Bitter medicine for growth: Experts see temporary slowdown in 6 months

Experts see temporary slowdown in 6 months.

In a major crackdown on black money, the government on Tuesday scrapped Rs 1000 and Rs 500 notes, a surprise move that experts say could slow down economic activities over next 6-8 months but things would become normal after a year.

While making the announcement, PM Narendra Modi said a window will be provided to exchange scrapped notes till December. He also announced that a new series of Rs 500 and Rs 2000 notes will be introduced.

Property prices could crash, adding to the woes of the real estate sector which is already reeling under slowdown, said Sudhir Malik, a chartered accountant, said while commenting on the government’s action.

Gold sales could also get impacted. However, the impact the yellow metal will be relatively less compared to the property, Mr Malik said. “Consumers will have to pay more as the scope of making cash transactions to avoid paying taxes will vanish. Economy will be sluggish over next 6-8 but eventually things would become normal after one year,” Malik added.

Explaining the rationale behind the government’s action, economic affairs secretary Shaktikanta Das told media persons that while the nominal GDP grew by 30 per cent between 2011 and 2016, but circulation of `500 and `1000 notes increased more than 40 per cent and 100 per cent respectively.

Deepak Parekh, chairman, HDFC Bank, termed the move a bold one ahead of UP and Punjab elections that would impact political class more than industry and public.

According to Ftappci president Ravindra Modi, the move will bring businesses to a standstill until the clarity emerges. However, he added that it will boost the country’s growth. He requested the government to ensure that the transition happens smoothly.

Vinod Dhall, former member, Competition Commission of India, said: “It is a good move essentially aimed at unearthing black money. Besides discouraging cash transactions, it will also push people into banking channels.”

Agreeing, former cabinet secretary B.K. Chaturvedi said that move would go a long way in curbing circulation of black money but expressed fear that it would make a return with new currency soon.

Giving a different take to the government move, R.K. Arora, chairman, Supertech said that the real estate sector will now get liquidity as people will deposit their unaccounted money in banks. “It should create the desired liquidity in the market that would help the sector double its growth. Moreover, higher returns given by the sector will prompt people to put this money,” Mr Arora said.

Why RBI is issuing Rs 2000 notes Rs 2000 banknote is designed to eradicate black money using state-of-the art indigenous nano technology. Every Rs 2,000 currency note is embedded with a Nano GPS Chip.

Q. How the embeded NGC Technology Works The unique feature of the NGC is it doesn’t need any power source. It only acts as a signal reflector. When a satellite sends a signal requesting location, the NGC reflects back the signal from the location, giving precise coordinates, and the serial number of the currency back to the satellite. This way every NGC embedded currency can be easily tracked and located even if it is kept 120 metres below ground level. The NGC cannot be tampered with or removed without damaging the currency note.

Q. How will this help eradicate black money menace Since every NGC embeded currency can be tracked. The satellite can identify the exact amount of money stored at a certain location. If a relatively high concentration of currency is found a certain location for a longer period of time at suspicious locations other than banks & other financial institutions. The information will be passed on to the income-tax department for further investigation. Sensex to see mixed result Mumbai: The government’s move is expected to have mixed impact on the domestic bourses on Wednesday with the sectors highly exposed to black money.

According to market participants, real estate demand is expected to come down in the short term, which could also impact business growth of other sectors associated with real estate and construction such as cement and steel and hit their stocks.