Demonetisation will boost economy in long-run: FTAPCCI

The demonetisation of high currency notes has affected businesses like small traders, FMCG and real estate temporarily, but it will boost the economy in the long run, a trade and industry body said here today.
"Definitely, there is a glut in the market and people don't have money. So, trade, particularly, small traders and industry are getting affected. I feel it's a very temporary phenomenon... Because, it is a shock treatment," Ravindra Modi, President, Federation of Telangana and Andhra Pradesh Chamber of Commerce and Industry (FTAPCCI), told PTI.
"Unless, it would have been like this, it would not have got the desired effect also," he added.

Describing demonetisation move as a "very good step" to bring out black money, he, however, said the government needs to address the issue of cash crunch and common people getting affected by it.
The demonetisation would, however, boost the GDP growth in the long term at least up to one per cent, he said.
"Then in long term, this will affect very positively. It will add at least one to 1.5 per cent to GDP growth. Although, they are claiming 1.5 to 2 per cent. Definitely, it will increase," he said.

The banks are now flush with money in the wake of demonetisation and it will give a push to the economy with lending increasing substantially as a consequence, Modi said.

"One very important thing that has happened is banks are flush with money now. That will circulate right kind of money in the system. That will give a big boost. Interest rates will come down, because banks have to lend money. I feel it will come down more than what people are expecting. It will give a robust boost to the economy," he said.
Except companies in real estate and related sectors like steel and cement, the growth of others is unlikely to be affected by demonetisation of high currency notes, Modi added.
"People are apprehensive about this quarter's results. Big companies should not get affected as their transactions are in cheques only. They are handling white goods that may be affected. FMCG and other companies in defence, other areas should not get affected," he said.

"Except a few, real estate companies, in terms of cement, steel and ferro-alloy, they may get affected because suddenly the real estate prices will fall down and come to the realistic price. Lot of money was pumped in," he said.
Fortunately, rainfall is good this year and the policies of the Centre and several state governments are also conducive to growth, he said.
Another positive fall out of demonetisation is people increasingly using plastic currency even out of compulsion, he added.