Demonetisation cash less economy dec 2016

Demonetisation going Cash-Less

Dr. CA. Varadraj BapatIndian Institute of Technology,

[email protected]

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Dr. Varadraj BapatCA., CWA., M.Com., DISA, PhD.School of ManagementIndian Institute of Technology, MumbaiTeaching Interests: Financial Accounting, Management Accounting, Indian Economic ModelResearch Interests: Financial Accounting, Financial Inclusion, Corporate FinanceOthers: Yoga, Spirituality, Sanskrut, Bharatiya Sanskriti, ABVP

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Tribute to Dr. Ambedkar

Education • London School of Economics• DSc, 1927, "The Problem of the Rupee: Its Origin

and Its Solution", (is a magnum opus and seen as a major contribution to the field of monetary economics)

• http://www.ambedkar.org/ambcd/28H.%20Problem%20of%20Rupee%20CHAPTER%20VIl.htm

What is Currency?

Currency is a form of Money which is generally accepted & includes coins and paper notes, issued by a government to be circulated within an economy.

As per IMF definition of money, money can be anything that can serve as a:• Store of value, which means people can save it and use it later—smoothing their

purchases over time;• Unit of account, that is, provide a common base for prices;• Medium of exchange, something that people can use to buy and sell from one

another.

Money can be broadly classified into following categories:Paper moneyBank moneyElectronic Money

History of Currency : Ancient Coinage

The first use of currency in the world has been mentioned in one of the oldest literature of the world- The Rig Veda.

The Rig Veda although (earlier believed to be around 1500 B.C) is much older than that. The exact vedic era is unfathomable but some scientists estimated it to be well before 25000 B.C., as per recent estimates. The knowledge have been passed on from generations to generations.

Dr. David Frawley, (Source: Minisobooks.com, Yuga theory of Sri Yukteshwara in The Holy Science, pp. 4-8, 2010)


Due to unsuitable medium (like Cows) for store or as the object of high value, an alternative medium Nishka (an ornament) was introduced by the Vedic people.

References in Vedas:• As mentioned in Rig Veda, Rishi Kakshivat recieves a present of 100 Nishkas

with 100 horses and 100 bulls from Raja Bhavayavya (Rig Veda, I.126.2)• In the Atharvaveda, another poet describes how his generous royal patron gave

him a 100 Nishkas, 10 necklaces, 300 horses and 10000 cows. (ArthavVed, XX.127.3). When the poet prays for 10 Hiranyapindas or 100 Nishkas, they obviously seem to have asked for 10 or 100 articles of uniform size, value and weight.


The use of Nishkas as currency is quite clear from the Vedic texts (Vedic Index, I.455), the Jatakas and the Satapatha Brahmana.

A snapshot from the book: Vedic Index of Names and Subjects, Volume 2

-By Arthur Berriedale Keith


Other references

• Manu defines Nishka as equal in weight to 4 Suvarna or 320 Rattis (Laws of Manu (VIII, 137). Its relative weight is equal to 1 karsha or 80 Gunjas (140 grains).

• The use of commodities like Gold as a mode of exchange dates back to the era of Mahabharata and Ramayana, as mentioned in the ancient Indian epics.

• There are references of exchanging uniform weights of Gold and Silver which establishes the fact commodity money was being used in that era and Gold was generally accepted medium of exchange.

• Based on Dr. P.V Vartak’s astronomical dating, Ramayana era can be around 7000 B.C and Mahabharata war was fought around 5500 B.C. Hence, the use of commodity money can be traced back to 7000 B.C in Indian sub-continent.

The Indus-Saraswati Valley Civilization (more than 3500 B.C.)• The Indus Valley economy was heavily based on trading, it was one of the most

important characteristics of this civilization.• Evidence of trade between between Harappan and Mesopotamian people. • Exchange of pottery, seals and other objects through middlemen from Dilmun.• Eminent Scholars debate the fact that Harappan seals were currency.• Existence of organized weight system, familiarity with gold as a precious

commodity & a sophisticated system of trading point to existence of a definite form of exchange system in the period.


