Demonetisation has had an impact on everyone — from the common man to big corporates. Godrej group chairman Adi Godrej shares his views on how the move will affect the economy, especially the hinterland. And how it compares with the demonetisation of 1978. Excerpts:

What will be the impact of demonetisation on the economy?

I feel in the medium to long term, this will be a very good move. It will reduce considerably the black money in the market. Also, there were a lot of fraudulent currency from outside the country being used for financing terrorism, crime, etc. So, that will be a big advantage. In the short term, because the new cash injection has not been sufficient, there is an effect on consumer offtake of certain items.

How long do you think it will take for consumer spending to go up again?

Once there is enough cash in the market, and I don’t think it will take long, sales will fully recover. Like, if you don’t have cash, especially in rural areas, it might be difficult to purchase certain items. But retailers have some stocks and households will also have some stocks.

These stocks will get depleted for a while, but once sufficient cash is available, it will be replenished.

By when do you think things will normalise?

We haven’t had demonetisation for many decades now. So, it is difficult to predict. But it will normalise in not too long a period of time. In the medium to long term, it will be beneficial. Particularly, the timing (of demonetisation) is such that GST is likely to be introduced from April 1.

GST also makes it very difficult to evade indirect taxes and it is a move that will also cut down a lot of black money. So, the combination of the two will be very good for the economy. With the good monsoon we have had, GST expectation and demonetisation, I wouldn’t be surprised if we get into double-digit growth in the next financial year.

Will the move impact corporate earnings in this quarter and the next?

It has been just a week. It’s too early and difficult to tell whether corporate earnings will be impacted or not. But to my mind, whatever impact is there, will be reversed once there is adequate cash. It is not a permanent damage.

What about rural India, which is a cash economy?

I think it is a short-term phenomenon there, too. There is not much black money as there is no taxation in rural India, except for trade and some other parts. I think it’s a temporary impact. Things will get back to normal. The government must make very special efforts to see that reintroduction of new notes is very quick.

How does this demonetisation compare with that of 1978? And do we need a ₹2,000 note?

The quantum of demonetisation then was very tiny and it was on very large notes of ₹5,000 and ₹10,000. Those days, they were very large notes and weren’t much in use. So, it had very little impact. Today, we need ₹2,000 note as it is not a very large sum. In fact, we should also introduce a ₹5,000 note, but that’s a matter for the government to decide.

Related Topics
comment COMMENT NOW