarding of black money in the country, and most of the business transactions has to be conducted via online medium.

Stop to Terrorism Activities

Terrorists use black money to fuel their evil purposes: 100% of the arms bought by them are transacted using cash. As Rs 500 and Rs 1000 notes are banned, the terrorists cannot immediately encash their wealth for guns and ammunitions. This means an immediate stop to terrorist activities in the country.

Rise in Digital Transactions

ATM withdrawal has been limited to Rs 2000 per day and Rs 20,000 per week. Thus, as people will have less cash, they would be forced to use digital mediums for making payments. Hence, there would be an incredible rise in usage of digital transactions in the country.

Rise in Income Tax

More digital transactions means more taxable income in the country. As the old cash gets deposited in banks, and less cash is being used for various transactions, there would be a healthy increase in taxes received by the Govt. less black money means more tax for India. Right now, only 5% of Indians pay Income Tax; and this number will surely increase now.

Health, Education Expenses can reduce

As real estate prices would drop, it will impact several aspects of the economy, including health services and education. Besides, some services can also become cheaper.

Having said that, there are some disadvantages as well: For instance, the inconvenience faced by the common man while replacing their existing currencies at banks. There can be long queques, and the process would be slower.

Besides, the unorganized sector can bear the brunt of this massive transformation. Professionals such as cooks, maids, barbers, electricians, plumbers etc deal only in cash.

FACTS ABOUT NOTE BAN

Fact #1 – You can deposit any amount of old notes in your bank/Post Office account

You can “deposit” your old currency in your bank account till 30st Dec, 2016. There is no limit on this amount and if you have Rs 50 lacs with you in Cash, you can just walk into your bank branch (expect a lot of rush) and just deposit the amount in your bank account. The limit which is there is on the “exchange” which is the next point. Please find below the exact wording from the RBI notification.

Also note that there is no limit of deposit for account whose KYC is complete. If KYC is not yet complete, the limit is Rs 50,000.

#2 – You can exchange up to Rs 4,000 notes in ANY bank branch in first 15 days

You can walk to ANY bank branch and exchange up to Rs 4,000 of old notes along with your identity proof (PAN, Aadhaar card, Passport etc). You don’t need a bank account in the same bank. After 15 days, this limit of Rs 4,000 will be reviewed and raised. I am sure this small limit is kept so that most of the middle class and poor people are handled before other privileged class  . Apart from the bank branches, you can also visit RBI centers for this exchange.

#3 – You can deposit the money in 3rd party account also

It is also possible to deposit the money to 3rd party account also if you follow the full procedure and produce a valid ID proof (your own)

#4 – Cash withdrawal Limit from ATM and Bank Branch

There is following withdrawal limit set by the govt.

• ATM – Withdrawal from ATMs would be restricted to Rs.2,000 per day per card up
  to November 18, 2016. The limit will be raised to Rs.4,000 per day per card
  from November 19, 2016 onwards.
• Bank Branch – Till 24th Nov, 2016, you can walk to your bank branch and withdraw up to Rs 10,000 in a go, but the overall limit is Rs 20,000 per week.

You can walk to ANY bank branch and exchange up to Rs 4,000 of old notes along with your identity proof (PAN, Aadhaar card, Passport etc). You don’t need a bank account in the same bank. After 15 days, this limit of Rs 4,000 will be reviewed and raised. I am sure this small limit is kept so that most of the middle class and poor people are handled before other privileged class  . Apart from the bank branches, you can also visit RBI centers for this exchange.

#5 – You can deposit the old notes till 31st Mar, 2017 in worst case

In worst case, if you are not able to deposit the cash in your bank account or exchange those till 30st Dec, 2016, Still you will get another change to deposit the amount at RBI designated branched till 31st Mar, 2017 with proper documentation. One of my close friend parents are coming back to India from US after Jan, and they were worried after this news. I told them about this 31st Mar, 2017 deadline which calmed them!