The Mohenjo Daro and Harappan seals of Indus valley Civilization

Source: RBI

The Iron Age (1500 B.C. - 500 B.C.)• Indian Sub-continent consisted of 16 Mahajanpadas.• Each Mahajanpada issued a unique coinage with

varied symbols punched on the coin as a symbol of its sovereignty for circulation in its own jurisdiction.

• These coins are thus called ‘Punch Marked Coins’ by modern numismatists named after the unique technique of using multiple punches to strike various symbols on the coins.

A silver punch marked coin, 600-500 B.C.

Length : 11.3mm / 0.44 inches

Weight : 11.25 gm (100 ratti) Gandhara Janpada


Source: http://www.columbia.edu/itc/mealac/pritchett/00routesdata/bce_500back/janapadacoins/janapadacoins.html

The early coins in Lydia, 6th Century B.C• One of the earliest coins (parallel to later Vedic period in

ancient India) are found mainly in the parts of modern Turkey that formed the ancient kingdom of Lydia

• Made from a naturally occurring mixture of gold and silver called Electrum.

• The denominations ranged from one stater (weighing about 14.1 grams) down through half-staters, thirds, sixths, twelfths, 1/24ths and 1/48ths to 1/96th stater (about 0.15gm)

The Mauryan Coinage• Consisted almost exclusively of silver Karshapanas of

roughly 3.4 gm• Almost all Mauryan coins have five punches, as did the

Magadhan coins before them• The economy must have been very prosperous, as the

coins seem to have been minted in the millions.• Arthashastra, written by Chanakya, 340-290 B.C

mentions silver coins as rupyarupa. Other types of coins including gold coins (Suvarnarupa), copper coins ( Tamararupa) and lead coins (Sisarupa) are also mentioned.


Silver karshapana used during Mauryan empire

Post-Mauryan period of Indo-Greek influence (200 B.C. – 55 B.C.)• After decline of Mauryan empire, under King Demetrius-I emerged a new kingdom in North of Hindukush

& North-western parts of India referred to as ‘Indo-Greek Kingdom’ by modern historians.• Demetrius issued a bilingual coinage using Greek script on obverse and North-Western Indian script of

Kharosthi on the reverse• His successors, Agathocles and Pantaleon issued a bilingual coin using Greek and the North Indian script

of Brahmi

A coin during the Indo-Greek kingdom, the inscription on the left face is in Greek, and on the right is in the Indic Kharoshthi script

The Indo-Greek period left an indelible mark upon the numismatic traditions of the Indian sub-continent long after the disappearance of the Indo-Greek kingdom.


Source: http://www.columbia.edu/itc/mealac/pritchett/00routesdata/bce_199_100/indogreekcoins/indogreekcoins.html

Dynastic coinage post Indo-Greek Kingdom• The coinage after the decline of Indo-Greek period evolved with ruling dynasties.• Western Kshatraps: ruled Western India between the 1st and 4th Century AD. The legends on the coins were generally in Greek and Brahmi.• Gupta: Gupta coinage (4th-6th centuries AD), depicted the king on the obverse and a deity on the reverse. The deities were Indian and the legends were in Brahmi.


Some Coins of the Gupta Dynasty

The Coins continuously evolved over a period of time and were adopted across various countries in various designs. The 7th century saw first use of Paper Money

The first paper currencyPaper currency known as ‘flying money’ was first used by the Chinese, during the Tang Dynasty (618-907 A.D) — mostly in the form of privately issued bills of credit or exchange notes — and used it for more than 500 years before the practice began to catch on in Europe in the 17th century.

Flying MoneyThese notes, known as “flying money”, were similar to modern day bank drafts. The vouchers were strictly limited for use in mercantile transactions between distant places. Merchants deposited cash at the point of origin in return for paper (flying money) guaranteeing reimbursement in distant provinces. Thus a double transfer of cash was made without any physical transfer between points. The picturesque term “flying money” evolved from this practice, as though the cash had “flown” from point of origin to destination.

