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.
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