The Demonetisation driven cash crunch may paralyse the economic activity.
Demonetisation has adversely impacted manufacturing and agricultural growth. The disruption to the economy will be such that there will be possibly, no growth in this last quarter of the year and actually a shrinking of the economy.
Interview with Surajit Mazumdar, Vikas Rawal
Interviewed by Prabir Purkayastha
Most active segments of the population who constitute the ‘base of the pyramid’ use currency to meet their transactions. For instance the daily wage earners, other labourers, and small traders, who reside out of the formal economy, use cash frequently. These sections will lose income due to demonetisation. Cash stringency will compel firms to reduce labour cost and thus reduce income to the poor working class. There will be a trickle up effect of the liquidity chaos to the higher income people with time. When liquidity shortage strikes, it is consumption that is going to be adversely affected first. Reduced consumption, income and investment may bring down India’s GDP growths as the liquidity impact itself will last three – four months at the least.
Prof. Surajit Mazumdar and prof. Vikas Rawal talk about the issue more extensively.
Courtesy: Newsclick