1.GROWTH
As investors try to assess the impact of Modi’s move, all eyes will be on the government’s forecast for the year through March -- due Jan. 7. The central bank and private economists have lowered their projections for the economy where 98 percent of consumer payments are made in cash.
2.FACTORY OUTPUT
The Nikkei purchasing managers’ index signals a contraction in the key services sector, which accounts for about 60 percent of gross domestic product. Car purchases, a main indicator of manufacturing demand, grew at the slowest pace in nine months in November while sales of motorcycles and scooters -- where about 65 percent of payments are in cash -- fell for the first time in almost a year.
3.LOAN GROWTH
Commercial credit sank to a 19-year low as backlogs piled up at factories and banks stayed busy with the task of exchanging currency notes. Meanwhile deposits surged, pushing the credit-deposit ratio to a six-year low.
"For a cash dependent economy, a cash crunch is not good," said Madhavi Arora, Mumbai-based economist at Kotak Mahindra Bank Ltd.
4.TRADE
The trade deficit widened to a 16-month high as export growth slowed in November and imports surged. Most worryingly, gold shipments jumped 26 percent in November, triggering speculation that consumers were converting their cash into non-productive holdings of the precious metal.
5.JOBS
Export numbers also hinted at the employment outlook. A decline in gems and jewelry, a sector that depends on unorganized manual labor, suggested the cash crunch was affecting employment, said Kapil Gupta, an analyst at Edelweiss Securities Ltd. Rafeeque Ahmed, chairman of the council for leather exports, said Modi’s move has slashed about 75,000-100,000 jobs from his industry.
6.INFLATION
As demand dips for goods, price pressures are easing. The benchmark consumer inflation gauge plunged more than estimated to below the mid-point of the central bank’s target. However, this wouldn’t be the first time that economists have been surprised and it may not open much room to ease policy. So-called core inflation -- excluding food and fuel -- is sticky, the central bank said this month.
7.RATINGS
India’s currency clampdown won’t impact the nation’s credit ratings, according to S&P Global Ratings. However, the company said Indian corporates and banks will face short-term "execution and adjustment risks."
Fitch Ratings called the demonetization a "one-off event" and said that while the short term hit will be significant, people will find "inventive ways" around the cash crunch. Moody’s Investors Service placed on negative watch three micro-finance lenders, indicating that their ratings may be downgraded.
8.Impact on GDP and economy - Negative
The GDP growth of India is expected to slow down due to the impact demonetization has on various sectors. The decline in demand due to unavailability of cash is expected to bring down the GDP growth by 0.5% as per a forecast by CARE. A significant proportion of business in India is transacted in cash which employs a huge proportion of workforce. Demonetization can result in disruptions in these businesses posing a threat to the employment of the weaker section of the society.
9.Impact on Tax Revenue - Positive
Any abnormally high deposits will be scrutinized and will be subject to a 200% penalty. At least a part of the money being deposited will be subject to tax and penalty. This will result in an increase in the government revenue and hence reduced budget deficit.
As investors try to assess the impact of Modi’s move, all eyes will be on the government’s forecast for the year through March -- due Jan. 7. The central bank and private economists have lowered their projections for the economy where 98 percent of consumer payments are made in cash.
2.FACTORY OUTPUT
The Nikkei purchasing managers’ index signals a contraction in the key services sector, which accounts for about 60 percent of gross domestic product. Car purchases, a main indicator of manufacturing demand, grew at the slowest pace in nine months in November while sales of motorcycles and scooters -- where about 65 percent of payments are in cash -- fell for the first time in almost a year.
3.LOAN GROWTH
Commercial credit sank to a 19-year low as backlogs piled up at factories and banks stayed busy with the task of exchanging currency notes. Meanwhile deposits surged, pushing the credit-deposit ratio to a six-year low.
"For a cash dependent economy, a cash crunch is not good," said Madhavi Arora, Mumbai-based economist at Kotak Mahindra Bank Ltd.
4.TRADE
The trade deficit widened to a 16-month high as export growth slowed in November and imports surged. Most worryingly, gold shipments jumped 26 percent in November, triggering speculation that consumers were converting their cash into non-productive holdings of the precious metal.
5.JOBS
Export numbers also hinted at the employment outlook. A decline in gems and jewelry, a sector that depends on unorganized manual labor, suggested the cash crunch was affecting employment, said Kapil Gupta, an analyst at Edelweiss Securities Ltd. Rafeeque Ahmed, chairman of the council for leather exports, said Modi’s move has slashed about 75,000-100,000 jobs from his industry.
6.INFLATION
As demand dips for goods, price pressures are easing. The benchmark consumer inflation gauge plunged more than estimated to below the mid-point of the central bank’s target. However, this wouldn’t be the first time that economists have been surprised and it may not open much room to ease policy. So-called core inflation -- excluding food and fuel -- is sticky, the central bank said this month.
7.RATINGS
India’s currency clampdown won’t impact the nation’s credit ratings, according to S&P Global Ratings. However, the company said Indian corporates and banks will face short-term "execution and adjustment risks."
Fitch Ratings called the demonetization a "one-off event" and said that while the short term hit will be significant, people will find "inventive ways" around the cash crunch. Moody’s Investors Service placed on negative watch three micro-finance lenders, indicating that their ratings may be downgraded.
8.Impact on GDP and economy - Negative
The GDP growth of India is expected to slow down due to the impact demonetization has on various sectors. The decline in demand due to unavailability of cash is expected to bring down the GDP growth by 0.5% as per a forecast by CARE. A significant proportion of business in India is transacted in cash which employs a huge proportion of workforce. Demonetization can result in disruptions in these businesses posing a threat to the employment of the weaker section of the society.
9.Impact on Tax Revenue - Positive
Any abnormally high deposits will be scrutinized and will be subject to a 200% penalty. At least a part of the money being deposited will be subject to tax and penalty. This will result in an increase in the government revenue and hence reduced budget deficit.