This one kwan note was issued during the reign of emperor Wu Tsung (841-846 AD)

History of Currency : Paper Currency

Real paper currency, as we know it today, first made its appearance in China’s Szechuan province early in the Sung dynasty. Printed in black and red from copper plates the notes contained various scenes of village life. Denominations were applied to the notes using a brush and black ink, ordinarily for one string (1000) of cash.

This note is perhaps the earliest paper money ever discovered. Called “hue-tsu”, it is a Sung government issue dating from 1023 AD. During excavation, several brass plates used in the preparation of this early Chinese paper money were unearthed

Marco Polo astonished the Western world when he, in his book, described the use of paper currency throughout Khubilai Khan’s Yuan dynasty in China.


The first proper banknotes in Europe were issued by Sweden. They were introduced in 1661 - some thirty-three years before the creation of Bank of England notes - and came about because of a reduction in the weight of copper coinage which created a shortage.

Sweden issued the first European banknotes in 1661 but very few are known to have survived. Most of those that do are dated 1666 and are hand-signed by various officials including Palmstruch, who founded the Swedish Stockholm Bank and had first suggested, without success, using paper money as early as 1652. This note is for 50 Daler Silvermynt, dated 1666. (Courtesy of Spink)

These first banknotes of Europe were ‘credit notes’ (‘kreditivsedlar’) issued by the Stockholm Bank. They were issued in denominations of 5 to 1,000 Copper Dalers.


The origin of the word “rupee” is found in the Sanskrit rūpya “shaped; stamped, impressed; coin” and also from the Sanskrit word “raupya” meaning silver.

The original rūpaya was a silver coin weighing 175 grains troy (about 11.34 grams). The silver coin remained in use during the Mughal period, and later during the British rule.

History of Currency : Evolution of Indian Rupee

Some excerpts from “THE PROBLEM OF THE RUPEE: ITS ORIGIN AND ITS SOLUTION” by Dr. B.R Ambedkar• Under the Hindu emperors the emphasis was laid on gold, while under the Mussalmans silver formed a large

part of the circulating medium.• Since the time of Akbar, the founder of the economic system of the Moghul Empire in India, the units of

currency had been the gold Mohur and the silver rupee. Both coins, the Mohur and the rupee, were identical in weight, i.e., 175 grs Troy and were supposed to have been coined without any alloy.

• In Southern India, to which part the influence of the Moghuls had not extended, silver as a part of the currency system was quite unknown. The pagoda, the gold coin of the ancient Hindu kings, was the standard of value and also the medium of exchange, and continued to be so till the time of the East India Company.


Name of the Rupee Weight in pure

Grs.

Name of the Rupee Weight in pure Grs.

Akbari of Lahore 175.0 Delhi Sonat 175.0Akbari of Agra 174.0 Delhi Alamgir 175.0Jehangiri of Agra 174.6 Old Surat 174.0Jehangiri of Allahabad 173.6 Murshedabad 175.9Jehangiri of Kandhar 173.9 Persian Rupee of 1745 174.5Shehajehani of Agra 175.0 Old Dacca 173.3Shehajehani ofAhmedabad

174.2 Muhamadshai 170.0

Shehajehani of Delhi 174.2 Ahmadshai 172.8Shehajehani of Delhi 175.0 Shaha Alam (1772) 175.8Shehajehani of Lahore 174.0

The table of the assays of the Moghul rupees shows how the coinage throughout the period of the Empire adhered to the standard weight of 175 grs. pure.

Coinage of the British East India Company• In AD 1600, the East India Company was founded and set up trading settlements on the coast of India.• They Started with using Silver coins and gradually moved on to minting Bronze-gilt and Gold Mohurs as well.• In 1858, after the Indian Mutiny, the East India Company was disbanded and administration of India was

transferred to the British government. As a result, the coinage no longer carried the name of the East India Company, but the British monarch.

