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Last Updated Saturday December 09 2017 03:57 PM IST

Demonetization: An eventful move in the financial sector

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The decision of the government to scrap two denominations of the Indian currency has to be viewed in relation to the Jan Dhan Yojana as well as a move to link bank accounts with Aadhaar numbers. Perhaps the government has awakened to the new-found knowledge that further wars would be fought on the economic front.

It was only recently that Andhra Pradesh CM Chandrababu Naidu called for the withdrawal of Rs 500 and Rs 1000 currency notes because black money and counterfeit were becoming unmanageable. The Indian central bank had also called for extreme caution while handling these denominations.

For some time from now, one can expect situations similar to deflation at least in some sectors of the economy. Activities such as land deals, film making, gold deals and textile deals would be affected seriously because of the involvement of hard cash in these sectors. While demand for textiles and gold would drop, real estate owners would be reluctant to accept cash for transactions.

All those people who depend on cash for their daily or infrequent needs would face problems when they attempt to use cash stocked with them for immediate needs.

The move is also expected to affect SBI customers in the state because a significant number of debit cards were deactivated recently following fraud. All those customers might not have received replacement cards or some might not have received card PINs. Such people might find the move problematic.

Hospitals, petrol pumps and other essential services might be reluctant to accept the old currency citing problems with exchanging cash.

Earlier, when currency notes prior to 2005 were withdrawn, about Rs 21000 crores - Rs 22000 crores trickled into the official financial system. Modi's move would flush the banking system with cash many times that amount. This move is certainly as important as the nationalization of banks.

The opinions expressed here do not reflect the views of Malayala Manorama. The responsibility of opinions expressed here lies solely with the author. According to the IT Act, derogatory statements towards an individual, community, religion and country as well as the use of obscene words are punishable offenses. Legal action will be taken against such practices.
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