By Vivek Kaul – Vivek Kaul’s Diary (India) –
This is just a short post to tell you that now even the finance minister Arun Jaitley agrees with us.
In the Letter dated November 25, 2016 (Subscription Required) and the Diary dated November 29, 2016, I had said that the demonetisation mess will take some time to sort out.
My logic was very straightforward. Some simple maths based on numbers put out by the Reserve Bank of India tells us that it will take another five to six months for the government to print enough new Rs 500 notes to be able to replace the old Rs 500 notes which have been demonetised.
The entire issue is about printing enough Rs 500 notes and not the Rs 2,000 notes, as I have explained earlier.
And unless there are enough new Rs 500 notes going around in the market, transactions of all kinds which have come to a standstill, won’t pick up. If transactions don’t happen, businesses don’t do well, companies don’t do well and the economy doesn’t do well, as well.
It means lower revenues for businesses, lower taxes for the government and lower growth for the overall economy.