Indian economy is bound to shrink as a fallout of the demonetisation with the impact being the maximum on sectors such as real estate and gold, according to S Gurumurthy, chartered accountant and co-convener of the RSS-affiliated Swadeshi Jagran Manch (SJM). He predicts the BSE Sensex will slide to 20,000-21,000 levels, a 21.2 percent fall from its November 30 closing of 26,653.
"There will be a contraction in gold market, there will be a contraction in real estate market...the stock market (Sensex) is likely to settle down at something like 20,000-21,000...unless it is supported by huge influx of money from abroad," Gurumurthy said, while delivering the 13th Nani Palkhivala Memorial Lecture organised by SASTRA University in Chennai on Tuesday.
Delving into the positive side of the demonetisation decision of Prime Minister Narendra Modi, he said that the move was overdue as a result of years of neglect by the Manmohan Singh-led UPA government that led to a spurt in the circulation of high-denomination currencies (up from 34 percent in 2004 to about 87 percent by 2016).
On the flip side, he said that small borrowers or small and medium enterprises (SMEs) will be hit more than the corporates, given the wide range of access the latter enjoy. For this, the Modi government should step up lending via the MUDRA Bank.
Training his guns on the Reserve Bank of India over the MUDRA Bank issue, Gurumurthy said, "The RBI has become egoistic and probably arrogant in the last couple of years."
He also criticised former finance minister P Chidambaram's assessment of the impact of fake currency on India. The 26/11 Mumbai terror attack that killed about 165 people and left about 200 injured adversely affected the Indian economy to the tune of $120 billion dollars, Gurumurthy said, citing a study. However, it cost the terrorist a mere Rs 25 lakh to inflict such a huge, disproportionate damage on the Indian economy.
Chidambaram had slammed Modi's note ban in an interview to a television channel, calling it "foolishly utopian."
