On 8th November 2016, Indian government came out with unpredictable move on counterfeit currency, corruption, black money and terrorism by announcing of demonetization and ceasing Rs 1000 and Rs. 500 notes as legal tender. The impact of Demonetization is a very big topic, we will discuss some important effect of demonetization on the market.
- 1 Below are some effects of demonetization in India:
- 2 1. The impact of demonetization on the retail market:
- 3 2. The Impact of Demonetization On Stock Market:
- 4 3. The Impact of Demonetization On Banking Sector:
- 5 4. The Impact of Demonetization on Real Estate Sector:
- 6 5. Impact of Demonetization on Indian Economy:
Below are some effects of demonetization in India:
1. The impact of demonetization on the retail market:
The Indian retail section generates a lot of cash transactions, there might be a decrease in the sales and purchases for the next two quarters.
Moreover, the effect is felt more by the small traders and the unorganized retail section, as opposite to the organized retailers.
The impact can be seen on few sectors like jewels and automobile; undoubtedly it will take some time to recover. However, the use of plastic currency and online transactions will keep on releasing the money into the retail market.
2. The Impact of Demonetization On Stock Market:
The stock market in India have fallen a bit more in comparison with emerging Asian markets. The stock market has fallen by 3.8%, such fall is higher than other emerging Asian markets.
The Sensex is compromising large companies which might be affected as much by the step of demonetization. Bombay Stock Exchange’s mid and small caps indices have fallen by 6%. The significant impact of the demonetization will be in the unorganized sector which isn’t reflected in the markets.
3. The Impact of Demonetization On Banking Sector:
As the banks and the financial institutions get a lot of cash in their hands, they will start lending money to the public at lower interest rates. Consequently, the interest rate on borrowings will fall. Moreover, as the CASA (Current Account Saving Account) increases, now the banks won’t be requiring any other means of getting the money (either in form of loan from RBI or from other commercial banks).
4. The Impact of Demonetization on Real Estate Sector:
Demonetization has likely reduced the demand and adversely hit the prices in the real estate sector. Property prices are going to fall by not less than 10-15% due to the unexpected move of demonetization. However, the augmented liquidity in the banks will attract genuine buyers or investors to invest in real estate sector.
5. Impact of Demonetization on Indian Economy:
Removal of two highest denominations available in India will probably hit the economy in the short run. The service sector, which dominates the economy and includes a major chunk of cash transactions will likely to hit the hardest.
The downfall in Indian economic activity because of demonetization could last from 2 to 3 quarters. As a result, GDP growth rate in the quarters from September to December 2016 and January to March 2017 could be considerably lower than preceding years. Some growth might be observed in the first quarter 2017.