Many citizens held their breath before the "Mitron" speech began at 7.30 pm on New Year eve. No party may have started before 8.30; any untoward surprise in Mr Modi's address would have cured their hangover even before the celebrations begun. However, Prime Minister, Mr Modi offered some goodies to eager Indians, one positive in the aftermath of national demonetisation. To add to that, the Government has displayed more flip flops on policy decisions—for good reasons though this time. Overall, the Government seems to have set the perfect tone for the entire year.

A few changes in the demonetisation ordinance...

To restrict RBI’s liability and that of the Government on Scrapped Bank Notes (SBN), the Government had issued an ordinance. The ordinance not only made holding SBN over 10 pieces after March 31, 2017, a criminal offence but also put a restriction on who can exchange notes between January 01, 2017 and March 31, 2017, at select offices of RBI. The Government has released more clarification on this topic.

It has extended the timeline for NRIs to June 30, 2017. However, there would be a limit of Rs 25,000 per person as per Foreign Exchange Management Act (FEMA) guidelines. This limit won’t apply to resident Indians, who can exchange their SBN only until March 31.

Unlike determined earlier, there won’t be any four-year jail term for holding SBN over 10 pieces. The Government has also clarified that the minimum penalty for those holding old SBN would be Rs 10,000. The maximum penalty can go upto 5 times the contested amount. Further, furnishing wrong information while depositing money between January 01, 2017 and March 31, 2017, would also attract a fine of Rs 5,000 or 5 times the amount exchanged, whichever is higher. It’s noteworthy that the research scholars can hold upto 25 pieces of SBN without being asked any question.

Daily cash withdrawal limit goes up

In another notification, the RBI has also hiked the daily withdrawal limit at ATMs from Rs 2,500 to Rs 4,500 effective from January 01, 2017. However, the bankers have already predicted that it might take longer before restrictions on withdrawals are lifted.

Prime Minister, Mr Modi in his speech on New Year's eve, made some citizen-friendly announcements and appeals. They include:
 

• The credit guarantee of Micro Small and Medium Enterprises (MSME) by the Government shall be hiked from Rs 1 crore at present to Rs 2 crore. This is aimed at helping MSMEs borrow more funds and at a reasonable cost.
• The Government urged banks to enhance the overdraft limit from 20% to 25% of the sales for small businesses and to hike the limit of working capital finance from 20% to 30% of the turnover.
• Affordable housing to get a big push with home loans of upto Rs 9 lakh will get 4% exemption in the interest and 3% exemption in the loans upto Rs 12 lakh.
• The Government will bear the interest cost on farm loans for the period of 60 days, if they have been taken from district co-operative banks and primary societies. This move is aimed at providing relief to farmers from the ill-effects of demonetisation.
• The Government is likely to issue 3 crore Kisan Credit Cards within next 3 months.
• Pregnant women will receive Rs 6,000-aid from the Government.

 While these moves were aimed at lifting the sentiments of certain sections that have been experiencing the intense pain of demonetisation, Mr Modi didn’t make any announcement on the personal income tax rates, which was much awaited. But, none of those above decisions may have any substantial (positive or negative) impact on Government finances. Having said that, these announcements suggest that the Union Budget 2017-18 may be the most populist budget in recent times. Going by the announcements of the Government, it seems banks would be under pressure to serve the Government’s agenda on providing subsidised loans. It remains to be seen to what extent the Government influences the autonomy of banks. SBI has slashed home loan rates by as much as 0.90%. This was in response to the Government’s appeal. If inflation falls further and the banks maintain the transparency in passing on the benefits of previous rate cuts to the borrowers, RBI at some point may consider slashing policy rates.

It’s still unclear how much the demonetisation will shore up Government’s revenue, and there’s still no word on the revision of fiscal deficit target. In other words, the Government is still aiming to curtail fiscal deficit to 3.5% in FY17 3.0% of GDP in FY18.

As per the finance ministry figures, there has been a 13.6% jump in the net income tax collections upto December 19, 2016, 26.2% rise in the central indirect taxes until November 30, 2016.

For now, Mr Modi has spared his ‘brothers and sisters’ from any dreadful announcement. Hope this chain won’t break in the Budget 2017.  What’s still unknown is how much black money demonetisation managed to dig out. The citizens may expect the Government to share more data on this.

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