Not much has been going in India apart from demonetization
recently. Suddenly people are intrinsically rich but actually poor. The amount
of money in circulation has gone down significantly and the bank coffers have
gone up by INR 5.5 lakh crores. This was primarily touted as an attack on black
money but now it has slowly started disrupting everyday lives of people.
http://www.livemint.com/Opinion/RNdxOHenVluYuLx4iCw4JO/Modis-new-strike-against-black-money-backfires.html This gives an idea of the people affected the worst. They have produce which is
not durable and they don’t have people to sell their produce to. People do not
have money in hand to buy vegetables and one cannot swipe at a local market.
The salaried class who are primarily reliant organized trade for their daily
consumption are facing the least disruption. The majority are reeling under
cashlessness. Some of the most affected people are
1.
Vegetable vendors in local markets
2.
Lorry transporters
3.
Auto rickshaws and cycle rickshaws and yellow
taxis by extension
4.
Parking contractors
5.
Paanwalas
6.
Small mom and pop store owners who don’t yet
have card machines etc
Some of the things are urgently the need of the hour. People
need to be able to withdraw more than INR 2500. That’s the only way the queues
are going down and more cash is going to come into circulation. The
demand/supply curve that has lost its balance can be brought to normalcy. With
82.4% of our paper currency deemed useless this is high nigh impossible. The
simple truth is that there arent enough 100 rupee notes for everyone to
withdraw. Unless you have enough 100 rupee notes the reason to hold a 2000
rupee note is useless. There are very few people who can change that right now
or even worse want to change that right now. Hence we are in this spiral of
rotating the same 100 rupee notes. There was a scare of the 100 rupee notes
getting exhausted. This was put to rest by RBI saying there are enough. But I
wonder how this is going to be enough. Every time I spend my 100 rupee note it
is to a small vendor on small denominations. He in turn is going to use that
money to purchase his produce. At any point in this cycle where this 100 rupee
note becomes excess the individual is going to hold it because he doesn’t want
to stand in line. How are the banks eternally going to fill ATMs with 100 rupee
notes when there are no deposits in 100 rupee notes? I am not getting this
part.
If you haven’t already read this article by Mihir Sharma
from Bloomberg then you should to see how grave the picture is. http://www.livemint.com/Opinion/RNdxOHenVluYuLx4iCw4JO/Modis-new-strike-against-black-money-backfires.html.
We are past the nobility of this move. There is a need for balance restoration.
And unless the Mints of India are printing ten 100 rupee notes for every 1000
exchanged we are soon going to be in trouble.
There is another problem doing the rounds on how the newly
printed 500 rupee notes do not fit an ATM. Now that’s a large scale goof up and
a potential problem solver going down the drain. What are we going to do now? Change
the size of the note or recalibrate ATMs. None of the two sound like short term
solutions. http://www.hindustantimes.com/business-news/new-notes-new-challenge-why-the-atm-chaos-won-t-go-away-soon/story-zYhtynoEMg8h624Sn6U8UI.html
While we all appreciated this “masterstroke” by the PM the
long lines for the ATM is sort of stealing its thunder. The move has just
spiraled us into conservatism causing severe deflation and a recovery neither
looks in sight nor possible.
We do have some of the best brains in the country and we
need them right now to bring a stronger execution of this demonetization.
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