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-   -   Government scraps Rs 500 and Rs 1000 notes! (https://www.team-bhp.com/forum/shifting-gears/181570-government-scraps-rs-500-rs-1000-notes-5.html)

Relevant for us car enthusiasts at team Bhp- expect a major reduction in sales of BMW's, Audi's, Mercs and the like especially from certain locations in India (not going to specify where but it should be obvious to most) which have so far been top sellers for these brands.

There are places where there is no industry and no wealth creation activity yet the folks here use Bentleys, Porsche's, S Classes and other very high end cars (BMW, Audi etc are low end here) areas such as this will be in full panic mode.

Highly over due move yet better late than never.

It will affect small developers, bigger groups don't mind white money. Also another reason for rise in property rates is increasing construction cost.

So the builders might have to declare more income but dont see property rates falling. So if you have paid 5 cr cash for a 10 cr property,

the cash component wont evaporate rather you will have to pay the tax on resale of the property or just take cash in the newer currency.

This situation will be a temporary problem for many. Some will lose money for others life will continue as it is.

But what is the point ? End the day you would need money to do the transaction and if you want convert that metal into money that needs to be taxable .

But how will the bank know if this money is earned in India or abroad ? Because it was taken out from NRE account and now while we deposit it goes to local savings account.

8gm gold coins can still be sold in most jewelry stores without need for id. People making black today will still continue earning in black going forward as well. That portion is likely to be invested this way.

There are very high chances that those who had stashed the money in cash in Rs. 500/- and Rs. 1000/- had heard this grapevine and made necessary arrangements.
Also, its better to store gold, diamond than bundles of cash. This might have been accomplished by many who had black money.

Only Work In Progress stashing would be impacted. All I am trying to say is that the benefit of this move wont be so much of a huge differentiation. Those who have accumulated black money would have/will identify means. Gold, real estate are two of biggest area of investment.

However, what this will have a very positive impact is on fake currency and black money associated with terrorism. This should see a good result out of this decision.

All in all, a bold move, but outcome has to be measured once the dust settles. I am not very hopeful of things improving for ~3% Indians paying their income tax in disciplined way.

If that was the case, the story would have been out long ago ..

a) There needs to be incentives as well - like reduction in tax rates (direct & indirect), reduction in stamp duty etc.

b) Big builders would be largely in white (they are also listed companies). Property transactions will be slow. So if one needs to sell property its going to be onerous. Prices may come back especially in end user markets. If the rates are lowered along with this move then people will want to have to proper transactions than deal in black money.

c) If builders will lose money they will pass cost to people so blip in market should be for a short while only. If it sustains property prices may fall. Such a fall can have a very big problem in the country. Please remember people have mortgages - if price falls below mortgage value - what would a buyer do? Also unfinished project etc. So arrest in increase of price is okay but deflation can be bad.

d) A larger deflationary effect can be disastrous.

So Government will have to create avenues so as to ease out the situation. But this is bold and if we indeed see deflation then there are more "bure din" in offing.

~m

I hope not. Any rollback or delay of any sort will defeat the move. The decision had to be sudden so that people don't have time to convert their black money into gold or other assets. It will inconvenience a lot of people and I'm sure some political parties will oppose it, but I hope that the government stands firm.

And my whatsapp is already flooded with jokes about this :Frustrati

Very bold move by the government, must say. Let's see how well it gets executed.

Best news all week. Will impact Punjab and UP elections as some corrupt people will have limited black money.

If you look at some numbers: Developed countries like the USA have a per capita income of approximately $53,000. Their highest denomination that is printed is $100. This brings the ratio to 530. You get similar numbers for economies like UK/Japan. Now, in India, the per capita income is Rs 93,000. The highest denomination, till today, was Rs 1,000, which brings the ratio to 93. If we were to work towards the number of 500, our highest denomination should be around Rs 186/-. :). Higher this ratio, lower will be the willingness to carry cash around.

Though the Govt. has introduced newer denominations (that too of a higher value), it still is a very good move, as the people who currently have money stashed away will have to come into the limelight now to get it changed to legal tender. They probably still realise that a good amount of transactions will happen in cash. A hard reset like this, however, is a good move IMO!

Some one had spelt out this approach in 2013 !

http://m.thehindubusinessline.com/op...cle5376265.ece

But the local account of the same NRI. His foreign tax records can be produced as proof.

I would not be surprised if this guy's piece was read, analyzed among experts and acted upon.