IMPACT OF DEMONITIZATION OF CURRENCY IN INDIA IN 2016

GOVERNMENT WITHDRAWS Rs 500, Rs 1000 NOTES TO FIGHT BLACK MONEY AND FAKE CURRENCY MENACE: In an Extraordinary and Historical move, Honourable Prime Minister Shri  Narendra Modi withdraws the circulation of Rs.500/- and Rs.1,000/- currency notes from midnight of 8th November 2016. The driving force behind the historical decision was to eradicate black money and fake currency menace.

HOW WILL THE Rs.500 AND Rs.1,000 NOTE BAN IMPACT OUR BUSINESS AND ECONOMY:

 A) BLACK MONEY HOARDERS: A recent study had pegged India’s black market economy at over Rs.30 lakh crore, which is about 20% of total GDP. By banning the Rs.500/- and 1000/- currency, black money hoarders will have a tough time. They either have to route this money through bank which will attract heavy penalty or they have to burn the stashed cash.

B) FAKE NOTE CIRCULATION: India is facing the fake money menace and fake currency infiltration in the country by the terrorists. Hence by withdrawing the circulation of this currency and introducing new currency is a big blow to these groups. This is nothing less than a kind of“Super Surgical Strike” on these groups.

C) IMPACT ON RURAL ECONOMY: A strong criticism of the scheme that came across is the possible negative impact on rural economy. India has more than 6.8 lakh villages and most of these village population does not have any banking facility.  This is likely to come across as a huge shock for such sections of our population.  It will be long before the entire rural India moves towards cashless economy.

D) DOMESTIC/HOUSEHOLD SECTOR: Domestic and household sector or rather the middle income group is going to suffer a lot because of this currency ban as they would face lot of inconvenience. But this is just for a few days and once the new currency is issued and lower denomination currency circulation comes to normal there will be relief.

E) BANK DEPOSITS WILL SPIKE: Banks are expected to witness a surge in deposits. The banks’low cost deposit will be on the rise immediately. Banks will see huge rise in their term deposits as well and banks will have more liquidity. This will  result in fall of interest rates.

F) IMPACT ON JEWELLARY AND REAL ESTATE BUSINESS: The Decision of the government is widely welcomed by the jewellery industry all over the country. The general opinion is that Gold will be in vast demand as people will have more faith in gold than currency. It will indeed create destabilisation for a while, but overall it is expected to benefit the industry. In the real estate sector the unorganised and secondary (resale) property market would be adversely impacted. According to this sector, the Housing prices would witness a drastic downfall, which will in turn help to revive the low demand in this sluggish market.

G) IMPACT ON CAPITAL MARKET: With initial day of slump in the market, the market is seeing an upward trend from the next day. The capital market will be bullish in the near future as investors expect the Bank Deposit rates to fall, and thereby they will start investing in equities.

H) TILT TOWARDS CASHLESS ECONOMY: Due to the currency ban the government has fixed new limits on the ATM withdrawals at Rs.2,000/- per day, withdrawals from bank accounts to Rs.10,000/- per day. Perhaps the government is tryingthis on a pilot basis and if the situation stabilises then it will drive the card payments across the country, there by paving the way for a “Cashless Economy—card transactions replacing cash transactions.

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