Liquidity and Cash...

In November the Consumer-Price-Index (CPI), the preferred gauge of inflation to set policy-rates, has dropped from 4.2% in October to 3.6% which is far from that the RBI expected in its review in the recent meeting and lower than the banks inflation-target for 2017 at 5% that might now force it to increase liquidity to increase transmission of the rate-cuts by the commercial-banks to increase falling investment and economic-growth due to demonetization and the cash-crisis. Now, when we have inflation lower than the inflation target for January 2017 we may expect the RBI to cut policy-rates in the next policy review to revive the economy that is trying to gather recovery from the previous down-cycle when there is still more scope to push for exports and pursue double-digit growth. There is, now, a gap of 2.6% in the key-rate and the CPI which gives more space for rate-cuts when the central-bank has already committed an accommodative stance. The bank had been in a rate-cut round even before the advent of demonetization which has further strengthened the case of rate-cuts in the event of falling growth-rate due to finance and cash gap. A rate cut at this juncture would help increase spending when it has been delayed by the public.

All the major economic-variables and expectations have been on a downtrend because of interruption in the supply of cash from the bank-accounts, inflation, unemployment and economic-growth, which might signal expansion in the RBI and the government’s balance-sheets, it is expected from them to try to improve consumption and investment by adopting the right-policies, this time to improve transactions, even by credit and debt outside the banks and bank-accounts. The government might try to induce small and big, wholesalers and retailers to use buy now and pay later service to build the trust economy to avert the cash-problem by using the Adhar-card and maintain account of credit/debit by receipts. Demonetisation and cash-crunch has struck business and trade, but we might create trust-economy based on identification and the ability the pay later. Everybody knows that there is cash emergency. However, the cashless-transactions through cards and mobile are also helping to reduce cash-hardship.  

The government has re-oriented the black-money-movement to the cash-less-movement... The government is pressing for wages and income-transfer direct to the bank accounts... It would help parity in the minimum wages and would reduce exploitation... Higher tax collection would increase allocation towards poor and lower interest-rate due to higher bank-deposits would increase investment and employment... Lower black-money-demand would make things affordable for common man... Nobody can deny that black-money would increase inequality... Black-money-is bad for an equal society...

However, it takes only few hours to learn cashless... People would have to learn because of income and consumption or living... Mobile and Jan-Dhan accounts would act as a base... Their penetration is higher...