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All not well with demonetisation, suggests RBI report

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For curbing the menace of corruption and counterfeiting of currency, Prime Minister Narendra Modi led government initiated the demonetisation drive last year. While it gave a robust rise to the use of digital payments, it had an adverse effect on the already bleeding economy.

On August 11, the Economic Survey tabled in the Parliament pointed out several drawbacks of the move and now the latest report released by the Reserve Bank of India (RBI) suggested that the ban on higher denomination currency had a massive impact on some sectors and the results went beyond the government’s projection. Reportedly, the smaller firms with an annual revenue of less than Rs 500 million were the worst affected.

Despite recording a modest growth of 7.2 per cent in the sales, these firms reported a major slug in their earnings. However, the better performance reported by the larger firms neutralised the ill effects of demonetisation on the economy.

The RBI reported that the companies earning between Rs 250 million and Rs 500 million a year reported the steepest fall in their sales year-on-year as the growth rate went down to negative 53.6 per cent in 2016-2017 from a negative 19.3 per cent in 2015-2016.

However, the growth report showcased the similar graphs for firms with annual revenues of up to Rs 10,000 million as they witnessed a faster jump in their in 2016-2017 as compared to the previous financial.

On the other hand, the picture portrayed by the larger firms was completely opposite. The bigger companies as witnessed a rise of 9.5 per cent year-on-year from 3.2 per cent reported earlier.

Ironically, on sectoral level, services companies reported the worst hit along with those in construction, telecommunication and real estate, the data suggested.

The report further suggested that the profit reported in the service sector stumbled by 114.5 per cent as compared to a decline of 16.9 per cent reported in the previous year.

Profit reported in the manufacturing sector rose by 28 per cent, while the growth in the earnings of the information technology sector fell from 14.5 per cent in 2015-2016 to 8.7 per cent in 2016-2017.

“Sales of services sector companies [other than information technology], however, contracted due to the poor performance of real estate and wholesale and retail trade companies,” said the central bank.

“The information technology sector witnessed moderation in sales growth,” said the RBI.

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