2017: Some relief amid gloom

A demonetisation-triggered cash crunch in the last two months is all set to see a huge cut in employment, consumption growth, hikes in power and water tariff and, gloomier still, slowdown of the economy. On the brighter side, economists predict rate cuts, dip in gold prices and a cut in school fee bringing the much-needed relief to the already burdened parents. The GST, too, they say will be a game changer though consumers will be hard-hit in the short run, as eating out, travel etc.., will be expensive while tax on consumer goods is sure to cushion the overall impact.

RATE CUTS

DEMONETISATION of `1,000 and `500 bank notes will cast a shadow over our lives for at least the next six months. While most economists say that it is bad for the economy, the government continues to defend its decision. As there is no parallel in the world where 86 per cent of the cash in circulation was taken off the market, nobody is sure of its impact. One of the positives is that banks are flush with cash and could slash the lending rate. This could boost consumption-driven growth, which may later transform into investment-led growth. On the flip-side, the economy may contract leading to job losses. Loss of employment will cut the consumption growth, which will force companies to postpone investments. This will further slow down the economy.

TARIFF HIKE

POWER UTILITIES are tending towards a tariff hike to fill in the revenue gaps. The tariff is to be revised every three months, under the Centre's UDAY scheme which the state joined last year. (Ujwal Discom Assurance Yojana is a financial turnaround package for discoms.) Provision of nine hours of free power during the day to the farm sector could add to the burden, as would purchase of power. The government is talking of revising property tax rates and the market value of land. Water cess could be hiked.

GOLD PRICES

GOLD IS CONSIDERED to be a safe haven. Unless there is a major crisis, growth in the gold price will remain subdued as investors get attracted to the strong dollar. So the gold price is expected to come down. While we can’t predict the bottom of the stock market, gold price cannot go below `21,000 per 10 grames, which is considered the cost of mining the precious metal.