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Demonetisation: It can’t be business as usual any more

The Prime Minister’s move on demonetising Rs 500 and Rs 1,000 notes is now slowly playing out. Apart from inconvenience which the move is causing, it is still early days to say what this really means. But nonetheless, some things are becoming clear. First, the move is one of the most radical experiments in trying to solve the black money and counterfeit currency conundrum in not just India but across the world. Second, there is expected to be a demand-side shock which has the potential to impact business activity in particular sectors in the coming months.

Third, with the parking of funds with the banking sector there is expected to be a drop in interest rates and moderation in prices in the medium- to long-term. Fourth, the move will also see a change in habits of people, probably reducing dependence on cash. Another change will be dependence on gold and housing as a stock of money. Finally, the move could have been done better and the inconvenience somewhat reduced.

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