East India Company silver Rupee, 1639

East India Company gold mohur, 1835

Victoria as Queen, gold Mohur, 1862 Victoria as Empress of India, silver rupee, 1877


One Anna coin of East India Company, 1616

A Victorian Hundi with duty of 3 Rupees

Hundis: The first form of paper currency (Bills of Exchange) in India• A Hundi is a financial instrument that had evolved on the Indian subcontinent during 16th Century and was used

in trade and credit transactions as a bill of exchange or an IOU. It was also used as a remittance instrument to transfer funds from one place to another.

• Technically a Hundi was an unconditional order in writing made by a person directing another to pay a certain sum of money to a third person, named in the order.

• Difficult to say about the first use of Hundis, but writing about 1596, Abul Fazl, the greatest historian of medieval India, has given a detailed account of hundi from which it appears that the instrument was quite well-known by that time, and frequently used in monetary transactions.

• In the 1760s, the English Council at Bombay asked for a loan from the merchants in Murshidabad which was to be sent there by Hundi. The amount was estimated to be around 4 Lac rupees.


Hundis, being a part of the informal system have no legal status and are not covered under the Negotiable Instruments Act, 1881.

• According to the Central Banking Enquiry Committee (1931), money lending activity in India could be traced back to the Vedic period.

• The existence of professional banking in India could be traced to the 500 BC. • Kautilya’s Arthashastra, dating back to 400 BC contained references to creditors, lenders and

lending rates. Banking was fairly varied and catered to the credit needs of the trade, commerce, agriculture as well as individuals in the economy.

• Bank of Hindostan was established in 1770 by an agency house in Calcutta (now Kolkata).

Bank of Hindostan & First Banknotes

• Bank of Hindostan, issued the first banknotes of India in 1770. The lowest denomination in early issued banknotes was Rupees Ten and the highest was Rupees Ten Thousand.

• The early banknotes were exchanged for silver or gold coins or vice versa.

• There were banknotes with denominations of Rupees Four, Rupees Fifteen and Rupees Sixteen.

• Sixteen silver coins were equivalent to One Gold Mohur of equal weight.

• One Gold Mohur weighed 11.59 grams.Sixteen sicca Rupees


• The Government of India took over the issue of banknotes in 1861 from the Private and Presidency Banks.• The Paper Currency Act of 1861 conferred upon Government of India the monopoly of Note Issue bringing to

an end note issues of Private and Presidency Banks.• The Uniface or one-sided notes of Government of India were in circulation from 1861 to 1930.

Government of India - Twenty Rupees - Uniface with Portrait of Queen Victoria

Green Underprint- The first Rupees Five notes were Uniface and issued in 1871 by

Government of India

The Victoria Portrait series was withdrawn in the wake of a spate of forgeries and replaced by the unifaced 'Underprint Series' which were introduced in 1867.

The first set of British India notes were the 'Victoria Portrait' Series issued in denominations of 10, 20, 50, 100, 1000.


Small Denomination NotesThe introduction of small denomination notes in India was essentially in the realm of the exigent. Compulsions of the first World War led to the introduction of paper currency of small denominations. Rupee One was introduced on 30th November, 1917 followed by the exotic Rupees Two and Annas Eight. The issuance of these notes was discontinued on 1st January, 1926 on cost benefit considerations.

King's Portrait SeriesRegular issues of this Series carrying the portrait of George V were introduced in May, 1923 on a Ten Rupee Note. The King's Portrait Motif continued as an integral feature of all Paper Money issues of British India. Government of India continued to issue currency notes till 1935 when the Reserve Bank of India took over the functions of the Controller of Currency.


