Demonetisation – some observations & thoughts

At the outset let me acknowledge the varying level of hardship faced by all of us.

Here are my thoughts as a lay man & with some level of financial sense.

Look how people have adopted in the last 40 days. My cafeteria vendors who wouldn’t even accept a Food coupon have resigned to the fact of living with “Paytm” payments. I pay “Rs.8” for my tea via Paytm. All small time snack vendors are now willingly accepting Paytm or similar ewallet payments. Isn’t that quite revolutionary.

A week ago an electrician come to our house to install an equipment. Since the expenses ran over what we paid at the shop via a credit card, he was quick to give us his “Paytm” wallet number. Can you imagine this in our “flush with cash” economy 39 days back?

Vegetable vendors, Kirana stores, small outlets have all moved to virtual money.

Now the question of us going back to our old ways once the liquidity crisis eases.

Here is my take. If the Govt is smart & committed to make hiding income difficult, the cash crunch will never ease. It will never replace the currency notes that has been pulled out from circulation. It will push people to digital platform & early indicators are that people being adaptive, have moved on to the new reality.

Assuming that Govt does replace all the currency notes in numbers, it may still be difficult to hide / hoard. It will take a couple of months for life to get back to normal. Until then all the transactions that have moved to digital world will leave behind an audit trail for future. If someone who has moved to digital payments & is generating “x” revenue / income on records in last 40 days, will have a hard time justifying a drop when money circulation improves & he moves to dealing in cash again.

If we expected big evaders to be caught & prosecuted, I don’t think that would ever happen. People would rather burn their defunct notes than declare. But what’s definitely going to happen is that it will be difficult to evade. It won’t be eliminated completely but it would definitely reduce.

Banks being flush with cash will ensure interest rates drop over time. Which means lower cost of borrowing, incentive to kick start business ventures, more employment opportunities, lower housing loan rates etc etc. It will mean lower incentive to put money in bank FDs & instead invest in MFs / stocks & a more broad based equity market would ultimately benefit the economy (not money in gold, flats, land).

With a clamp down on cash, real estate should hopefully get cleaner & cheaper. If not cheaper, at least no increase for a couple of years which effectively is a reduction.

Since the opportunity to invest in Land / property & gold becoming difficult, businessmen should hopefully have an incentive to account for all their turnover, pay requisite taxes & have profits that can be invested / spent as they please. There are reports of people who are talking on these lines & it’s a good sign.

At no point am I saying this was executed well but keeping in mind what was required to achieve, it couldn’t have been done any better.

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Gift a SIP this Diwali

Diwali is a time to celebrate with our near & dear ones. Its time to gift & help the needy.

A lot of us give a token one month wage to our domestic helps (maids / drivers etc) which is generally spent & I am sure nothing is saved.

How about making this Diwali different & though you may act after Diwali, how about making this a continious process?

How about starting a SIP in a good mutual fund for your domestic helps or even opening a NPS account for them? This will go a long way in securing their future. Most of them have very little sense of savings leave alone investments. This contribution should be over & above your annual bonus payment.

A SIP in a good Equity Linked Savings Scheme requires just Rs.500/- per month contribution. ( I am suggesting ELSS as they have a lock in for 3 years). You could contribute most of it if not all & probably ask the employee to bridge the balance to Rs.500/- or contribute an additional amount. It will take some effort in terms of time & money but believe me it will go a long way in securing the employees future. They may not immediately understand what you are doing for them but over a year & more it will make sense to them when you show them the monthly statements. It’s a personal experience.

Setting up a SIP is slightly tedious process though. Ideally, take time out on a Saturday morning & go along with the employee to nearest Mutual Fund branch . Documents required are AADHAR Card, PAN Card, Bank Cheque Book. The branch will help you fill in the required forms (KYC, MF) & you are good to go..

You also have an option to set up a NPS account but I am not a big fan of NPS due to it’s inflexibility on withdrawals. But a eNPS account is easy to open.

I am a big advocate of us making this effort for people who work for us as they have really no safety net to bank upon. There are many things we take for granted from our employers but are just not availavle to these marginalised / unorganized labor:

  • Provident Fund
  • Medical Cover
  • Life Cover
  • Group insurance
  • Gratuity

It’s time we make an effort to help secure their future. Ideally, Govt should mandate these for unorganized labor. However, why wait for doing a good deed.

Additionally, enure your domestic helps have a bank account & have signed up for:

Life Cover  – Pradhan Mantri Jeevan Jyoti Beema Yojna – Rs.330 annual premium for 2 Lacs cover

Pradhan Mantri Suraksha Yojna – Accident cover – Premium Rs. 12 for Rs.2 lacs cover

Ideally also sign them up for a Medical Cover. A Rs.2 Lacs cover will not be too expensive. They are most impacted in event of hospitalization.

Some of you maybe thinking that I am asking for quite a bit of additional expense. Honestly this may just be equal to sacrificing  one weekend movie or a dinner out with family each month.  But it will go a long way in securing someone financially who spends their day making your life easy… It’s worth it..

Happy to provide guidance on how to go about setting up a SIP…

Seasons greetings!!