SHESHA H SHUKLA

PGP -1(B)

ROLL NO.: 20160123159

IMPACT OF DEMONETIZATION ON KEY SECTORS OF THE INDIAN ECONOMY

The Government announced the biggest Demonetisation exercise in the history of India on 8
November, 2016, a surgical strike against the black money in India by banning notes of Rs.
500 & Rs. 1000 for public use, with several exemptions and provisions made and updated
duly. This has affected peoples sentiments majorly, with the cash crunch or the liquidity in
their hands in short-term which has reduced an overall expenditure drastically. This move is
bound to affect the entire economy in short-term or long-term in both positive and negative
way. Following are the major impacts on the various sectors of the economy.

Real Estate:
Real Estate is facing a drastic bearish behaviour affected by the sentiments and the nature
of business. About 40% - 60% of the payments where done in cash in lieu of saving taxes and
due to inflated property rates. Now, the Real Estate rates are estimated to fall significantly
in coming months and hence the sales have slowed down. On the other hand, property
rates going down is a silver lining for the people to invest with the loan rates expected to go
down. With these changes, this sector will evolve with increased transparency.

Banking Sector:
Banks have reduced the interest rates on Deposits with the high availability of cash which
gives them a bigger profit margin with low cost of borrowing. Though the borrowing has
also affected due to low demand of the Luxury or Semi Luxury Products and banks
concentrating on the Demonetisation process. This move will increase banks income in the
long run with fee income from the increased use of Electronic payments, Debit & Credit
cards.

Hospitality & Travel:

Tourism has been drastically impacted due to the cash crunch. Foreign as well as domestic
nationalists are refraining from planning any tour in India as availability of Electronic
Payment Infrastructure is very poor in the tourist destinations. Though the Hotel Bookings
have not seen a drastic change as the major bookings are done in advance. In the long term,
there wont be a negative impact on this sector.

Automobile Industry:
In the short run, automobile industry has seen a huge slump, which will be rectified in the
long run. Majorly, two-wheeler market has seen a slow down as major transaction were
done in cash. The unorganised secondary market of automobiles is facing a hard time

SHESHA H SHUKLA, SECTION B, ROLL NO.: 20160123159

because most of the transactions were done in cash and demonetisation has impacted the
buying power of the masses.

FMCG:
With the low supply of money in the market, the FMCG industry has been affected but in a
short run. Big players like Britannia, Dabur, Parle have started cutting down on their
production for the period. The defaults and late payments will be organized after
demonetisation. Also, the payments which were pending from the wholesalers have been
paid in full in old currencies.

E- Commerce:
In lie with the sentiments of the masses, due to the cash crunch, E-Commerce industry was
bound to face slow down. Several orders in transit were cancelled, many products returned.
This move will encourage more electronics payments now which will be a relief and result in
low returns, which will reduce their operating cost. Payment wallets have been in demand
in this time of crisis and have capitalised this opportunity heavily during this period by tie-
ups with various platforms and channels.

Entertainment:
A good amount of undisclosed income is spent on this sector as cash is the major form of
transaction in this sector. With a hit on the undisclosed income and current cash crunch this
sector is supposed to face a slightly lower revenue period in Short as well as Long run.
Keeping the situation in mind, many movie release have also been postponed.

Luxury Market:
Extravagant things will have an extreme negative effect. Greater part of the general
population spends their undeclared wage on such items. After the choice, it is likely that all
extravagance sections like attire, furnishing, hardware, luxury car and partnered business
will take a hit. Media and cordiality enterprises are likewise liable to get influenced.

Gold:
People rushed to buy gold initially, but with the bullish gold prices the demand fell. The
prices are likely to fall shortly and hence there is a slump in the buying due to that
expectation. In the long run gold, will be considered a safe heaven due to lack of trust in the
currency which will bring back the demand following the drop in prices.

SHESHA H SHUKLA, SECTION B, ROLL NO.: 20160123159