The sudden and abrupt announcement by the government to make the currency notes of INR 500 and INR 1,000 invalid as legal tender from mid night of 8 November is part of the government's attempt to crack the whip on black money, fake currency and counter terrorism. The currency of the aforesaid denominations constitutes around 86% of the total value of the currency in circulation. The government has relied upon Section 26(2) of the Reserve Bank of India Act for its action, which empowers the government to declare that any series of bank notes, of any denomination, shall cease to be legal tender through a gazette notification.
The demonetization saga was unveiled after disappointing collections were made under the Income Disclosure Scheme (IDS), which provided people with the option to disclose unaccounted money. The impact of this questionable move has been felt across various sectors with differing intensities and which may linger for an inordinate period of time.
According to the statistics of Consumer Electronics and Appliances Manufacturers Association the sales of consumer durables including TVs, refrigerators, washing machines has fallen by 40 percent. Another reputed analyst has estimated a loss in sales in the FMCG sector around Rs.3,800 crore.
In the automotive sector, sales during the month of December have fallen a 16-year low with overall volumes shrinking by 19 percent. In a study conducted by Society of Indian Automobile Manufacturers it was derived that all segments of the industry have been hit including the sale of two-wheelers, one of the major transport medium in India, which have dropped considerably by 22 percent, cars by 8 percent and commercial vehicles by 5 percent.
A study conducted by the Knight Frank, a real estate consultancy firm shows that the real estate sector across India has swindled too, with housing sales across the top eight cities falling by 44 percent during October-December quarter of 2016, which is the lowest recorded in six years. The international agencies including the World Bank has also estimated a shrink in the GDP growth of India due to demonetization.
The Indian economy has always balanced itself upon four pillars with three of its pillars, i.e. private investment, domestic consumption and exports marginally losing its footing while the fourth pillar i.e. Public Investment, as always, lacking the much needed sheen.
Therefore to mitigate the effect of demonetization as well as to accelerate the economic growth, the BUDGET 2017 must act as a catalyst to put all growth drivers on full steam and throttle and should serve as an excellent opportunity for Finance Minister Arun Jaitley to reform, rejuvenate and restart the story of 1 trillion dollar Indian economy.
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