Nomura Says Black Money Crackdown Will Boost Banking, Hurt Real Estate
Crackdown on black money will be medium-term positive for Indian economy: Nomura
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Prime Minister Narendra Modi’s decision to discontinue Rs 500 and Rs 1,000 currency notes in circulation will boost tax revenues and dent consumption in the near-term, according to a report by brokerage firm Nomura.
While this decision came as a surprise, it is a continuation of measures taken by the government to fight black money and corruption, Nomura said in the report. Since coming to power in 2014, the Modi government has announced a slew of measures including a disclosure scheme for black money, and agreements with many countries for sharing information about bank accounts.
Macro Implications
The report says the latest government measures to crack down on black money and corruption are a big medium-term positive for the Indian economy.
The government’s tax revenue collection is expected to get a boost as some of the black money is declared through legitimate channels. The move will also bode well for the inflation outlook since black money was associated with higher inflation. However Nomura warns that near-term consumption demand is likely to be hurt.
Overall, we see the de-monetisation of Rs 500 and Rs 1,000 notes as a medium-term positive for the economy.Nomura Note
Positive For Banking; Real Estate To Take A Hit
As citizens deposit old currency notes with banks this will lead to a pickup in deposit growth, according to Nomura. The moderation in the currency in circulation will boost banking sector liquidity, Nomura added. Opening of new bank accounts by rural households to deposit old notes could also end up boosting financial inclusion in the country.
The black money crackdown, however, is expected to hurt the real estate market, according to Nomura, since black money is used in many property transactions.