‘’The
achievement we celebrate today is but a step, an opening of opportunity, to the
greater triumphs and achievements that await us. Are we brave enough and wise
enough to grasp this opportunity and accept the challenge of the future?’’ –
Tryst with Destiny
Are
we brave and wise enough to see this as an opportunity: The Pandora’s Box has
been opened. A brilliant move and a death blow rolled into one. A shot straight
to the gallery amidst all the wild cheering, with political doyens sensing a
whiff of opportunity. Could there be a better time, could there be a better
timing, and the answer is, it had to be now!
While
Diwali in the U.S begins with the coronation of a fickle minded prince, the
dhamaka has happened closer home:
Just
like a land being prepared for harvest, the preparations completed well in
time, be it the income declaration scheme or PAN being made mandatory for
jewelry purchases above INR 2 Lakh and then the Dhamaka! The shock of the
announcement for many was followed by the horror of their currency becoming
paper with immediate effect, however the assumptions galore:-
- Majority of the black money is in the form of cash sitting somewhere tightly guarded (surprise, surprise – no study ever has said so)
- The other form of investments (Gold, stocks) are clearly off the radar, or so we assume. Alarming here is the reports, studies which have time and again pointed at round tripping as a way of converting black to white (70% of money in Foreign exchange is FII (fly by the night) while the rest 30% is FDI approximately). Add to that the rampant smuggling of gold (PAN being made mandatory, high customs duty, excise duty) in the country, which will only exacerbate the situation further.
The
risk of having a parallel economy is at its zenith now. Let the fun, games and
DHAMAKA’s begin:
Dhamaka 1: Timing: There couldn’t have been a better time to drum
to the gallery than now what with the biggest (% wise) and most influential
state in the houses of power: Uttar Pradesh going for elections in January
2017: do we smell foul-play, not just yet! Lakhs of Crores is the election as a
business worth in India, maybe a little less must be the State elections, Are
the passive troubles (Joint sessions of parliament, region specific deals, yes,
but hand of power, still a no) triggering a knee jerk now is a question to
ponder! Not to forget is the lineup of non BJP ruled states going to elections
in the coming 2 years.
Dhamaka 2: Costs: The
perfect assumption that majority of the black money is sitting as idle cash and
that the benefits of this announcement (people running to banks and paying tax
later) could offset the costs of printing (roughly INR 20,000 crores or more)
new currency and add to that the speculation of advanced technology to track
notes. What with the Public Sector Banks registering massive NPA’s, declining
profits and full implementation of Basel 3 staring in the face by 2019.
Dhamaka 3: Bank deposits will rise, so will the
lending: The paradox of
the Indian economy lies in this: yes the bank deposits would rise (if people
choose that way and the income tax hounding) but would the lending also rise,
well it’s a sum total of variables beyond control (with services sector (mainly
IT slowing down), uncertainty in the world buoying down growth and companies
pushing investment decisions and no the ease of business ranking is just the
beginning of horrors). So yes, the money might be there, but will productive
activity prosper is a question best left to ponder. Worse it could lead to
reckless lending and drive up property prices (which is being mooted to crash
in the near term for it being the lifeline of the black money business) or lead
to demand pull inflation for white goods, thanks to maybe increased government
spending on defense, utilities, refinancing banks, offering loan waivers etc.
Last in the basket of shocks is the CDR ratio declines plaguing the Indian economy?!
Dhamaka 4: Deflation: The assumption that the black money would idle
away and lead to less funds and more goods (at current stage, horror being we
are not a supply rich economy), thereby leading to reduction in prices of goods
including Gold, stocks. The coming of trump and the inverse relation between
Gold and dollar well established seem to be singing a different tune, with gold
rising by Rs. 4000 in a day and Sensex nosediving by 1689 points while at day
close just about losing 339 points. So where has the magic trick failed, where
have the prices corrected or are we waiting for the long term?! The biggest
deflation is apparently the real estate, since there would now be less buyers,
true and not true (if banks do lend more, then not true else it might in the
short term but only for sellers who have are also part of the daily finance
business or the money rotation business)
Dhamaka 5: Double Shadow/Edge-sword Economy: The time window less, the gold smuggling at
its highest, the horror of a shadow, much more murky world of currency markets
stare at us in our face. Not to forget the chance slippage of going back to
differentiating rates of exchange (official and market rates of exchange) or
the horror of “tu puraana waala 60,000 de aur nayya waala 50,000 le”, a
situation that a friend narrated.
The
Pandora’s Box has been opened, the effect will be felt, and the inconvenience
neatly garbed in nationalism, all in all a brilliant move, with an impeccable
timing. We can hope that this is just the start of the good measures and not a
mere screw the classes below the rich while continuing to shield the biggest
route of Black money (the super-rich) safe and sound to fill in party coffers.
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