“The immediate impact of demonetisation was a sharp reduction in private final consumption expenditure, a corresponding fall in retail prices of perishable commodities, a substantive dislocation of labour and corresponding losses in wages and break-down of supply chains in many parts.”
“We expect this low demand to persist till three conditions are met,” Mr. Vyas mentioned. “First, liquidity is fully restored; secondly, confidence in liquidity is fully restored; and thirdly, consumers are yanked out of their equilibrium at lower levels of consumption of non-essential commodities.”
None of these conditions, he added, is less likely to be fulfilled in the near future as the restoration of full liquidity going to take as long as till September according to estimates, and Indians will take even longer period of time to show confidence once again in the government and the Reserve Bank of India.
“As a result, we expect the hit on consumer spending to last much longer than just a few quarters,” Mr. Vyas wrote.