Reserve Bank of India• The Reserve Bank of India was formally inaugurated on Monday, April 1, 1935 with its Central Office at

Calcutta.• It began operations by taking over from the Government the functions hitherto performed by the Controller

of Currency and from the Imperial Bank the management of Government Accounts and Public Debt.• First note issued by RBI, January 1938, the first Five Rupee note was issued bearing the portrait of

George VI.• This was followed by Rs 10 in February, Rs 100 in March and Rs 1,000 and Rs 10,000 in June 1938.

Rupees Five - First Note issued by Reserve Bank of India

The George VI series continued till 1947 and thereafter as a frozen series till 1950 when post independence notes were issued.

The Frozen Series 1947-1950This represented the currency arrangements during the transition period upto the establishment of the Indian Republic. The Monetary System remained unchanged at One Rupee consisting of 192 pies.1 Rupee = 16 Annas1 Anna = 4 Pice1 Pice = 3 Pies


Republic India IssuesThe Anna series: This series was introduced on 15thAugust, 1950 and represented the first coinage of Republic India.


EvolutionBank/ Electronic Money

Paper Currency

Coins

Financial Inclusion• Account Penetration

Globally, more than 2.5 billion working age adults (~50% of adults) do not have a account at a formal financial institution

Financial Inclusion• Issues – Inadequacy of Opportunity to Save and Transfer Money and get credit and financial services for the poor.

• Concept of Financial Inclusion - process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (Rangarajan, 2008)

Adhar cards

• The Unique Identification Authority of India (UIDAI) has generated 100 crore + Aadhaar numbers for residents in India

Jan Dhan Yojana• Pradhan Mantri Jan Dhan Yojana (PMJDY), the ambitious financial

inclusion scheme launched by the government, to open 10 crore bank accounts by 26 January 2015. On 20 January 2015, the scheme entered into Guinness book of world records setting new record for 'The most bank accounts opened in one week'.

• The number of accounts opened under the scheme reached 22 crores (including 57 million zero balance accounts) by 18 May 2016.The amount of deposits rose to 380.47 billion (US$5.7 billion) by April ₹2016.

• 19 lakh householders have availed the overdraft facility of 2.56 ₹billion (US$38 million) by May 2016.

GST Historic reform• "August 8th marks a crucial step towards freedom

from tax terrorism," the Prime Minister said, while recalling that this was the day in 1942 when Mahatma Gandhi had sounded the bugle of 'Quit India' which marked a major step towards the country's Independence."GST can't be seen as a victory of a party or government. It is the victory for democratic ethos of India and a victory for everyone," he said, while noting that the measure was being supported by all parties, irrespective of different ideologies. The Prime Minister said the new indirect taxation regime, which will subsume 7-13 taxes, will help end corruption as traders will be compelled to give proper bills and the consumer will be the "king".

• The Constitution (122nd Amendment) Bill, which was passed by the Lok Sabha in May 2015, and the Rajya Sabha in August 2016. the Lower House passed the bill with all the 443 members present voting in favour.

• It is likely be implemented w.e.f 1St April 2017.•

Introduction/Concept of GST• It is a tax on Goods & Services with comprehensive & continuous Chain

of Set off benefit from producers to retailer point.

• In other words, GST is an Indirect tax which is levy on manufacture, sale & consumption of all goods & services.

• It substitute most of the indirect taxes like excise, VAT, Service Tax, Entertainment Tax, Luxury Tax, CVD as well as SAD.

• It is based on the VAT principles .

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Benefit under GST

Single taxation point.Uniform tax rateCommon market.Reduces Transaction cost.Eliminates the cascading effect of taxes.Reduces corruption.Transparency.Increasing the tax base & raising compliance.

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Simplified tax laws.Increase in exports & employments.GDP Growth -HSBC estimates an 80 basis point rise in

GDP growth over 3-5 years. NCAER pegs this at 0.9-1International competitiveness Go Up by about 5%. Increased FDI Growth in overall Revenues.Prevention of unhealthy competition among states.Reduction in purchase price.

