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    Demonetisation is like Nasbandi drive of the 70s, says Shankar Sharma; other D-St veterans beg to differ

    Synopsis

    Some of the cash-driven segments of the economy such as real estate, retail trade, hotel, white goods and restaurant have been virtually crippled.

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    In one of the strongest attacks on the government’s demonetisation drive, ace investor Shankar Sharma on Thursday compared the policy with the controversial government-sponsored 'Nasbandi' drive of 1976.
    NEW DELHI: Dalal Street liked demonetisation only in theory, but as the pain refuses to go away in a hurry, desperation is beginning to show in stock prices as well as in sound bytes.

    In one of the strongest attacks on the government’s demonetisation drive, ace investor Shankar Sharma on Thursday compared the policy with the controversial government-sponsored 'Nasbandi' drive of 1976.

    "This demonetisation reminds of the Nasbandi drive of 70s. Bina soche, Bina blood/oxygen, straight castration. This is economic Nasbandi," Shankar Sharma wrote in his personal Twitter account.

    In a shock move, the Modi government on November 8 announced demonetisation of high-denomination currency notes as part of a crackdown on black money and the parallel economy that runs on illicit cash.

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    "I must say I am very disappointed with our stock market. Surgical Strikes: Market Crashes. Black Money Strike: Again Crashes. Beghairat log," Sharma said in tweet.

    Nasbandi refers to a widespread compulsory sterilisation drive that Congress leader Sanjay Gandhi, as an adviser to the then Prime Minister Indira Gandhi during the National Emergency she had declared in 1975, had introduced in September 1976 in an attempt to check population growth in the country.

    The demonetisation drive has led to widespread repercussions across key segments of the economy, with many analysts and economists predicting a slowdown in demand in the economy over at least next six months.

    Some of the cash-driven segments of the economy such as real estate, retail trade, hotel, white goods and restaurant that constitute about 30 per cent of GDP have been virtually crippled over the past week as demand dried up because of an acute cash crisis.

    Domestic equity investors have lost some Rs 6.6 lakh crore of their wealth in just five sessions ever since the demonetisation drive was launched. Investors of realty, auto and consumer durables stocks have taken the biggest knock, as total market capitalisation of BSE Realty index, BSE Auto index and BSE Consumer Durables index have tumbled by Rs 1.43 lakh crore during this period.

    "In the short run, there will be downside risks to growth, which may delay the investment cycle recovery. We believe any windfall gains for the government will likely be staggered. The measure will be positive for bank deposits and, hence, positive for the banking system liquidity. This will significantly boost SLR demand for bonds, further helped by expectation of steeper cuts by RBI," said Suvodeep Rakshit, Economist at Kotak Economic Research.

    In a note to clients, Rakshit said the government’s step will have positive effects in the long run.

    "The very near-term disruption due to cash crunch in retail trade and related activities will be a drag on the GDP growth. This will accentuate with likely slowdown in segments such as consumer durables and real estate activities," Rakshit said.

    India's GDP calculations incorporate private companies, which contribute 35% of the overall sales. In a predominantly cash economy this can lead to a significant slowdown in the SME segment, which will have a bearing on economic growth and investments. There could also be a potential loss of pricing power in the discretionary products segment, which will be disinflationary.

    "We note that higher bank deposits will have positive effect on household credit. Structurally, a more transparent economy will lead to a more durable growth trajectory in the long run," the Kotak economist said.

    Many other analysts, economists and Dalal Street experts have actually backed Modi's demonetisation drive.

    Responding to a Bloomberg news report, which cited failures of similar drives in other economies such as Myanmar and USSR to suggest that Modi's action could be at the risk of ending up being a damp squib, Dalal Street veteran Nilesh Shah strongly defended the move.

    "Is India = Ghana , Zaire, North Korea, USSR, Myanmar? If not, then demonetisation will work here," Shah, Managing Director at Kotak Mahindra Mutual Fund, said on Twitter in response to an article carried by ETMarkets.com.

    Another star investor Porinju Veliyath said the US (under Richard Nixon) banned high denomination notes in 1969 to stop corruption. "This started the development of the American banking system also!"

    Samir Arora, Singapore-based fund manager at Helios Capital, reacted to the move in a rather funny way. "Father to analyst son: What to do? I hv 5cr cash at home. My life savings are gone. Son: Why worry? These are exceptional, one-time losses?"

    Nirmal Jain, Chairman of IIFL Holdings, is positive on demonetisation. "Execution remains key in any strategy - especially when it involves the masses," he said.



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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