Demonetization and its efficacy

Sometimes, thought the target is missed, prize is won. Demonetization drive started as a drive to alleviate the circulation of black money in the economy. But, it resulted in improvement in usage of digital payment systems and reduction in interest rates by most banks. However, there was a short term reduction in GDP growth rate and escalation of unemployment due to decline in demand.

In the analysis carried out by Mint, the industries such as Mining, Metals and Machinery were not affected by demonetisation. Most affected were customer facing industries like consumer goods sector. Consumer electronics and domestic appliances were badly hit. There was also a 30% fall in house prices in metropolitan and Tier 1 cities. So, due to temporary slowdown of economy, IMF slashed India’s growth forecast by 0.4% for next fiscal.

According to RBI, banks have received around Rs. 5 trillion by 18th November, 2016. Leveraging this opportunity, online payments systems promoted their brands and improved their market share. Paytm saw a fivefold increase user base after demonetisation and so have do other companies like Mobikwik, Ola Money etc., Government also swung into action through their digital payment systems like BHIM and UPI. However, the continuation in usage of digital payment systems is yet to be seen.

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