Demonetisation a masterstroke, give it time to play out: CII

The recent move by the centre to demonetise high denomination notes of Rs 1000 and Rs 500 is likely to have an incredible result which will strike a blow at the heart of the illegal economy and block hoarders dynasty, feels Confederation of Indian Industry (CII).    

“After a short period of  inconvenience, when the economy adjusts to the sudden ban of denominations, CII expects a much stronger economy. India’s cash-dependence is extremely high with a currency-GDP ratio of around 12 per cent compared to 4-5 per cent in other developing countries. High level of cash usage tends to slow down the flow of money through the economy. As a transition to maximum usage of fintech for payments, spending will take a upper seat leading to additional economic growth. This is an economic masterstroke by the Prime Minister and must be given time to play out,” said Mr Chandrajit Banerjee, Director General, CII.

While it is not possible to have a firm estimate of unaccounted wealth, it is widely estimated at around a fifth of India’s GDP or around $450 billion. 

While some of this may be stored in cash, some may be in assets such as real estate and jewellery. 

This negatively affects the business environment, especially for those who comply with the law of the land and follow ethical practices, CII has said in a press release.

CII backs Modi’s decision.

The CII release further stated that this move will be positive for banks whose deposit mobilisation will be strengthened. 

The old currency notes will be deposited with banks and more households will find it imperative to open bank accounts and make use of card payments. 

Currency in the form of Rs 1000 and Rs 500 notes amounted to Rs 14.2 lakh crore as of March 2016, or about 85 per cent of total currency in circulation. 

If this is converted to current and savings deposits, there will be an increase in banks’ liquidity.