The Demonetization drive by the Centre has not only caught the average citizen unawares but has also thrown a spanner in immediate demand for automobiles, consumer durables, electronics industry in the country. This impact would obviously be more in the short term, but over long term India economy will revive stronger than ever.
8th November 2016 Prime Minister of India in a 40 minute long speech announced the Demonetization of existing notes of Rs 500 and Rs 1000 during a televised address on Tuesday evening. PM announced that the notes of Rs 500 and Rs 1000 “will not be legal tender from midnight tonight” and these will be “just worthless pieces of paper.
It is not exactly a Demonetization exercise— as it does not dispense with the value of a note—but one that simply replaces the existing notes with new ones, thereby addressing the issues of counterfeit currency and black money. In countries where currency notes are demonetized, the denominations simply disappear from the system. But for simplicity I will continue with the word Demonetization in this article.
Reasons for Demonetization:
1) To eliminate black money in the economy.
2) To reduce the cash circulation in the economy which “is directly proportional to corruption in our country,” according to PM Modi.
3) To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India.
4) The move is estimated to scoop out crores of black money from the economy.
Effects of Demonetization on Manufacturing Industry
September 2016, the Index of Industrial Production (IIP) growth displayed a positive print after two-consecutive month’s contraction. IIP for September stood at 0.7% versus the (-)0.7% recorded in August 2016. October IIP numbers to be on the strong side, on the back of festival season. However, the situation is expected to turn sour thereafter from November, which would clearly have a negative impact of currency Demonetization.
This story is from the November 2016 edition of industrial business MART.
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This story is from the November 2016 edition of industrial business MART.
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