Demonetization digest: People depositing above Rs 2.5 lakhs started receiving show cause notices and other stories

With the decision to wipe out old Rs 500 and Rs 1000, 86% of total cash in circulation is gone. And with it, India’s economy has been left with the biggest dent in months. While analysts pegged the setback to be a solid one, it will only be confirmed in the days to come. Many also believe, this move may give an upper hand to China, with the neighbouring country taking over the GDP speed.
The demand is drying up because of the lack of liquidity in the market. With just 5 months for FY 17 to end, there may be a staggering growth. However the only optimism at this point would be expecting enough black money to be traced to make the economy great again in next quarter

"We expect the impact of this to resonate for at least two quarters, impacting GDP by 50 basis points for the fiscal year,” Indranil Sen Gupta, chief India economist at Bank of America-Merrill Lynch told the Economic Times.

Most put the revised number at around 7% against earlier estimates of near 8%, an optimism that had been bolstered by good monsoons and a pay commission-led consumption boost. The Indian economy expanded 7.6% in FY16. The International Monetary Fund had put FY17 growth at the same level. China is likely to grow at 6.6% in 2016 and is expected to slow to 6.2% in 2017.


"Agriculture is expected to be least impacted with the major shock being absorbed in the first two-three weeks itself as there have been issues in sales at mandis due to the cash crunch presently,” CARE Ratings report informed the ET.
ICRA cut its growth forecast by 40 basis points. It had earlier forecast GDP and GVA to grow 7.9% and 7.7%, respectively. One basis point is one hundredth of a percentage point.

"Consumption-oriented sectors, particularly those which witness a sizable magnitude of cash transactions, such as real estate, construction, jewellery, retail, travel and tourism and trade are likely to be most affected. Cash-based transactions in the unorganised sector would also get disrupted, particularly in rural areas,” Aditi Nayar, senior economist at ICRA told ET.

"Though we are still waiting and watching, it is almost certain that demonetisation will shave off some percentage points from the GDP,” said Sunil Kumar Sinha, principal economist at India Ratings & Research, a Fitch Group company, while speaking to the ET.
HSBC expects an impact of up to one percentage point on growth. "Using the cash elasticity of GDP, we estimate that over a year, economic growth can fall by 0.7-1.0 ppt (percentage point), with the maximum impact in the immediate two quarters, which will see a large contraction in 'effective' money supply,” it said in a note.

Normally when the bankers of top banks in India need to meet the RBI, there is an agenda given. However on the night, Prime Minister Modi decided to scrap old Rs 500 and Rs 1000 notes within four hours, the meeting called by the RBI had no clear agenda.
There was a high level of secrecy involved. It was with the world the top officials including the CEOs and MDs of the banks got to know about demonization of two high value denominations in circulation.
The meeting at the 15th floor of the RBI’s Mint Street headquarters in Mumbai had veterans of banking businesses in India. The meeting began with discussions on bad loans, and non-performing assets of banking sector. Just before 8 pm, RBI officials switched on the TVs in the room. They said that the PM would be on air soon, and they would continue the discussion after his speech, the bankers told TOI.
Until the time the PM had announced that India was scrapping Rs 500 and Rs 1,000 notes in less than four hours, none of the top bankers had any clue that the next few days would be their careers' most challenging. "Basically it was as much of a surprise to us as to anybody else," SBI chairperson Arundhati Bhattacharya told The Times of India. After the PM ended his speech, the bankers wanted to leave immediately and start work.

"The mood (with everyone present) was just to get out of the place and get things in place. We had to get out quickly to tell our people to switch off the ATMs by midnight; about the evacuation the next day, which was a huge exercise, then to take care of the recalibration; in the branches, what would be the instructions because there was to be exchanges, Rs 10,000 withdrawals etc," the SBI chief told TOI.

When gossip around if at all any black money hoarder has been show caused is doing rounds on the internet, there is information that the Income Tax dept has already started sending notices to people who have deposited money above Rs 2.5 lakh.
One glaring example of this is an incident at Gangtok in Sikkim, where the Income Tax dept of Siliguri has enquired about a deposit of Rs 4.51 lakh made by a firm between November 12 and 14 at the State Bank of India, Gangtok. The firm has been asked to furnish relevant documents within 25 November at the I-T dept’s office.

Worried about the never ending queues in front of banks and ATMs almost every day, the Supreme Court has asked the Centre to take urgent measures to end the ordeal.
“It is a serious issue. This affects the entire population. You (the government) cannot deny there is a serious problem. There could be riots," a bench of Chief Justice T S Thakur and Justice A R Dave said, drawing a sharp retort from attorney general Mukul Rohatgi.

The bench also declined the Centre's plea to restrain all other courts and high courts from entertaining petitions challenging demonetisation.