November 20, 2016

Will The Cash Crunch Cause The Indian Economy To Contract?

...But yes, you have this problem right now that people aren’t transacting. They’re holding off buying new clothes. For that can wait. They’re saying, yes we need new taps and bedsheets but wait till the cash situation is better. They have money, which is now in their bank account because they had to deposit it. But they have no money because the medium that they use for transactions – cash – is crippled. Even if it’s temporary, they will choose to wait.

The On-Coming Contraction?

And that causes a ripple effect on everything in the economy (well, most things) which runs so much on cash. People buy toothpaste and chips and juices and all that, but now they’ll buy just the essentials – toothpaste. Sales get slower. That’s okay, you think, the sales come back after a while. But the problem lies within.

The FMCG companies that deliver to shops work mostly on restocking. You bought X quantities of chips, it usually goes away in 2 weeks, and you’ll need more. So every 2 weeks, we’ll send you chips. Except now, those 2 weeks are becoming six weeks. “Fast Moving” consumer goods become not-quite-so-fast. Stuff stocks up at warehouses, and factories then cut down production.


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