Real shortages impeded transactions Prices could fall further as

Real estate

Prices declined, as wealth fell while cash
shortages impeded transactions

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Prices could fall further as investing
undeclared income in real estate becomes more difficult; but tax component
could rise, especially if GST imposed on real estate

Broader economy

Job losses, decline in farm incomes, social
disruption, especially in cash-intensive sectors

Should gradually stabilize as the economy
is remonetized


Growth slowed, as demonetisation reduced
demand (cash, private wealth), supply (reduced liquidity and working capital,
and disrupted supply chains), and increased uncertainty

Could be beneficial in the long run if
formalization increases and corruption falls


Cash-intensive sectors (agriculture, real
estate, jewellery) were affected more Recorded GDP will understate impact on
informal sector because informal manufacturing is estimated using formal
sector indicators (Index of Industrial Production). But over time as the
economy becomes more formalized the underestimation will decline. Recorded
GDP will also be overstated because banking sector value added is based
(inter alia) on deposits which have surged temporarily

Informal output could decline but recorded
GDP would increase as the economy becomes more formalized

Tax collection

Income taxes rose because of increased
disclosure Payments to local bodies and discoms increased because demonetised
notes remained legal tender for tax payments/ clearances of arrears

Indirect and corporate taxes could decline,
to the extent growth slows Over long run, taxes should increase as
formalization expands and compliance improves

Uncertainty/ Credibility

Uncertainty increased, as firms and
households were unsure of the economic impact and implications for future
policy Investment decisions and durable goods purchases postponed

Credibility will be strengthened if
demonetisation is accompanied by complementary measures. Early and full
remonetisation essential. Tax arbitrariness and harassment could attenuate



Demonetization of high-valued currency was implemented at the
time of sowing of rabi crops and post-harvest operations of the Kharif crop. A
huge amount of cash is required by the farming community to conduct both these
activities. As a result of this, the time of execution rendered the farming
fraternity worst hit as compared to the previous instances of demonetization in
India which happened when vital agricultural operations have ceased in the month
of January. There were difficulties in receipts too against the sale of Kharif

Due to issues in labour hiring, delay in input procurement,
provision of currency for household purposes, unavailability of informal and
formal credit in cash and general distress in the economy, there was a delay in
the sowing of the Rabi crops by one or two weeks. Among
major Rabi crops growing states, the overall shortfall in sown area is about 20
per cent in Tamil Nadu and Karnataka and 8 per cent in Gujarat and Andhra
Pradesh. Similarly, J&K and Himachal Pradesh also show a major deficit in
Rabi sowing. Largest shortfall is seen in Kerala. All other major states
indicate small to a large increase in crop sown area this year over the normal

the usage of the high denomination demonetized currency was allowed for farmers
to procure agricultural inputs, not all farmers were aware of the provision.
Even out of those who were aware, many couldn’t use it due to uneven and
distant location of  government
agro-input agencies. According to Fertilizer Monitoring System (FMS) in Department
of Fertilizers under Ministry of Chemicals, Petrochemicals and Fertilizer,
fertilizer sale during the current Rabi season was lower than the fertilizer
sale in the corresponding period during 2014-15 and 2015-16 by 7.47 per cent
and 7.0 per cent. It was also found that the unavailability of new denomination
currencies in rural areas, non-acceptance of old high denomination currency by
private input dealers, distant location of government agro-input agencies were
some of the hindrances which farmers have faced in the procurement of inputs. However,
use of own seeds and stock of fertilizers, borrowing from the fellow farmers,
purchasing on credit from the private traders, purchase of inputs on credit
from cooperatives, & credit from the traders for purchase of inputs were
some of the commonly followed strategies that helped farmers to manage farming
activities in the cash crunch situation. Inability of farmers to use cell
phones as a medium of connecting in to the market was one of the major
impediment to facilitate farmers.

arrival and price of perishables like vegetables and fruits dropped post
demonetization. The small and marginal farmers were most affected again as far
as the sale of agricultural produce is concerned and the large farmers were
least affected. The farmers faced problems like delayed payment for produce,
payment in parts, absence of aggregators in the village for a while, the
absence of transportation, bumper harvest and unavailability of adequate
storage infrastructure.


was a substantial increase in the deposits in banks after demonetization which
can be invested to improve profitability and liquidity. Threats like
misappropriation, theft and dacoits have been reduced due to improvement in
digital tools and equipment to avoid cash loss in transactions. Since people
have kept their surplus money in banks, the cash has become an asset for them
to earn income from. Demonetization also increased the customer base of banks
while increasing deposit corpus.

these positive impacts, there are major negative influences too. 100% CRR on
incremental deposits meant that banks did not earn any interest on Rs. 3 Lakh
crore of deposits for nearly a fortnight. ATM charges were waived off during
banned note exchange and banks incurred a loss of Rs. 20 in every transaction.
Banks incurred loss of 1% discount charges from merchants on using of every
card transaction. Banks were focused on exchanging currency notes and they were
not able to sell any loan products. This made banks to curb their lending
activities. During demonetization, some SME businesses had seen their sales
drop by 50-80 percent and could default in their installments to banks. This
led the banks to consider it as NPA and affected its level in banks. Bank
Employees were put under pressure and overtime work environment. It depressed
them and kept imbalanced life style. Few cases were found where the employees
committed suicide due to work pressure.


has undoubtedly resulted in industrial recession. February
2017 had an index of industrial production that was 1.2 percent below that of
February 2016; and for manufacturing the index was a full 2 percent below a
year ago. February 2016 itself had witnessed a 0.6 percent growth compared to
the preceding February, so that the decline in growth rate is
2.6 percent. If we calculate the growth in the index of industrial production
for consumer non-durables for the months December-February 2016-17 (over the
corresponding months of 2015-16), ie, leave out November itself when the effect
of demonetization on output could not have been felt in view
of the time-lags, we obtain a growth rate of -5.3 percent. While the growth
rate was -1.85 percent for the period April-November 2016-17, it fell to -5.3
percent for the next three months, which shows a decisive break in the trend.
This trend was negative for the year as a whole, but it became even more
negative for the three months December-February 2016-17 when the effect of
demonetization got further superimposed on the already negative trend.