Gradeup Magazine: Let's Talk Business #18

By N Shiva Guru|Updated : December 8th, 2016

Q: After demonetization, which could be next step that needs to be taken by Indian Government to prevent black money and corruption?

Here are some possibilities:

  1. Moving all government offices and universities out of cash. Your fees and dues could be accepted only through netbanking or mobile wallets.
  2. Fully move all government purchases cashless and through common procurement systems.
  3. Rapid rollout of cashless infrastructure to rural India. Besides POS terminals, the emphasis could be on more incentives for smartphone penetration and internet connectivity. There might even be special schemes for women - as their smartphone usage is low. Target 100% smartphone penetration by the end of the first term.
  4. Making it illegal to do cash payments for any purchases above Rs. 20000. Everything from cars and homes and home appliances and jewelry to be bought through cashless payments. Like in the developed world, anyone having wades of cash will be looked at suspiciously.
  5. Enacting benami transactions bill to impede purchasing property with other people’s names.
  6. Greater transparency in real estate transactions through a new act.
  7. Finally, the Direct Benefit Transfer for all government subsidies. Instead of the government giving you cheap kerosene, power, urea etc, the intended beneficiaries will get money directly sent to their account. That will let government machinery focused on real problems.

Q: Why did INR fall against USD after the demonetization move by the Indian Government?

The rupee’s fall has little to do with India’s demonetization. There are far powerful forces at play. Since the arrival of Trump there is a massive surge in the US dollar against all currencies. U.S. Dollar Rally Finds New Life Under Trump - It is quite complicated to explain why Trump’s win is pushing up the dollar around the world. I will just put one line here: the markets buy the rumour and sell the news. Dollar already expected the worst and now they are going up in relief.

In fact, the rupee is among the better performing currencies against the dollar in the past one month. Look at what happened to the other currencies.

byjusexamprep

Turkey trumps Mexico among drooping emerging markets currencies

Of these, Rouble and Peso had already fallen a lot in the previous months and thus didn’t fall as much. Besides Trump there is also the Fed rate hike that could push up the dollar. In parallel, RBI could cut rates and for a short term might push the rupee down.

Instead of looking at the dollar alone, you need to measure rupee against other currencies. In the top chart we saw it against the other emerging market currencies. In here, you can see it against the Euro - Exchange Rates Graph (Euro, Indian Rupee) - and you can see the things quite stable. In fact, the rupee appreciated against the Euro since the announcement.

Also see: India among few winners in emerging markets after Trump's shock election

(The author, Mr.Balaji Vishwanathan, is a Top Writer on Quora with more than 216,000 followers.)

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