After Indian Prime Minister Narendra Modi’s surprise demonetisationSee Demonetised banknote. More on November 8, 2016 of the Rs 500 and 1000 banknotes – which account for 86% of all rupees in circulation – the country is still suffering. This sudden move led the economy to a complete standstill as the population spent days lining up at banks scrambling to exchangeThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More their old “worthless” notes and deposit them in a bank account. In addition, most of the ATMs had not been reconfigured to distribute the new banknotes.
Investors and consumers seem to have been shaken by this changeThis is the action by which certain banknotes and/or coins are exchanged for the same amount in banknotes/coins of a different face value, or unit value. See Exchange. More. Fast-moving consumer goods decelerated about 1.5% in November, while firms’ investment proposals decreased from 2.4 trillion rupees ($35 billion) per quarter to 1.25 in the one that ended last December. As a consequence, corporate-credit growth fell to its lowest level in 30 years, and annual GDP growth is predicted to decrease half a percentage point, from 7.3% in 2015 to less than 7% for the 2016 fiscal year.
Narendra Modi stated that the main purpose of this measure is to fight corruption and tax evasion. The withdrawal of these two notes is also supposed to boost the economy as banks gain liquidityDescribes the extent to which assets or rights can be converted into cash without causing a significant decrease in the asset’s price. Accordingly, liquidity is often inversely proportional to the profitability of the asset and involves the trade-off between the selling price and the time needed to convert it to cash. In finance, cash is considered the most liquid asset and cash is sometimes used as a synonym for liquidity (e.g. cash reserves; cash pooling…). More from growing deposits. Finally, the government aims to move towards a “less-cash” India and promote the use of alternative electronic and mobile paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More instruments in a country where cashMoney in physical form such as banknotes and coins. More currently accounts for 90% of all transactions.
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