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Demonitisation - Demon or Boon to the Indian Economy

Monday November 14, 2016,

3 min Read

This is the hot button topic across all spectrum of people right now and how it is going to affect them. Make no mistake this is a fundamental shift or dare I say reset in the economy.There are many opinions coming out both for and against it.

As in organisations top leaders built cultures which they want to percolate it down to the entire ecosystem this is one such attempt from the premier of this country whether it will succeed or not too early to say but it definitely will induce change in behavior with regard to how we treat money & trade.

To give one such example because of this Demonitization all merchants have grudgingly started accepting card payments below Rs 100 which is a very good sign in moving towards a cashless economy. Earlier they used to refuse.

So here is my take on the future of Indian Economy after this reset .

1) Debit Card transactions are going to shoot thorough the roof; as many people still don't use it at the merchant will start using it.

2) Govt is going to aggressively push for UPI(Unified Payment Interface) adoption by all the stakeholders as they did it with other flagship programmes like Jan Dhan Yojana and Swach Bharat Abhiyan.

3) India has decisively moved away from stagflation to short term deflation And in the medium to long term we are moving towards a Goldilock economy.

4) Housing loan interests are going to see sub 6% in 24-30 months which would be an historic low and unimaginable right now but I am sticking my neck out.

5) Financialization of the Indian economy is inevitable and these would lead to less dependency on foreign money for infrastructure & Investment in the economy.

6) With the GST kicking in shortly all the influx of cash coming in to the banking system, there would be significant money trail everywhere leading to higher tax compliance and higher bounty for the govt (What Govt does with this higher bounty is a matter of another discussion)

7) Whether it will lead to less corruption I am not sure as people will find ingenious ways to circumvent but definitely cost of doing it has gone up manifold.

As in Behavioural economics has shown you don't take rational decisions given a choice and it is most of the time sub optimal. So we have to see this in that context.

As a country we love to maintain status quo and doesn't want to change the state of affairs given a choice...Irrespective of whether it is good or bad.

Only time will tell if it was right for India.