1. Demonetisation: Expect householder, businesses in ‘black’ economy to rethink their finances, says Kotak

Demonetisation: Expect householder, businesses in ‘black’ economy to rethink their finances, says Kotak

We expect businesses and households in the ‘black’ and informal economy to have a serious rethink about their finances given the large ‘psychological’ impact of the government’s recent demonetisation measure.

By: | Published: November 23, 2016 6:25 AM
Demonetisation, Currency Chaos, Government, Note Ban, Black Money, Economy We also see a rapid transformation of transactions to non-cash forms from cash. (Source: PTI)

We expect businesses and households in the ‘black’ and informal economy to have a serious rethink about their finances given the large ‘psychological’ impact of the government’s recent demonetisation measure. We also see a rapid transformation of transactions to non-cash forms from cash. We expect informal credit systems to see through the current cash tightness and support general consumption but demand in a few sectors may take one-six quarters to recover.

We believe businesses and self-employed professionals in the ‘grey’ economy (part of income is disclosed as ‘white’ income, the rest undisclosed or ‘black’ income) may have to reassess their finances in the context of large losses suffered by them from the recent demonetisation measure, the government’s previous actions and worries about future measures against unaccounted income and wealth. News articles and anecdotes suggest losses of 30-50% in various ‘schemes’ to convert the demonetised notes to ‘white’ money.

The government will likely continue its aggressive stance against black money in the economy, which may force entities to change. We note that the IT department has already sent notices to account holders whose accounts show a big surge in bank deposits post November 8, 2016. Also, it awarded a project to a leading IT company to do financial mapping of businesses and households by comparing expenditure on various items with their declared incomes.

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