Rs 500, Rs 1,000 records ban: 5 things to watch out for after Modi’s big-bang banking switch

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You could call it a double whammy that is going to shake a universe for a while. While a outcome of a US elections seems expected to emanate one kind of uncertainty, Prime Minister Narendra Modi’s preference to demonetise Rs 500 and Rs 1,000 records is distinguished low not only into a black economy of India yet also day-to-day economics.
White is a new black in India. And this time, it is different. When India demonetised vast records in 1946 and 1978, a denominations in doubt were not tiny adequate to hold commoners. We now live in times when rickshaw pullers and associate capitalists comparison will be overwhelmed by a financial manoeuvre that strike India on a night of Tuesday, Nov 8.

A record print of Narendra Modi. PTIA record print of Narendra Modi. PTI

A record print of Narendra Modi. PTI

Here are 5 things Indians need to watch out for in a entrance days after a pierce that has social, domestic and mercantile implications.

1. Impact on banks and their change sheets: India’s banks competence unexpected have some-more income deposits, as those with banking bundles travel into deposition their money. This competence be a short-term boost for banks groaning underneath a impact of bad loans, or non-performing resources (NPAs), as they are called in marketplace jargon. More deposits in an atmosphere of dwindling acceleration and seductiveness rates meant reduce cost of borrowings for banks. The some-more a deposits, a easier it is for them, yet they will have to cope with a logistical calamity as queues of currency-seekers with ID cars widen outward counters. At a finish of June, NPAs as a share of sum loans for Indian banks stood during 8.6% — and in banking terms Rs 650,000 crore.

2. Money-laundering innovations to kick Dec 30 deadline: India is a land of Jugaad, or makeshift innovation. Those stranded with piles of income that they do not wish to be investigated by a taxman competence find “benami” ways to minimise a impact of a demonetisation on their lives. This competence engage discounting mechanisms, a new kind of middlemen or new forms of financial buffers. Keep your ears to a belligerent as black income tries to get Fair Lovely, to steal an countenance from Rahul Gandhi. Gold competence see engaging movements, as it is a common black economy surrogate for cash.

3. Real estate marketplace behaviour: Expect realtors and developers used to traffic in piles of income with lower-than-market registration values to find new ways to understanding with customers. They may, for instance, find new ways to check deals so that they get some-more white income in while they find sponges to catch their black money. Or they competence run with a supervision for tolerance or lift impediments to a doing of a demonetisation scheme.

4. Arun Jaitley’s future: Modi is a male who is in charge, yet Finance Minister Arun Jaitley will come underneath a lens as his purpose in a entrance months competence need to change from policy-making to nitty-gritty administration. As antithesis parties mountain vigour on how a common people are inconvenienced, day-to-day measures to explain doubts and reduce a pain points for industries, depositors, consumers and adults in ubiquitous will spin important. There is a run within a BJP-RSS “Sangh parivar” that has been questionable of Jaitley. They competence spin hawkish.

5. Impact on Modi’s home base: Small traders and medium-sized business enterprises buzzing in a primary minister’s home state, Gujarat, are an constituent partial of India’s black economy. For some, it is an karma of traffic with partners and cash-rich customers. For others it is a approach to equivocate taxes. Brokers, developers and financial intermediaries who have traditionally been Modi supporters since of their regressive informative leanings or marketplace course competence be inconvenienced by a demonetisation. Will this green a cosy domestic equation for a BJP in a stronghold?

(The author is a comparison editor and publisher who has worked for Reuters, Economic Times, Hindustan Times and Business Standard. He tweets as @madversity)