Cash-Intensive Sectors Face the Brunt of Demonetization

BENGALURU: As the country grapples to come to terms with demonetization, there are sectors which have been hit hard by this move. They are still trying to come terms with this move that was announced on November 8 to put a lid on black money and provide the impetus for a digital India.  According to the RBI, Cash-intensive sectors like retail, restaurants, transportation, and the unorganized sector are facing tough times and this trend is bound to continue for some time to come, as reported by Business Insider.  

The Monetary Policy Committee (MPC), RBI said “the withdrawal of old 500 and 1,000 notes could lead to a temporary lowering of inflation of the order of 10-15 basis points in Q3 (October-December) period.” 

RBI is still not clear about the effects of the withdrawal of the 500 and 1000 notes and believes that it might take a while to arrive at some final conclusion.

The risks associated with the withdrawal of 500 and 1000 notes  is going to cause short term disruptions for sectors like retail, transportation, and the unorganized sector. They are going the face the brunt of demonetization the most. The second channel is aggregate demand compression associated with adverse wealth effects. 

RBI further added that the effect on various sectors is going to wane with the circulation of new currency notes in the market and it is only a temporary phase which is likely to pass.

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