One of the boldest movement taken by Government of India in the history of Indian economy to ban high value currency notes of Rs.1000 and Rs.500 with effect from November 8, 2016 midnight. This scheme has received mixed reaction till now as some of the sections are telling that it can cause hardship for common people while some sections reacted to this decision with overwhelming support. This scheme is going to impact the businesses, common people, and financial institutions along with multi-diverse industrial background of India.
This demonetization will be Having Adverse Impact on Following Sectors
Black Money Hoarders
The main reason behind this demonetization is to eradicate/ curb black money, with this move black money holders either have to show their income source from which they earned their black money to the department or to burn the stashed income. However people declaring their income in excess of threshold limit will be subjected to scrutiny.
Fake Note Circuits
Terrorism is a frightening thing and has been running their operations using fake currency notes. Hence withdrawing the entire series of these high-value currency notes and introducing new currency definitely tantamount to a surgical strike on these groups.
Rural Economy
People in rural India who have a significant amount of Rs.1000 and Rs.500 notes, but no official form of identification will have a tough time in exchanging their notes. Most of the rural population does not have even the slightest idea of banking. Hence this is likely to come across as a huge impact for such sections.
Domestic/Household Sector
The logic behind this demonetization is to curb the use of these high value notes in the black money market. Now almost everyone has Rs1000/500 notes so now it would become difficult for the common people to do their business/ household works easily.
Read Also: Demonetization not Good Economics While GST is: Former Indian World Bank Chief Economist
Favorable Impacts on Following Sectors
Bank Deposits will Spike
Banks are expected to witness a surge in deposits, this will increase bank’s deposits by a huge margin and this will increase their lending activities.
Deflation in the Economy is Expected
The combined effect of above would lead to a wider impact on the economy namely deflation. Sectors like real estate, construction material and unorganized trade will see significant pain in the near term.
Impact on Jewelry and Real Estate Business
The decision of government has been welcomed by the jewelery industry as demand for gold will rise and people will have more faith in gold than the currency notes. Hence it is expected to benefit the industry.
On the Way to Cashless Economy
As we know cash withdrawals limit from ATM and Banks is being restricted, this will lead to payment mechanism through online/card payment (in simple words card transactions will slowly replace the cash transaction in daily activities).
Recommended: Indians Hoping Better GST Regime With Demonetisation
