Cash out, welcome to gold economy

Narendra Modi's purple revolution has marched past its stated target. With over Rs 11 lakh crore already back in bank vaults, the campaign to smoke out stockpiles of dirty cash from across India has veered towards creating a cashless economy, before settling with a patriotic call: to stamp out corruption from the country, which ranks high among corrupt nations.

Irrespective of the campaign's outcome, November 8 will enter history books as the day when banknotes ceased to be black money in India. Nobody will ever dare to keep a bagful of notes under the safety of their pillows. The rupee has lost the 'loyalty' factor, the confidence it built over six decades since Independence is in a shambles.

The rank and file, despite their daily struggle, are happy about the government's crusade against black money, not so much about going cashless, though. It's just that the glimpse of hard currency notes makes most Indians happy, never mind pockets run empty much before the month-end. They are ecstatic now, when the government takes on the corrupt. Porsches and Lamborghinis seized in I-T raids give them goosebumps. The joy that the recent arrest of a Karnataka bureaucrat with Rs 5 crore in all-new Rs 2,000 banknotes lent the otherwise gloomy nation is unimaginable.

The political corridors of Delhi are still awash with the rags-to-riches story of Sukh Ram and his lust for Indian currency. The CBI raid in 1996 on the former communications minister held a record for several years – of the largest seizure of banknotes. It's an irony that he spent his time in Tihar jail in the company of yet another former communications minister A Raja, an under-trial facing a much bigger corruption scandal. Such Rams and Rajas still abound in India's political landscape.

The direct casualties of the demonetization cum gradual remonetization drive are big cash deals. The real estate market, where cash is the most essential lubricant, has suddenly come to a halt. Mumbai, the Mecca of real estate, has reportedly seen a 20% slump in property registrations with the fall in daily revenue collections at a significant 42%, reports my colleague Dhaval Kulkarni. Even if one were to partly blame the prevailing chaos for the delay in some home purchase decisions, the non-availability of cash as 'black' component is definitely one big reason. It may take some time for realty deals to restart, probably with gold bars as 'black', instead of currency stacks. Similarly, educational institutes may start demanding capitation fee in gold bars.

While the government reiterates its resolve to curtail gold sales in the world's largest retail market, the finance ministry recently clarified that women, if married, can keep jewellery up to 500 gm, and 250 gm, if not. Men, irrespective of their marriage tag, can flaunt 100 gm. This means a standard family -- with one wife and two grown-up kids, can hoard a kg of gold, valued at Rs 29 lakh.

Yes, the new black in India is golden. The metal's appeal as a safe haven in India's black market has just swelled. Unfortunately, the 10% customs duty on gold imports and the resultant smuggling has led to the re-creation of a massive grey market. The designated gold importers are facing tough competition from the unorganised market where gold is available at a steep discount.

Is that a new parallel economy in the making?