‘New currency move to bring down inflation'

Published: 15th November 2016 02:11 AM  |   Last Updated: 15th November 2016 03:51 AM   |  A+A-

By Express News Service

BHUBANESWAR: Initial hiccups notwithstanding, the move to demonetise economy is expected to bring down inflation, a major cause of concern in recent times. Economists and market insiders are of the view that the economy will benefit from reduction of black money as it will lead to higher tax collection, better business environment, less corruption and transparency. Senior chartered accountant Pradipta Kishore Mahapatra said when money chases goods, the price of the latter is bound to increase.

But if goods are available and there are less buyers, it will have a direct impact on the price, he said. ''After demonetisation, the flow of money will slow down in absence of black money and counterfeit notes, which in turn will automatically reduce the demand of goods.

Therefore, the chances of inflation going down are more,'' Mahapatra reasoned. It is also predicted that the movement of goods and money will be hit till normalcy is restored. Since the wholesale trade comprises over 40 per cent of the total business, the consumer sector which works mainly on cash transactions will likely to witness liquidity constraints.

Prof DV Ramana of XIMB said there will be considerable fall in price because of supply-demand imbalance. ''Since people will spend less, there will be reduction in demand. And with black money possibly going out, the money supply will shrink which will ultimately result in lowering inflation,'' he said. According to experts, when there will be no black money, which had created a parallel economy in the country, the buying capacity of people will come down and it will have a positive impact on the inflation. ''The demonetisation will have a cascading effect on the economy.

With the decreasing input cost, the cost of production will be less for which the price of products will come down subsequently. The greed and corruption will also see a declining trend since most of the transaction will be done through banks,'' said a market insider PK Padhi.

After demonetisation, transactions will now begin to move to white economy through the banking system which means there will be surge in bank deposits. Besides, the banks are also likely to reduce interest rate after being flushed with funds, leading to a big push to consumer sentiment. All sectors may not be affected, but the ban on higher denomination currency notes will definitely have an impact on real estate and trading on gold, Padhi said and hoped that inflation is likely to witness a downward trend if the parallel economy is liquidated.

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