A million questions riddled Indians-by Rohan Mitra

52930780A million questions riddled Indians when the Modi government suddenly announced the demonetisation move on 8 November. As the days are going by, some answers are slowly unraveling. And many of these answer don’t paint a very encouraging picture.

Take this one for example. Citing RBI data, a report in Indiatoday.in points out that while the total high denomination currency circulating in the system on the day of demonetisation was Rs 15.44 trillion, until 27 November Rs 8.45 trillion had been deposited back in the banks.

Further, it estimates that the quantum of such notes lying with the RBI as cash reserve ratio deposits on 8 November was about Rs 4 trillion. And that with banks was about Rs 0.5 trillion.

Add all this up, and one gets a rough figure of Rs 13 trillion in banned currency notes that is no longer with the public.

Going by the rate at which money is being deposited in banks, it reckons that another Rs 2 trillion could easily get deposited in the 33 days left until 30 December.

This leaves one with an estimated grand total of Rs 15 trillion of such money back in the banking system, compared to the Rs 15.44 trillion that was in circulation before the move.

What does all this mean?

Well, to be sure, all this may not be very precise math. However, it does seem to be enough of an indicator that the black money being left out may not amount to that much. Which in turn means that most have already figured out ways and means to get their stash back in the system with little or no costs.

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And the portion of ‘black money’ that will actually be destroyed may turn out to be so small, it raises serious questions about whether the whole exercise was even worth it to begin with!

Yes indeed. As the numbers come in, the perceived benefits of demonetisation are actually turning out to be way lower than expected. This, even as its costs mount higher and higher with each passing day.

The cash-crunch, confusion and uncertainty of demonetisation and its shoddy implementation has already brought in tremendous disruption for India’s people, its businesses, and of course, it’s investors. And it looks like things may get much worse in the months to come before they start to normalise at some point in the future.

It is imperative that investors brace themselves for the very real possibility of this turmoil in the short run. Affecting not just the business markets, but also the financial markets. The seas are bound to turn rougher in the days ahead. How one prepares for and navigates through this period will differentiate the investors that use this as a period of opportunity, from the ones that get struck by the lightening.

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Rohan Mitra

 

 

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