How is the common man affected with the ban of Rs.500 and Rs.1000 notes?

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Written By Mani Karthik

I share everything I learned in life on this blog. From personal finance to spirituality and everything in between. 

NAMO! NAMO! Prime Minister Narendra Modi’s move to demonetize the Rs.500 and Rs.1000 have brought up mixed emotions among Indians. Many of them are happy and feeling proud whereas some are showing their anger on this act.  When I asked one of my Indian friend about Modi’s  decision, he responded this way –

” This is a great move, We are proud to be an Indian now. This is a great move to root out the black money from the market”.

Now the big question that remains in everyone’s mind is how is it going to affect the common man? Let me try to point this out:

  • First of all, everyone has to deposit the money legally earned in the bank. This will automatically increase the bank’s deposits by a huge margin.
  • The huge margin would lead to more lending ratio. There is a cash reserve ratio which has to be maintained. So banks will start lending more money.
  • The interest rates for credit loans may come down. Hence, more loans will be given out.
  • Lending money, loans are leading paths to inflation as the money supply will be more in the market. But this is not going to happen overnight.
  • The immediate thing that would occur is heavy deflation as people who have not earned money legally will be hesitant to deposit the money in the bank.
  • Those who decide to deposit the money will end up paying the income tax for that illegal money earned through smuggling and corruption.
  • The currency circulation will be less in the market whereas the commodities are more. Hence, deflation occurs. The commodity that used to be priced at Rs.10 will be given for half price or even lesser. Can you imagine?
  • The common man can be happy for a while because this is the initial impacts. The gold price and stock prices would be reduced but that is not the case in the near future.
  • India’s future will be decided by the common people. If the people who have earned the money illegally decided to waste the Rs.500 and Rs.1000, then the market is going to witness a heavy deflation for another 6 months.
  • When the prices of the products are lowered drastically, we can definitely say that India’s population lived on a larger proportion of black money.
  • The common man has to give some time to the bank to prep themselves and be ready with the new currency for the replacement.

What about real estate?

Real estate market could stay stable as they do not have an index amount like gold. If someone has the plot to sell for 2 Crores, it is his discretion to decide the price. Real estate is always proportional to demand and supply. But if there are fewer people with white money in the market and nobody is ready to buy the plot, then there are chances that the price can be lowered. But this would not happen all of a sudden, the lowering of price will be slowly as and when the pool of potential buyers gets lowered.

My opinion to this act is that we should all support this great man who is trying his level best to bring a change to this nation. Instead of cribbing and not cooperating, we should act smartly and wisely as to what needs to be done next. I am sure, this situation will be resolved pretty soon and the black money from the market can soon vanish.