Benefits of Demonetisation foreseen by economists:
1. While the government’s demonetisation drive will likely negatively impact the economy in the short term, it could help over the longer term propel economic growth into double-digit levels as more of the informal economy becomes formal and the Goods and Services Tax comes into effect, according to economists.
2. Another benefit from the drastic currency step could be a reduction of banks’ non-performing assets, a critical constraint that is holding up the flow of bank credit for private sector investment in the country.
3. More savings will enter the formal financial economy. India has a fairly high savings rate, but the financial part of that is low, so that is likely to go up. Then the exponential increase in all the cashless mechanisms like cashless wallets and online banking may also help in the formal part of the economy.”
4. Interest rates will come down because the money will go to the banks and to some extent some of it will go to the government as taxes. Also, there is going to be a short-run demand shock. But a lower interest rate will cushion this to some extent. Once the RBI’s currency liability shrinks, we think they will have lower open market operations.”
5. The consumption of high-value items like jewellery or real estate will get impacted as these have been popular with those having unaccounted income or wealth.
6. Small businessmen and self-employed professionals would make attempts to become a part of the formal economy over time by reporting higher income and paying full income and indirect taxes.
The overall economic impact:
1. Likely appreciation of the rupee
2. Sharp slowing in inflation
3. The banking system getting a boost
4. Real estate prices falling about 20-25 per cent before stabilising, according to the domestic brokerage.
5. Stocks would benefit the most due to the gradual shift from physical assets to financial assets.