Demonitization of Rs 500 & 1000 notes from Indian Economy

Right Horizons Guide to All you need to know about the discontinuation of old currency notes and the introduction of the new currency.

1. 1 Demonetization Simplified Shankar Jaganathan, November 11, 2017

2. Imagine the Economy as an Automobile 2

3. Money is Engine Oil: Essential for Acceleration 3

4. With time Engine Oil Needs Change; Demonetization is Oil Change 4

5. Oil Change Does Cause the Vehicle Owner hardship…temporary Some more inconvenienced than the other Distance to service station For some more expensive than other 5

6. Benefits of Demonetization or Changing Engine Oil Faster pick-up =Faster GDP growth Black economy to white economy Better mileage = More Resources for growth Higher tax collection –one time + recurring Slower engine heating =Lower inflation Disincentive for hoarding /black marketing Comfortable ride = Better income/ wealth sharing More people under tax net and higher spends on public /social infrastructure 6

7. Sizing Demonetization Currency with Public 7

8. Money & Currency 8 Classification What it Includes M0 - Reserve Money Currency with public, bankers deposit with RBI & Other deposits with RBI M1 –Narrow money Currency with public + CASA deposits + deposits with RBI M2 M1 + Post office savings account0 M3 –Broad money M1+ Time deposits M4 M3 + Post office Deposits Description Typical Ratios Currency with Public 13% Demand deposit 8% Time deposit 78% Other deposits with RBI 1% M 3 Money Supply 100%

9. How It Impacts Us? Immediate: ill liquidity Lots of wealth but no money Short term: ill liquidity + tedious process ATM Rs.2000, Bank /PO exchange Rs.4000, Bank withdrawal –Rs.10,000 Medium term: Inconvenience Deposit all Cash into bank and then withdraw for use Long term: Better facilities? Better physical infrastructure -Combination of higher resources, lower corruption Better social infrastructure –better public health, schooling, law & order 9

10. Depositing Money in Bank If you are depositing money in bank, to ensure the following: Trail for the source of cash, safest in order of preference Bank withdrawal –link amount withdrawn to amount deposited Person from whom received –have records names or records of events like wedding Saved over time –quantum justified w.r.t. taxable income declared Reason for holding cash –can supplement the reason for iii. Above If source of money not established Pay tax at applicable rates plus Penalty for concealment of income –ranging from 100% to 300% of tax evaded 10

11. Demonetization: Impact on the Economy Extent of Impact Reason Sectors Positive Impact Higher taxes to spend Infrastructure , public health, education Minimal Impact Low cash usage or Low value bills IT Companies, Utilities, Telecom Temporary Impact High cash usage / low value transactions Pharma, Consumer Products, Oil Marketing Companies, Banks Sustained Impact High cash usage High value transactions Jewellery, Real Estate, Construction Material, Luxury products, Wedding arrangements 11

12. Thank You & Happy to take Questions 12