Impact of GST along with Demonetization
In an unprecedented move, the Government of India has indeed played a trump card by hitting at so many targets by just one shot demonetizing the two most valued currency notes in India, viz ₹ 500 and ₹ 1000.
While nobody prevented any of the Governments in the past to do so to check various malpractices – financial, social, political or otherwise, this move of Prime Minister Mr. Narendra Modi has pleasantly surprised most of the countrymen and shockingly surprised some of them. The announcement is unprecedented as it has never happened this way nor was expected at this point in time. It was kept top confidential and handled so efficiently that even media and most of people in Government, banks etc were left unaware.
While it is a very bold and positive step for the country as a whole, it may not auger well for some - for those whom it will be difficult to disclose or use this money any more. The announcement came around 8.30 PM and came into operation from midnight leaving just 200 minutes for people with such currency to use it. Yet, some people did managed that and purchased high value items, bullion & jewellery and even gift vouchers at branded stores. Great minds indeed !
The declaration of ₹ 500 and ₹ 1000 currency notes to be no longer 'a legal tender' will address many problems of the country, viz –
- Counterfeit / fake currency notes
- Money used in terrorist activities
- Corruption in politics / administration / business
- Imbalance between haves and have notes (to some extent)
- Malpractices in political system
- Unaccounted / black money menace
Overnight, all such problems have been addressed and dealt with boldly and heavily with tangible results in the offing.
From today, we will not have fake currency notes of these denominations, there will be no black money in the system to the extent of value of such currency, whole country get purified (even households) from such currency, entire lot of terrorist money comprising of these notes gets washed out and of no use and whatever money was kept as earned out of corrupt practices gets dumped. From today on, there may be no need to conduct searches or raids by income tax / other tax collectors, CBI, Anti-Corruption and other such bodies and there will be relatively free for other productive works. Even the corrupt officers and people will have to start earning afresh or stop such dealings. Not only this, from today, it will be known that they have earned by illegal means after 09.11.2016 in terms of fresh accumulations. The country's political system will also get cleaned and the way elections are funded and political parties function will witness a sea change for good. Election Commission would be too happy on this.
On business / economy front, it may create a liquidity crunch in short term, besides adversely affecting business of hotels, real estate construction etc. It may also affect spending habits of people with easy money, e.g. luxury hotel & restaurant spends, liquor consumption, travel holidays and investment in real estate where part of consideration was cash component. The share market may also take a hit initially but will rebound. Bullion may be costlier due to being a preferred choice now.
With this, while the currency gets filtered, commercial transactions will also get addresses from 1st April 2016, when India migrates to GST as is most likely, unaccounted transactions may not be there or will get substantially reduced in GST regime.
The impact of demonetization of high value notes shall be largely seen post April, 2017 when GST is introduced in India. If GST comes by then, Indian Government would be achieving both – siphoning out of black money from system and check on unaccounted (cash) transactions between suppliers of goods and / or services and buyers or recipients. Moreover, it would add to liquidity as the mostly 'dead or illiquid' currency will come into the main stream economy. Another good impact could be that people will now fear hoarding hard cash at home, e-commence and electronic payment will grow and cash transactions will substantially be reduced. While banks will be flushed with saving and fixed deposits, their liquidity will to go up which may result in marginal (upto one percent) lowering of interest rates. However, this may be passed on to borrowers by way of lower interest rates.
All said and done, the step taken by Government ought to be appreciated, commended and propagated. If not for all individuals, there are going to be 'good days' at least for India as a whole.
As a impact of this We see Benchmark Index Nifty above 15000 in 2-3 Years span.
