Hyderabad: With cash crunch affecting business badly, analysts feel the government should boost purchasing power of people by easing credit flow to take the economy out of demonetisation blues.
Since last November 8, all cash and credit transactions stalled in the country. While cash purchases of high ticket items got affected by cash shortage, loan-driven sales like cars and real estate got halted because bank staff became full-time money changers.
According to experts, the Indian economy is going to slow down this quarter and the coming quarter unless people's spending power was boosted.
“Post-demonetisation, we expect a further weakening of the growth prospects, particularly in sectors which have a higher share of informal sector such as agriculture, construction and some service sectors,” said D.K. Srivastava, chief policy advisor, EY India.
To counter the slowdown in economic growth, Mr Sujan Hajra, Chief Economist, AnandRathi, feels the government should boost people’s spending power in all possible ways.
“The government can ask the departments to speed-up the approved spending, advise banks to cut lending rates and speed up credit appraisal and disbursements. The government can also offer overdraft facilities on low balance Jandhan accounts and increase credit limits under Kisan credit cards to boost rural spending,” he said.
With RBI hinting at progressively lowering cash reserve ration, bank lending rates could come down gradually. If banks fast track the loan processing, the credit-led growth in sectors like consumer durables, real estate, cement and steel will pick up.
The demonetisation exercise could not yet be called a failure. “It seems too early to take the call that demonetization would not provide any windfall to public spending,” Mr Hajra said.
“First, a big chunk of money is yet to come to the banking system. If a sizable part of this does not come back to the system, then it would eventually be a windfall for the government.
Second, there is little information about the voluntary disclose of unaccounted for money that can be made till December 30, 2016. It is possible that such disclosures would gather pace by end December 16 and this too would be windfall for government,” he said.
“There are expectations that the current year income declaration by many individuals and companies would go up substantially versus the last year statements.
“This would also cause tax windfalls for the government.”