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VDIS 2016

Income Declaration Scheme 2016 unearths Rs.65250 Crore (1st October, 2016.)Tax rate 45%

Demonetisation

Why Demonetisation Was Needed?• This move was long overdue. Cash to GDP ratio – 12%. Though, this

should be going down as new banking habits pick up, it is increasing. Growth in high denomination currency (as high as 87%)

• High corruption.

• This has led to distortions in the economy, especially in real estate, gold prices, usurious lending to small and micro businesses. This is also partly a failure of the banking system.

• The fact is cash economy has moved deep into the Indian economy. Studies estimate that 50% of Indian economy is in cash. This has resulted in huge cash hoardings.

• This situation had to be handled. Only a strong prime minister could have taken this decision.

• Out of the total circulation of currency about 16.6 lakh crores, 87 per cent is in Rs 500 and Rs 1,000. How much of this finances genuine economy versus the illicit economy is not very clear.

• India has globally one of the highest levels of currencies in circulation at over 12% of gross domestic product

“It was way back in 1923, Babasaheb (B R Ambedkar) in his book titled ‘Problems of Indian Rupee’ had recommended that the Indian currency should be replaced every 10 years to end the menace of hoarding of rupees and checking inflation.

• London School of Economics

• DSc, 1927, "The Problem of the Rupee: Its Origin and Its Solution", (is a magnum opus and seen as a major contribution to the field of monetary economics)

• http://www.ambedkar.org/ambcd/28H.%20Problem%20of%20Rupee%20CHAPTER%20VIl.htm

Effect of Faulty Taxation System & High Denomination Currency:

Every year, the fiscal deficit triggers a fresh bout of tinkering of the taxation system. Rather than any real analysis and corrective action, incremental and superficial changes are tried on the same old failed system. Years of such tinkering has resulted in a completely flawed taxation system, which naturally encourages evasion.High denomination currency of face value 100 Rs. and above, is introduced to bridge the deficit. Let us take a look at the effects of this currency. The basic advantage of high denomination currency is that it makes high value cash transactions easy, since a large amount can be carried with great ease. In addition to this ease, cash transactions are by definition, non traceable, since unlike in the bank, they leave no footprint. These properties of high denomination currency make it the preferred currency for storing black money created out of tax evasion. It also enables corruption and serves as the life blood of the parallel economy. The other terrible consequence of high denomination currency is grossly reduced use of the banking system in vast tracts of our country. The direct result of this is the poor credit formation and inadequate capital supply to the economy.Corruption and the breakdown of formal systems of governance together fuel further social insecurity. The prevailing high cost of capital and the flawed taxation system, together lead to high input costs, rendering our local industry uncompetitive and leading to more unemployment.

Credit Establishment

Credit Establishment

History of Demonitisation

January 1946 Rs 1,000 and Rs 10,000 notes discontinuedLater, in 1978, the Morarji Desai government that took over after a resounding vote against the Emergency in 1977 demonetised the big value notes, to target corruption..

The European Central Bank has announced that it will phase out the €500 mega-note.

Benefits• Fake currency • Fake currency directly affects security of India. Estimated to be

coming from Pakistan and BanglaDesh.

• The new currency will eliminate counterfeit currency. The denomination in which counterfeit currency operates is in Rs 500s and Rs 1,000s.

• On Terror Funding• There has been a sudden drop in unrest – it means this has had a very positive

impact in a very sensitive place like Jammu and Kashmir.

• (For instance, 3 per cent of total money deposited in the banking since demonetisation began was in Jammu and Kashmir banks. The extremists had threatened the people not to go and deposit the money. But people queued up in the banks! )

• The Naxalite funding is through normal currency. According to one estimate, about Rs 50,000 to Rs 60,000 crores of the extremist funding is in the form cash. It will be very difficult for them to deposit – their funding is designed for cash economy. Left extremism will receive a very, very serious setback because of this.

