Impact Of Demonetization On The Indian Retail Industry
The 8th November, 2016 is the important date in the history of the Indian economy, when our honorable Prime Minister announced the decision to demonetize the 500 rupee note and 1000 rupee note. It was a surprise move that has affected the consumption activity in the Indian economy. This move has affected the Indian retail sector due to lack of liquidity in the economy.
It has also resulted into the low footfall in shopping malls, more use of plastic money and electronic payment. The impact is felt more by the small traders and the unorganized retailing segment as their transaction is in cash. But it is estimated that Indian economy can grow considerably after curbing the counterfeit money and increase in the economic activity. This paper analyses the impact of demonetization on the Indian retail sector both organized and unorganized. The argument posited in favour of demonetisation is that the cash that would be extinguished would be “black money” and hence, should be rightfully extinguished to set right the perverse incentive structure in the economy. While the facts are not available to anybody, it would be foolhardy to argue that this is the only possibility. Therefore, it is imperative to evaluate the short run and medium-term impacts that such a shock is expected to have on the economy. Further, the impact of such a move would vary depending on the extent to which the government decides to remonetise. This paper elucidates the impact of such a move on the availability of credit, spending, level of activity and government finances.