Question

Demontisatlon is a boast for indian economy bad effects

Answer 1

 The demonetisation of old Rs 500 and Rs 1000 by the Modi government on November 8 has drawn different views from various experts, economists, political parties and even rating agencies.

1) GDP growth rate is likely to slow down anywhere by 0.5 percent to 2 percent from the last year GDP growth of 7.6 percent for atleast for next 6 months.

2) After a slowdown of 6-8 months the GDP is expected to grow rapidly.

3) More than half of the non-tax paying businesses in the informal sector (40 percent share in GDP) will become unviable and cede market share to their organised sector counterparts.

4) Interest Rates will come down after sometime since the demand for credit will fall.

5) Money supply will fall in the economy as it is estimated that Rs. 3 Lakh crore out of the total Rs 5 Lakh crore will never be converted (this will be a profit to the RBI and the government). This should thus reduce inflation. However if the production is reduced below the fall in money supply then inflation can rise, which although is very less likely.

6) Revenue of the government will rise due to increase in Taxation since black money will be heavily scrutinised and taxed. This will reduce Budget Deficit. When the government will have more money it will be able to spend more on the welfare of people.