Recently a transformational decision was taken by Indian government to strip away the legal values of Rs.500 and Rs.100. It is believed the primary motive behind this is to minimize the circulation of black money and corruption.To compensate this and balance the flow of money in market RBI is issuing new Rs.500 and Rs.2000 notes. When the news had hit the market major fluctuations in stock market has been witnessed. However it does not means that market is not safe for people to invest and trade.With time market conditions will improve and more advantages of demonetization can be seen here. Market analysts from Financial Advisory Services providers suggests the same.
Key Reasons for this move:
1)Terrorism:A lot of black money is used to carry out terrorism activities in the country.Therefore it was required to stop this flow of money by some means.
2) Corruption:Corruption and black money are the key factors which are factors which are stopping us to remove poverty. Although in terms of growth our country is doing well but when it comes to corruption we are ranked no. 76.
Major impact of Demonetization:
This move will give rise to deflation in country as people will fear to use their money earned from undisclosed sources from income tax.
Low money circulation
People will fear to use their money and this will lead to deflation.Also value of money will be increasing. Inflation will come but not immediately. It will take some time.
As banks will be available with more funds interest rate may come down. Recently RBI has not made any deduction in interest rate . Many economist predicted that there would be deduction in increase rate.
Some advantages of demonetization are discussed below:
1)Due to lack of funding illegal activities and terrorism will be less.
2)Real Estate industry is totally corrupted and a lot of black money is circulated in this industry. Because of this move now more transparency will be there in this industry.Foreign investors as well as domestic investors will be more attracted to it now.
3)To keep and make use of black money will be really difficult now. As Financial Intelligence Unit is tracking all the bank transactions.
4)No huge donations are to be paid now. Various educational institutes, private medical hospitals take huge donations for their services in Rs 500 and Rs 1000 denominations which can not be done now.
5)Indian economy will be a cashless economy as there is restriction on withdrawal now. More people will use online services for buying goods or making payments.Credit card, debt card will be in more use now.
Demonetization will benefit to India’s economy to large extent. Also share market will witness its positive impact on it. Traders and investors are not required to panic because of this move of government. Also they should not think of withdrawing their money from the market or stop making investment in it. Experts of Epic Research Limited can guide you in a better way to deal with this situation.