I’m no economist, just a Science student, but my reading of our mid term future is here… I invite informed people to poke holes into this and make it sound less depressing.
If India survives demonetization, there will be an insane rush for gold and other precious metals, because the populace would have lost trust in the Government and its promissory notes for the foreseeable future. Hold on to your gold; the price will shoot through the ceiling. Mr. Modi’s reported plans of limiting citizen’s gold holdings, will come to nought, because by then he and his Govt will be trying to save their butts. No succeeding Govt will have the guts or insanity to antagonize or rile the public so soon after the financial catastrophe it is currently wallowing in. Governments will weaken.
New foreign investments will be doubtful – investors will be wary of investing in a market that can invalidate Central Bank promissory notes overnight. Foreign investors will have lost money in the aftermath of demonetization. Foreign capital in Indian bonds will fly out as soon as the US Fed raises interest rates. Even at a slightly lower return, the US market will seem a safer bet. We will have to offer substantially higher interest rates to offset the perceived risk of investing in India.
Continued depressed demand for goods and services will have a cascading effect in deflating the economy, creating more social tension on account of joblessness and increased poverty.
We have riled every diplomat of every nation to the point where some, notably Russia, have threatened reciprocal punitive action against our diplomats. Their confidential feedback to their Governments, is unlikely to be flattering. This Govt is unlikely to get any support of any kind which benefits India in the near future.
Budget and luxury tourists, inbound and domestic, have been tortured no end, some having to become street performers to make money to pay for food or to reach their embassies and consulates for help. They are unlikely to relate any stories motivating tourism in the near future. Indian tourism contributes 6% of our GDP and employs 10% of our manpower.
Small businesses and industries have been destroyed. Direct and indirect tax collection will be lower.
The Rabi crop sowing is reportedly 40% short of target because of non availability of currency. With an already depleted grain stock, we will have to import grain to feed our population, thereby depleting funds required for development.
To tide over increasing public anger at the bottom of the socio-economic ladder, an already cash-strapped Govt will have to increase the outlay for MNREGA type schemes and subsidies, to alleviate rural poverty and distress.
And of course, Mr. Modi’s friends will always be waiting to dive into the sea of cash we have all been forced to deposit but prevented from withdrawing.