• Crackdown on Black Money• Unaccounted Money hoarded

• Illegal transactions

• (other measures Black money abroad, Foreign Treaties, Real Estate)

• Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was enacted to pursue black money stashed overseas. The Act levies total tax exposure to as high as 120 per cent along with a provision for imprisonment for a maximum term of 10 years. Last year, the government had said the total disclosures under the compliance window for foreign assets was 644 while the total illegal foreign assets disclosed were worth Rs 4,147 crore.

• Boost deposit base and savings• Global agencies have pegged the size of the parallel economy in

India at close to 23% as of 2007. Basis this, we estimate unaccounted cash in the economy to the tune of 4500 billion, of ₹which a certain significant proportion will make its way to the banks, thus boosting deposit base as well as financial savings:

• The banks' deposit base is expected to receive a fillip of 0.5-1.4% of GDP.

• In turn, financing savings can be expected to rise by close to this proportion due to switch from savings from unproductive physical assets to financial assets.

• Improve monetary transmission and reduce lending rates• A rise in deposit base will allow banks to lower the blended

cost of funds as higher CASA (current accounts, savings accounts) deposits help to replace the high cost of borrowing and lower overall cost of funds. We expect banks to reduce deposit rates by ~125 bps over the next six months.

• The new regime of MCLR (Marginal Cost of Funds based Lending Rate )will immediately take into account the lower cost and will thereby lead to a decline in lending rates, which will boost economic activity in the medium term.

• Ready, steady, now go: financial inclusion via Jan Dhan• Over the last two years, while the number of Jan Dhan

accounts has recorded a stellar growth, the share of these accounts in total deposit base of the banking system has remained under 1%. The demonetization drive of higher denominated notes should give a push to cash deposits in Jan Dhan accounts, of which close to 43% so far have remained dormant. In addition, the move will help to inculcate banking habits among the large unbanked population in the country.

• Improvement in government finances• Profit to RBI – Notes which will not come back

• (est. 15 Lack crores @ 20% = 3 lakh crores)

• Income Tax - higher income tax collections. 200% Fine.

• (Cash is being found in several raids)

• Excise, Service Tax – Higher sales/ services

• VAT and State Taxes

• Fiscal Deficit will reduce and more development funding and 7th Pay

• Municipal finances• The demonetisation of high-value currency notes has brought in

revenue windfall for the GHMC (Greater Hyderabad Municipal Corporation). The city’s civic body has topped in tax collection among 22 other cities in the country in the month of November (till 19). While the tax collection of GHMC was Rs 8 crores in November 2015, it rose to Rs 188 crore this year in the first 19 days of the month. As per an analysis of the Ministry of Urban Development based on the municipal receipts received by various Urban Local Bodies (ULBs), 22 corporations across the States revealed that there was 312.04% increase in revenues when compared to the previous year.

• BSNL, MTNL and other bodies have also benefitted

• Positive impacts from a bond market perspective• Improvement in bank deposit base leads to higher SLR (statutory

liquidity ratio) demand.

• Anticipation of monetary easing to further support bonds.

• Rise in GDP growth potential• While there are short-term implications for growth in cash-

intensive sectors such as real estate, construction, and discretionary household consumption in general, Sectors like e-commerce and payment banks, payment gateways are set to gain as transactions using cashless methods will increase

• Long-term benefits for GDP growth will outweigh the short term transitional impact.

• We are now surely heading towards a 9%+ GDP growth by FY2018-19.

WELCOMED GLOBALLY• This is how international media responded to india’s currency ban which shows

the impact of this historic decision over world economy and how it is going to stop corruption and black money in india!

• IMF, European Union, World Bank and every reputed international organisations supported this move, World bank president even said, “I am a big fan of Modi!”*Forbes*: Five days after the decision, Forbes has published an article titled “India’s Great Bank Note Switch Appears To Be Working – $30 Billion In Rs Deposited In Banks.” The article notes that a move of this magnitude would result in “obvious chaos”, but points that “so far at least it looks as if it is working.” The article goes on to call the scheme “rather well done, a clever plan.”

