Demonetization in the perspective of an Economist.

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Being a bank employ during 2016 demonetization
13/12/2016
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How great e-wallets were in the repercussion of demonetization?
13/12/2016

Many complaints that Indian economy took a nose dive when 500 and 1000 rupee notes are withdrawn. Political protests are never better than before, newspapers and media work overtime portraying the hardships of the common man, social medias couldn’t rest because posts are popping minute by minute. It was true that people had some issues soon after the announcement, but the problems undergone a sarcastic surgery and finally reached the common man after some paint job. This preconceived notion indeed influenced the public’s verdict too. Let us try to eat some fact from the point of a view of economists, which might wave as an idea how well the things will work in concern of Indian economy.

The conversion of black to white

This point might have created a vortex by now. Yes, black money will be confiscated, indeed. Apart from that what else do you know about this ordinance? Do you have any idea ‘How much’? & ‘What it will do you and your society?’ Let us take a look.

According to 2014~15 estimates, the nominal value of India’s GDP was 125 lakh crores. As per the assumptions of experts, India’s black money economy will estimate around 50% of this GDP which suggests around 62.5 lakh crores would be the total worth. Breaking down, this would be around 5 lakh crore diffusion into the Indian economy each month, which alone means a humongous change in the development rate. In the current demonetization, let us assume that 80% of this money is circulated around in cash, whereas rest 20% shall be considered as a collateral damage, which means that a whopping 28 lakh crore is flushed down as white money adding a 22% to the nominal GDP without much of work, which put India’s economy into cloud 9.

The move should have happened earlier

According to economists, this move aptly should have happened in the 90’s. It was the phase when India was hosting pillar for a strong nation.  Which means economy was in the right blush to take in such a wash. But now, the economy had saturated to its maximum, such that a move of this intensity might result in some collateral damage, but still, demonetization is very much required and inevitable. If the Indian rulers back then weren’t busy laying the foundation for their existence, now it would have been the third phase stone laying in the Indian economic pyramid. Let us expect the best and hopefully, India will catch up with the pace.

The impact of eliminating corruption

From the view of economists, corruption is immortal. It happens in even the strongest economy without the drench holes. The corruption can brainwash the tenants in an economy, optimizing their mindset to act only when they see coins under the sheet of honesty. But now this decision to ban currencies will force money to flow back in the society, which will forge the mindset of that jacks-in-office to think rationally and lawfully, which will abolish the tradition of backhand money flow, to an extent. Still, the system need revamps to make it fool proof and apparently corruptions-less.

A helping hand for deposit base and savings

India’s parallel economy was estimated to be 23% as of 2007 statistics, which probably might have grown by now. With this decision the unrestricted flow of cash between economies are disrupted, mainly the black money can’t flow out of the vault in the present scenario. A considerable percentage of this money has to come back to banks which will pump up the deposit base and savings. The bank deposit base is expecting a fortification of 0.5% ~ 1.4% of GDP and also the savings will experience a similar boost since the transition from unproductive to financial assets take place.

The monetary makeover is definitely the outcome of this amendment, even more, economic changes might happen. But the fact is that there is no point in anticipating much about these changes over the digits because there are many other factors influencing the success and future of this financial revision. Hope India will flip the coin for prosperity and relish good days!

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