8 Nov, 2016 sharp at 8 p.m., Prime Minister of India addressed the Nation. All what people expected was a stringent decision on the enemies outside the borders. But soon it turned into a war against the enemies within the borders. And expectations became apprehensions, the moment PM uttered ” 500 and 1000 Rupee notes will become illegal tender from 9 Nov, 2016 “. The parallel economy estimated to be worth 476 billion USD crashed within hours, leaving the stakeholders of shadow economy shocked.
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Soon after the announcement, the political arena awaited to host a fight between the supporters and the looters. Yes, opposition, to be brutally honest, a bunch of looters. As a result, we witnessed a gruesome scuffle, in both the Houses. Well that is a matter of political discussion. Let us not focus on the cheaper concept and concentrate on the broader scope of demonetization.
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Broader scope covers the long-term effects on the economy, let’s start with its effect on the banking sector.
Indian Banks Need Money
A few months ago Government of India, had decided to inject 22,900 crore Rupees into 13 public sector banks, in order to boost their credit lending capacity. According to a report by RBI, as on Nov 18, the total worth of currency handled by banks stood at 5.44 trillion Rupees. Well, a sum which is nearly 23 times of that allocated by the Government. Even if half of the deposited amount is withdrawn still the banking sector has nearly 2,00,000 crore Rupees. Isn’t it heartening to see the banking sector revive again? Not for the black money holders but for general public it surely is. A report published in the Fitch Ratings said,” Indian banks will need 90 billion USD in total additional funds to meet global capital adequacy norms by 2019″. And surprisingly more than half of it is met by 2016.
Demonetization Promotes Digital Payments, Plastic Money
Roll back of old currency and introduction of new notes with a different design, is the transitional phase in the process of economic digitalization. Introduction of plastic money will make transactions safer, save a ton of money spent note printing, improve transparency and prevent black money hoarding. Digital payments will reduce the long queues at banks, providing major relief to the senior citizens. No chaos in the bank premises, payments at a click and efficient tracking of the transactions are some of the major Economical Goals. For a well settled, transparent, accountable and robust economy, digitalization is the need of the hour. And demonetization is a harsh but swift step to achieve the target.
Demonetization Effects Farmers
The first method to link the farmer with the digital payments platform was introduction of Kisan Credit Card(KCC). Since then, various other schemes and programs have been launched to empower the farmer. DBT through Aadhar, conversion of KCC into debit cards, are some of the recent steps taken to promote farmer’s interests. The amount received by the banks in form of old currency has added to the credit lending capacity of banks and farmer is a direct beneficiary of the same. Flexible loans in presence of adequate capital with the banks is indeed a matter of joy for the farmers. To sum up, flexible loans, quick fund transfers, easy access to funds through ATMs and concrete crop insurance policies are some of the amenities that the farmer is going to get in a couple of months.
ATMs & Paper Currency
In total there are about 101672 ATMs in country. The number is not exaggerated but understated. At an average it costs about 5,80,000 to establish a single ATM. The monthly spending on maintenance is about 47,000. After multiplication, ignoring the maintenance costs, the total money spent on just establishing the entire network of ATMs is 6.5 billion Rupees. The amount could buy 2,15,000 bullet-proof vests for Army. According to former Finance Minister, the total cost of printing new notes would be 20,000 crore. A hefty sum indeed for those who forgot 2.1 billion USD Indian money in an American Govt. account. Moreover after introduction of Digital Payment methods and Plastic Money the printing costs would reduce drastically.
Digital Awareness & Demonetization
“Transaction without cash. It is possible”. The new tagline of the awareness campaign launched by Govt. of India. Few methods of cashless transactions such as UPI (Unified Payment Interface), USSD service, etc. find mention in the campaign.
The service is as easy as checking your prepaid balance.
Just a few steps to follow.
Works on normal mobiles phones too. No need to worry if you don’t have working knowledge of a smartphone.
Few codes to memorize, is all that you require.
Aadhar enabled Payment System
Feed in your bio-metrics.
Follow easy steps.
And Funds transferred.
Paytm , State Bank buddy, Freecharge are some of the prominent digital wallets. Just load your cash through the card or net banking and pay money at a click.
Believe me guys, life is going to be very easy.
The Digital revolution is about to happen.