• *New York Times*: A New York Times quoted an expert saying it was a wise move. “The plan, top secret until Mr. Modi’s announcement, was hailed by financial analysts as bold and potentially transformational for India. It is also a high-stakes experiment,” the article said.*Washington Post*: It called PM Narendra Modi’s initiative as ‘ambitious’ and in keeping with his election time vow to initiate a crackdown against black money. The Post said black money in India ‘is estimated to total from $400 billion to more than $1 trillion’.*The Independent*: This Singapore-based paper published a glowing article on the move titled “Modi does a Lee Kuan Yew to stamp out corruption in India.” Lee Kuan Yew was the Singaporean Prime Minister for several decades and is considered the architect of modern Singapore. “Government leaders feel that the sudden move by the Indian Prime Minister has brought new respect for him.*Bloomberg*: In an article published in leading American financial journal Bloomberg, Swiss global financial services company UBS Group AG said that Australia should follow India’s lead and scrap its biggest bank notes.

• *“Removing large denomination notes in Australia would be good for the economy and good for the banks,”* UBS analysts led by Jonathan Mott said in a note to clients on Monday. Benefits would include reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits.

• A senior Indian government official even equated Mr Modi to Singapore’s first Prime Minister *Lee Kuan Yew*. From making up his mind to rolling it out on 8 Nov, a new Lee Kuan Yew is born in India. It will be reflected in the legacy of this Prime Minister,”

• Deloitte report said, emphasising that “the long-term outlook remains positive”.

Short term-pains• Queues, Waste of Time, Cost of new notes

• The demonetisation of Rs 500 and Rs 1,000 notes will hurt agriculture, informal sector workers—about 482 million people who earn cash incomes—and disrupt India’s consumption patterns for at least the next quarter.

• The informal economy includes workers in small and medium industries, grocers, barbers, maids, bar dancers, hotels, underworld...

• Roadside vendors, cab drivers, small kirana stores are affected.

• People who do not use debit or credit cards, access the internet or use mobile banking and e-wallets will be the worst hit.

•

Road ahead• We need to develop e-Banking and M-Banking habits.• Use apps like PayTM• Teach others to use Debit cards and Mobile apps to make

payment• Shift to Cash-Less Economy• Benefits• Audit trail, speed, credit history

Road ahead• Role of Teachers (and Students) in the movement• Using • Teaching• Developing demand• No bank account, no mobile? You can still go digital Open a Jandhan account in the nearest Bank – get RuPay card or Take a prepaid card from employer and PIN

Going Cash-Less1• No bank account, no mobile? You can still go digital Open a Jandhan account in the nearest Bank – get RuPay card or Take a prepaid card from employer and PIN • Have a bank account, no mobile? You can still go digital • Ask Bank to issue RuPay card Swipe your card for all

purchases • Have a bank account, only a feature Phone? You can still

go digital • Use RuPay card where there is a PoS Use USSD for

where there is no PoS

Going Cash-Less2• Have a bank account & a smart phone? You can go digital • Use RuPay/Debit card - PoS Use Mobile wallets • Students • Understand/adopt all the cashless modes of payment • Train own family in using cashless modes • Adopt 10 households and teach them digital payments • Register as Volunteer on http://mhrd.gov.in/vabhiyaan/

Going Cash-Less3• Select a market place in the nearest locality • Meet all shop-owners: canvass digital payments • Help small vendors in setting up USSD/UPI/eWallet

system • Interact with customers using cash for payment

• Come…become an agent of change Join Vittiya Saksharata Abhiyaan (VISAKA) today

References• http://www.huffingtonpost.in/rana-kapoor/7-reasons-why-demonetization-is-a-

masterstroke-by-modi/

• http://swarajyamag.com/insta/why-demonetisation-was-needed-and-how-it-will-greatly-help-the-india-growth-story

• http://www.thehindu.com/news/cities/Hyderabad/GHMC-top-in-22-cities-in-tax-collection/article16670268.ece

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Economy & Finance

Demonetisation cash less economy dec 2016