Currency withdrawal: The possible implications

A look at some areas which are likely to be impacted

Updated: November 15, 2016 3:35 am
demonetisation, india, india demonetisation, currency ban, old currency, atms, demonetisation effect, indian express, national news, india news A driver displays a notice on the windscreen of his auto-rickshaw stating the refusal to accept old Rs 500 and Rs 1,000 notes in Agartala on Monday. (Source: Reuters)

The government’s move to withdraw higher denomination currency notes is likely to have short term macroeconomic impacts, though there are larger implications in the medium to long term, says Deloitte.

SHORT-TERM IMPACTS

Disruption in the current liquidity situation as households are likely to get affected by the note exchange terms laid by the government. Though clarity is unfolding on this, commodity transactions and general cash market transactions are likely to feel an immediate impact

Unorganised sector proceedings including small trade market activities will remain volatile in the short term

Roadside vendors, cab drivers, kirana stores etc have already stopped accepting INR 500 and INR 1000 notes.

Overall negative impact on disposable income is expected along with likely disruption in the consumption patterns of the general populace

Negative GDP impact in the current quarter as consumption gets a shock in the immediate term

EQUITY MARKETS
Markets will recover in the medium term as the uncertainty eases out

SECTORAL IMPACTS

While sectors with linkages to the unorganised economy are likely to be affected, technology and financial services are expected to gain in the medium to long term.

The commodities and agricultural sector, including the market for consumer durables and non-durables is expected to feel the heat.

In the short to medium term, large denomination purchases will likely be made via electronic purchases rather than through brick and mortar outlets. This will impact the retail sector adversely.

The real estate sector is likely to see a significant negative impact in the medium to long term particularly in the repurchase market.

The luxury goods market is also likely to get affected as this move represents an erosion of real wealth to a large number of people.

Areas of sub-sectoral impact will be felt in luxury cars, SUVs, gems, jewellery, gold and high-end branded products

POSITIVES
There is likely to be a reset of spending patterns as this move represents indirectly, a significant push towards a cashless economy.