The government's move to demonetize the Rs 500 and Rs 1000 notes, will have a transitory impact on the GDP and structural benefits in the longer term, a Crisil report has noted. According to the Crisil report, it would help buoyancy in government revenues and inflation would tread lower.
It would also lead to rise in public investments and drive jobs and income. "As investments drive-up the supply capacity of the economy, overall GDP growth is exepcted to benefit in the long term. In the short term, GDP maybe impacted negatively, as the cash based economy feels the crunch," the Crisil report has noted.
Downward pressure on inflation
"We expect lower demand to exert downward pressure on inflationin the coming months. Categories like housing, transportation and food that tend to have a higher cash component could see downward price pressure," the report has noted.
Level of impact on economy
The liquidity squeeze caused by de-monetization would be negative across sectors. "With 86 per cent of currency in circulation suddenly becoming non-usable, there will be impact on economic activity," the Crisil report has observed.