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

New Delhi: 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 in a late evening televised address, PM Narendra Modi said a window would be provided to exchange scrapped notes till Dece-mber. He also announced that a new series Rs 500 and Rs 2000 notes would 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 compared to the property, 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 Rs 500 and Rs 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 here,” he said.