PM Modi announces demonetization of Rs 1000 and Rs 500 currency notes

PM Modi announces demonetization on Nov 08, 2016.

PM Narendra Modi said the move was aimed at curbing the negative impact of fake currency, black money, corruption and terrorism on the nation's economy. New notes of Rs 500 and Rs 2,000 would be released and circulated soon.

Pakistani spy agency ISI was pumping counterfeit notes of Rs 500 and Rs 1,000 to finance terror activities within, even earning a handsome profit of around Rs 500 crore per annum in the process. While RBI spends Rs 29 to print a Rs 1,000 note, terror financiers incur a cost of Rs 39 per ever Rs 1,000  – but manages to sell it in India through various illegal channels at Rs 350-400.

While the told reasons are impressive and in the interest of the nation the untold reasons are purely political.

The principle untold reason is UP Elections scheduled for Feb/Mar 20017, just few months away. The recent UP Election survey has put Mayawati in the lead, BJP just able to achieve 170/402 and followed by Samajwadi Party in the forth coming UP General Elections slated for Feb/Mar 2017, paving the way for formation of coalition government by Samajwadi Party, Mayawati and Congress thus relegating BJP to opposition benches. Samajwadi Party and Mayawati had access to lots of black money for election spending and for BJP it would be an uphill task to form minority government. The recent surgical strikes by Indian Army on Pakistan based terrorist camps has its telling effect on BJP fortunes improving in UP election prospects but still falling short of absolute majority for BJP. Now with demonetization effectively disarming rivals Samajwadi Party and Mayawati will push BJP prospects towards absolute majority. This would also nullify any possibility of Samajwadi Party, Mayawati and Congress forming coalition government thus relegating BJP to opposition benches.

Govt notifications and Circulars dated Nov 08, 2016.

The devastating immediate effects are felt by near zero business in all shops & establishments, Malls and dwindling state government revenues. Upset KCR met Governor and expressed his displeasure due to projected revenue loss of Rs. 3,000 crores per month which effects salary payments, funding on going projects & new projects on drawing board. Ironically TS govt is solely dependent on revenues from Hyderabad city which are either real estate or commercial & other taxes with black money as its base, which will vanish immediately and recovery is slow process and will reach different levels. Realizing that he is too small to take on Modi, his office denied having spoken this matter with Governor following day. I don't think CM meets Governor just to have a cup of tea ignoring all teething issues.

My View:
Aside political gains for BJP, demonetization of Rs 1000 and Rs 500 currency notes effectively evaporated the entire 'silly money' in the hands of corrupt politicians, corrupt officials and unscrupulous businessmen that has been parked in real estate and housing markets. 

In India, every body talks bad about black money and tax evasion and there is no body who doesn't deal with black cash and evades tax at every opportunity. This reminds me of Dhirubai Ambani challenging members of FICCI in 1970's, who hasn't dealt with him for profit, if he was unscrupulous.

The other good & bad effects are

• BJP disarmed cash rich (silly money) opponents Samajwadi Party and Mayawati in the forth coming UP elections improving its own chances of winning.
• Corrupt politicians, corrupt officials and unscrupulous businessmen hoarding gunny bags of black money are left with waste paper not even worth toilet tissues.
• Real estate deals have collapsed especially in secondary small deals market hurting small players. Real estate recovery will take at least six months and will never be the same again.
• Real estate will become affordable to some middle class people for some time at least.
• Property valuations with 50:50 white & black have lost valuations by more than 50% and owners are impoverished.
• State government will end up losing lots of money towards stamp duty collections of real estate deals.
• While black money hoarders & users are not more than 10% population, remaining people are subjected to enormous difficulties during the transition at toll gates, small shops, small traders small people who doesn't use cards at all and depend only on cash transactions, non availability of small change. Added to the infrastructure in banks & post offices is grossly in sufficient to process currency exchanging/depositing for genuine 90% people. Daily wage earners life is severely disturbed during this transition which may last about 2 months for no fault of theirs.
• While urban people are less dependent on cash with usage of cards & net banking, rural population is solely dependent on cash only. For no fault of theirs they need to go nearest town for exchanging currency and if lucky they will be successful same day else they may have to make several trips before completing exchanging.
• Almost all retired & old people keep about a lakh of rupees at home for managing medical emergencies. They would be subjected to make a trip to bank for depositing this old money and later with drawing new currency. In the intervening period they would be cash less.
• All contractors etc will general disburse lots of cash as weekly wages to their laborers. These laborers weekly earnings will get delayed and consequently even their food will get effected.
• The list could go on and on. 
• The rich seemingly might lose some money (earned effortlessly with manipulations and connections) and continue to live in comfort and the losses any way they will make it good again and, it is the poor and middle class who would bear the burden of the process and its defects arising out of politically motivated gimmicks and adventures.
• Jaitley and Urjit Patel could have done some research to mitigate the process burden on poor, middle class, rural people, pensioners & senior citizens, patients, traveling public and daily wage earners are least effected. 
• The benefits highlighted by Modi, Jaitley & Co are just imaginary and exploded where as real benefits could be far less to the nation especially after discounting negative effects. If all this cash goes into our banking system, as highlighted by Jaitley, it may or may not generate more taxes to exchequer, but banks runs the risk of collapsing with falling prey to vultures like Mallaya etc around.
• Recall January 1978 Janata Party demonetizing Rs.1,000, Rs.5,000 & Rs.10,000 notes and I never felt any positive effect except that Indira Gandhi & Congress leaders lost all their cash meant for political expenditure. However, she returned to power within two years despite loosing all silly money.
• Finally, even though government is empowered to take hard decisions in the larger national interest, subjecting common people especially vulnerable classes to unbearable hardship is neither appreciable nor pardonable.
• Bulk of the corruption money is in gold & diamonds, real estate, benami bank accounts or in foreign country accounts which is safe now. How Modi will attack this? No answer. Let us see.
• If Modi & Jaitley were about black money menace and corruption, they would have demonetized Rs.500 & Rs.1000 notes and and replaced them with Rs.50, Rs.100 & Rs.200 notes only proving difficult for corruption transactions and hoarding that money as well. Demonetization of Rs.500 & Rs.1000 notes had definitely eliminated black money stocked but replacing with Rs.500 & Rs.2000 notes will aid generation of black money & corruption deals and hoarding much easier in future. A loophole deliberately left for their own convenience but will be helpful to all scoundrels.
• Worst of all is that our consumption market is mostly driven by spending black money and never white money. Consumption market will shrink by almost 50% resulting in loss of state revenue, loss of GDP, loss of jobs etc leading to immediate deflation followed by stagflation and managing these are not as easy as managing inflation.  Economic spiraling down at times could result in collapse of economic systems and even country.

Politically motivated gimmicks will usually yield partial results.
The told reasons are different and real underlying reasons are different.