September 22, 2018

A drastic move with mixed effects on the economy of India

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Big amount of fluctuation may take in the Indian Share Markets where the reasons are twofold.   If Trumph’s victory is one then sufferings due to the abolition of Rs 500 and Rs 1000 notes is another reasons. The investors have a tension to change those notes vis a vis there is an uncertainty about the future of share market. Both these have far reaching effect. At this point of time, the investors, also the speculators have to monitor the trends with patience. Also sometimes they need to initiate some quick actions. Smart decisions are needed.

Cancellation of 500 and 1000 rupee notes, undoubtedly, is a big and drastic move of the Modi Government to erase the sign of black money and also terrorism. At least, a strong action with good long-term objective has been taken, perhaps, for the first time to make the black money scrapped and most of the common men, have no such unfavorable view regarding the objective behind Modi’s action. Still the effects at short and medium-term, cannot be ignored.  Most of the people have to suffer more or less with the supply of new notes for a few days vis a vis industry, too, will suffer. These will have effect on the market which will cause the disturbance in Sensex.

More on demonetisation PM Modi announced scraping of 500 and 1000 currency notes, end of black money in India

Most of the time we believe that supply of black money is more than supply of white in Indian Financial System and a major part of these black money was invested, almost regularly in the product -service market.  Sudden non-existence of this money has an effect on demand. Fall in demand will certainly cause a bleak picture of business in industries for a few days. Secondly the value of money can be expected to be fallen. Due to absence of current notes or due to inadequate supply of these notes, law of demand will show the reverse that is product price will decrease with the decrease with demand due to absence of many potential buyers. Thirdly farmers may suffer who are waiting to pick the advantage of good past rainy season. The problem is that the transaction of most of the agricultural goods are made in cash. The farmers may not get the right price due to inadequate supply of current notes. Fourthly, the construction industries, who have been suffering already, now will suffer more due to absence of black money which was used in this type of industries. As a result the demand and price of the flats may be reduced which causes huge unemployment of labors. Due to non-existence of black money, the demand of consumer products like TV, Refrigerator, and Washing machine is expected to be fallen. Again it has effect on employment for a few months at least in these industries also there may be a possibility of future prices rises of consumer goods.

But there will be so many good effects. First of all, the flat – buyers may get the flats at reduced price. Interest on house building loan may be reduced. Secondly banking industry is expected to be boomed in near future because they are accumulating huge amount of money in both savings and current accounts. Only 4% interest has to be paid by banks in case of savings account and no interest is paid to current account holders. That cost of collection if fund is absolutely low where accumulation of

fund is  becoming very high , perhaps almost infinitive within a few days. Clients are getting more accustomed with the use if cards which will benefit the banks. Another noted effect is that, most of the people will not keep the big amount of money at their home after this incident. Perhaps some of them mat be interested in depositing their money in liquid or mutual funds, as an alternative.

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About Suvendu Narayan Roy 36 Articles
Author and Faculty member of Finance Analyst -Financial and Political Reputed Article writer Director - Knowgen Educational Services Pvt.. Ltd Co-editor JCBR, a cross functional business research journal