Immediate Impact:

One of utter confusion. There will be rumor mongering saying that the Rs. 1000 and Rs. 500 notes have become useless. Far from it, if you have withdrawn from your bank account – it can go back to your bank account. People with small amounts – all of us keep some cash at home – do we not – for example I just withdrew some cash yesterday – and that can just go back right away into the bank account.

This is awesome business opportunity for companies like Paytm – because inflation is not down! so if I do take a taxi from my home to the airport, I better have some credit in my Ola or Uber account or I may have to head for an ATM to pay even the Rs. 1000 taxi bill! Hotels and Restaurants will take a hit – especially the Rs. 2000 per head and above ones – and if business is good, collection of service tax will also improve. Caterers, interior decorators, wedding planners will now become the new big tax payers! Companies like Titan, Tribhovandas Bhimji Zaveri, are the most obvious candidates for shorting the market – but beware if everybody thinks so, it will have a gap down opening, and there may be no juice for shorting. The other candidates for shorting have to be hotels like Indian Hotels, Speciality Restaurant, East India Hotels – where people tend to use their cash. Luxury items – say tiles, bathroom fittings, cars, furnishings, travel, …will all suffer an immediate hit.

The currency of terrorism and big bribery will shift from notes to gold – making it difficult for small bribes! The cap on each bank withdrawal will now be Rs. 10,000. I always used to withdraw DOUBLE this amount – even from my parent’s account. Chemists, vegetable vendors, taxis – will all have to carry a card swiping machine.

I only wish Na Mo had done this 2 days later – we would have been able to isolate the Trump/Clinton impact on the world market.

LONGER TERM IMPACT:

I am a little skeptical about the immediate term. The younger kids I know anyway do not keep cash – they swipe cards – but what happens to all the big spenders. Who will now buy the Rs. 12000 running shoes or the Rs. 100,000 music system? Frankly these were bought by the salaried class – the guys with the TDS ANY WAY. The trader did not indulge in these things, but the travel industry could suffer much more than what we think. So that may not be good news in the immediate short term – so Indigo, Jet, etc. may/could see a drop – but 99% of the tickets I knew were bought online – to that extent there may not be a great impact.

The world over the maximum amount you can carry is 10,000 – US $ in the US, and it will be Rs. in India.

I was around in 1978 when the first ‘demonetisation’ was done by the Gujju PM – Morarji Desai.

I was around in 1983 when Tax Audit was introduced.

I hope to be around when GST is implemented.

I am now seeing this.

Each of these moves were said to ‘be unique’ and stop the spread of black money.

Hopefully, this time it will be different.

How do I expect the holders of black money to react? Well, a lot of cash will be deposited by many, many small ‘garib’ log in their bank accounts. For a fee, they will become the new dhobis. As will the farmers.