Rs 500 and Rs 1000 Currency Notes Ban Impact
PM Modi’s dramatic move last night has certainly left the country shocked and it’s now time to look at the gainers and losers from this major reform.
Demonetization of Rs 1000 note and the introduction of the new Rs 500 note will impact at least 90% of the cash circulating in the economy and kill the value of those holding it illegally.
Mobile wallet companies and govt. schemes
The biggest gainers from this bold move are the mobile wallet companies like Paytm, MobiKwik and FreeCharge. The government had earlier announced its preference to see India move towards a cashless economy and this move will certainly give this sector a major boost. People will now increasingly use cashless facilities to pay for their daily shopping, railway, road and air travel tickets, and a lot of other services.
The Pradhan Mantri Jan Dhan Yojana will now get a further boost as this move by the government will see more people turn towards joining the banking and undertake cashless transactions to purchase their daily needs.
The economy will now get more money that is legal and as a consequence, government revenues will see a boost. This, in turn, will positively impact social sector initiatives of the government.
All sectors that rely heavily on cash to sustain its business will be most impacted.
The real estate and construction sector, especially in secondary markets, will be most impacted as it transacts most of its business in cash. Therefore, this sector is a major recipient of black money. Buyers who invest in properties for selling it later for profit, funnel large amounts of cash into the real estate sector.
Builders use cash to pay to contractors, who in turn, pay sub-contractors, all in cash. The entire supply-chain will now get severely hit in the short-term, which will result in property prices correcting in the short-to-medium term. However, this sector will now see a progressive shift towards a cashless economy and will result in the government earning more revenue going forward.
Gold & Jewellery
Along with real estate, the gold and jewellery industry witnesses a lot of transactions in cash which helps in converting illegal money. The latest move by the government will impact all those holding large sums of Rs 1000 and Rs 500 illegal currency notes as they will shun this sector in the near-to-medium term. Prices of gold will see a slide as demand for gold drops. As markets shift towards cashless transactions, revenues to the government will rise and that should be good news for the government and economy as a whole.
The stock and commodity markets will see a correction in the short term but will stabilize in the medium term. Illegal money which used to find itself being channelized through front companies will now dry up. P-notes will be most hit that use black money in large sums.
Films and Entertainment
This is another industry that will be impacted in a major way since it channelizes a lot of cash across the stakeholder chain. In the short term, films under production will be affected most but over time, this industry will have to come over board. And that will mean more revenue collection for the government, besides giving a boost to the cashless economy.
Wholesale Markets and Traders
This sector transacts mostly in cash and the entire supply chain, down to the farmer, will get affected, at least in the short term. In the medium-to-long term this will be good as they shift towards the banking system.
Political parties are in for a tough time as they require to raise large sums in cash to fund elections. This is one of the biggest channels for black money circulation. Political parties and politicians who held large sums of cash, are now holding worthless paper. They now face a major challenge to raise funds as they go into polls in the U.P and Punjab without the usual liquid money.
Finally, the worry
The fact that Rs 2000 currency notes are entering the economy leaves a window for the black money economy to figure out ways to make its way back in. After all, when in 1978 the Janata Government demonetized Rs 5,000 and Rs 10,000 notes, the black money did ultimately find its way back in.
But for now, let us celebrate PM Modi’s bold move.
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