You are here: Home » Economy & Policy » News
Business Standard

Note ban led to financialisation of economy and decline of manufacturing

The end result was a steady decline in economic growth rate despite large expansion in the government sector and good show by the farm sector

Topics
manufacturing  | Note ban | Indian Economy

Krishna Kant 

cash, demonetisation, note ban, rupees
On bourses, retail lenders became the dominant force as the gush of liquidity into the banking system, after the note ban, led to an unprecedented boom in personal loans

The demonetisation of high-value currency notes on November 8, 2016, was a big economic and monetary shock and its impact can be felt even today. A deep dive into macroeconomics and market data suggests it accelerated the financialisaton of the and reduced the role of and industry.

The end result was a steady decline in economic growth rate despite large expansion in the government sector and good show by the farm sector. On bourses, retail lenders became the dominant force as the gush of liquidity into the banking system, after the note ban, led to an unprecedented boom in personal loans. But industrial credit suffered. This resulted in a decline in profitability and m-cap of firms in sectors such as auto, capital goods, power, infrastructure, metal, mining & energy.

Another fallout is a rise in market concentration in many industries as bigger firms grew faster while mid- and small-cap ones lost out.

Sensex is up 50 per cent in the last four years while the BSE mid-cap and small-cap indices are up just 15 per cent and 12 per cent, respectively.

chart

chart

chart

chart

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Sat, November 07 2020. 06:05 IST
RECOMMENDED FOR YOU
.