The effects of demonetisation of large currency notes will have longer-lasting effects than initially expected, the think-tank Centre for Monitoring Indian Economy (CMIE) said in a recent note. According to data on its website, new investment proposals by India Inc fell to low of Rs 1,25,000 crore in the just-concluded December 2016 quarter, compared to the average Rs 2,36,000 crore worth of new investments seen per quarter in the preceding nine quarters of the Modi government.
From October 1 to November 8, 2016 (that day the demonetisation decision was enforced), 227 new investment proposals worth Rs 81,800 crore were announced. In comparison, only 177 investment proposals worth Rs 43,700 crore were made between November 9 and December 31, 2016, slowing the pace of new proposals considerably. In fact, the total number of new project proposals of 404 for the quarter is the lowest in over a decade.
Mahesh Vyas, CEO, CMIE, told
New investments worth Rs 2,097 crore were announced, on an average, per day during the 39 pre-demonetisation days from October 1 through November 8. This average dropped sharply by 61 per cent to Rs 824 crore during the 53 days in the post-demonetisation period. The number of projects announced per day dropped from six to three by a similar comparison.
Vyas expects consumption to take even longer to recover. He said, “When people start spending less, it becomes habit-forming and it will take a while before they can break out of the cycle.”
CMIE’s data on investment proposals covers the spectrum of listed and unlisted companies, based on their disclosures to stock exchanges, government bodies and other public information.
The think-tank’s extensive database on the economy extends to over two decades. According to this data, the March 2009 quarter saw the highest value of investment proposals - at Rs 8,21,564 crore - while the most number of projects were announced in the March 2011 quarter, a total of 1,676.
CMIE also found that the implementation of projects that collectively envisaged investments worth Rs 77,700 crore was stalled during the December 2016 quarter. “This is 38 per cent higher than the value of projects stalled during the preceding (September 2016) quarter,” a note on the think-tank’s website said. “It is also more than 10 per cent higher than the average value of projects getting stalled midway through their implementation during the past year.”
Separately, CMIE estimated that demonetisation has led to lost wages of about Rs 15,000 crore as workers are forced to spend their time instead waiting in queues to exchange old currency notes for new ones.