Demonetization and India’s Macroeconomy – Will Rupee Depreciate?

Demonetization and India’s Macroeconomy – Will Rupee Depreciate?
After the recent demonetization in India, an event with significant and deep reverberations across its economy, the Indian economy will eventually bounce back in three phase in 1 – 3 quarters, unless accompanied by additional steps to curb the parallel economy under current economic and political environment. Next 1 -3 quarters will report at least a drop by 0.5 to 1.25 percent point in India’s GDP. Despite the economy contracting, this will be similar to deflation. Economic indicators during these phases will differ. Earliest ever blog on India’s Demonetization and its macroeconomic impact. Demonetization and India’s Macroeconomy – Will Rupee Depreciate?

Demonetization – How will it affect the Indian Macroeconomy?

Obviously, the cash financing the legal, semi legal and illegal activities has vanished. Parallel channels, pumping money on the side have suddenly gone dry. Diminution of revenue will have a domino effect in the short term. Diminution of revenue will have a domino effect in the short term. While sparing essential living activities, this will have effects on every aspect of the economy – building, sales, travel, spending etc.

This decrease will eventually, reflect on the overall economy and its growth projections. A significant proportion of free floating cash financing several essential and non-essential daily operations will be strangulated. Cash earned irrespective of means, is an asset and not having an asset or liquidity will have deep impacts. Bloomberg feels it is contraction. To me, its deflation will follow and contraction. Primarily, contraction will be due large volumes of money being sucked out of the parallel (Juggad) economy with accompanying system wide impact. It will change the barometers of all key indices, Irrespective of sectors.

These phases will last 3-4 quarters, unless complemented by addition steps to curb the parallel economy. Next 3-4 quarters will report at least a drop by 0.5 to 1.25 percent point in GDP, at best, definitely risking it from calling it recession. Does that mean inflation and recession? No, despite the economy contracting, this is not recession though it is more similar to deflation. Economic indicators on each of these phases will reflect a different figure.

Now, does that mean I am against Demonetization? Certainly not! No pregnancy is without pain and no delivery is without cry and smile, except when you induce with Cesarean section under anesthesia. However, we are talking about the birth of a new era, and we are trying to understand how this newborn will impact existing earnings and revenue potential of the country in general (the macroeconomic considerations or implications). I see deflation (not recession) with overall contraction in the economy in the immediate future. Mauro Guillen, Director of the School’s Lauder Institute and a Professor at Wharton commented, “In the short term, the move could stifle some businesses that are legal and clean, if they use cash payments. But everyone will adjust. And while it can hurt some small businesses and individuals, it is better to do it than not.”

Three phases of recovery –

Economy will be impacted on several counts from GDP, Per Capita earning, Consumption, Investment, Industrial Production, Fiscal Balance, Public Debt and Unemployment Rates. However, this recovery will be marked by three distinct phases. Each phase demarcated by particular barometer of the economy.

  • Phase One – Lasting until end December, when the last notes would be officially accepted.
  • Phase Two – Deflationary pressure contracts the economy
  • Phase Three – Drop in Interest rates drop to bump up economy

Phase One – The Cash Crunch Phase:

Also the immediate phase succeeding demonetization, marked by severe depletion of cash or cash crunch. Only essential purchase activities will continue. CPI and CFPI will drop during this phase. The manner in which the denominations were retracted created a perceived rather than real loss. Cash spending reduced significantly so also purchase activities. Of course, loss of purchase activities, specifically based on Cash economy, would definitely result in a drop in GDP. Consumer spending activity fell to a near halt. Consumers are refraining from making any purchases except essential items from the consumer staples, healthcare, and energy segments. However, deflation will not be seen until phase 2.

Phase Two – Deflationary Phase:

Though Bank remittances will be high, the system will still be deprived of cash flow. The system has a tendency to bounce back and people will find ways to mobilize cash to support their cash based, if not illegal transactions. This phase will be marked by  liquidity mobilization will see a fall in prices on big ticket items such as real estate, less spending on luxury items etc. Apart from Real Estate, Gold and jewelry will also see diminution in value by approximately 10-15%.The next phase will have a little rebound to the GDP along with CPI but big ticket purchase will still be low.

During this period, real estate is likely to show significant down trend. Home prices may drop significantly, especially where investors have high stakes without support. Tier 1 cities will be most affected, primarily due to real estate activities being funded by investors. Tier 2 and Tier 3 will follow suite. Some reports say, accounts activity in the real estate sector, which includes a lot of cash and undocumented transactions, has already slowed down significantly, Metropolitan and Tier 1 cities reported up to a 30% fall in house prices. Industrial production will slow down on account of decrease appetite for domestic consumption. Rupee will continue depreciation against Green bag and the downward slide will be supported by Central intervention. However, decrease fiscal deficit and public debt will help Rupee from falling further. Also, imports will be impacted negatively and that will retain the value of Rupee in midterm.

Phase Three – Drop in Interest Rate:

Continued economic slowdown will mandate stimulation and the interest rates would drop, possibly by 0.5 to 0.75 percent. Trade deficit will decrease marginally. GDP will still not be back to the Nov 30, 2016 value. CPI and WPI will bounce back but not to the Oct 2016 values. Big Ticket items will continue to reel under the deflationary pressure.

End Note:

In the next 2-3 quarters, it will depreciate but eventually, after 3-5 quarters, it will be the most appreciating currency across the globe, primarily for its intrinsic strength but also secondary politicoeconomic phenomenon across the globe. By than, Trumpism will show its negative impact on dollar, Pound would not be as strong as it was Pre-Brexit, Euro should be sliding or at the most stabilized itself from sliding. Yen and Yuan both won’t show much potential for appreciating. Despite their strength, Canadian and Australian dollars won’t have to much impact.

Several factors will weigh in in favor of Rupee. As mentioned earlier, Rupee will depreciate in the next 2-3 quarters but start appreciating by early 2018. Turnaround in Rupee valuation vis a vis major currency baskets (appreciation), and slide of dollar, will most likely coincide at the same time, given the current political economic situation. Rupee should start appreciating and will dominate overall currency baskets after 3-5 quarters.

I always trust, when the enterprise, entity or a country stands on sound morals and ethical values, its long term outlook is strong. We definitely are moving in a direction towards that needed change. However, as noted earlier, I also feel this pregnancy and delivery is not without pain, cry and smile.

(Published on Dec 5 2016, this blog is still under construction)

Selected Citations:

Surgical Demonetization? What Is Good And What Needs To Be Fixed?

D SubbaRao – ex RBI Governor’s View on Demonetization ( Full Text )

Demonetization Dos and Don’ts (Gita Gopinath, Prof Economics at Harvard)

Reuters poll – Rupee’s slide from outflows, demonetization likely near end

India Rupee Demonetization: A Government Windfall? (Yahoo Finance)

What are the impacts of Demonetisation on Indian Economy? (Indian Economy; Economy & Finance)

THE CASE FOR FINANCIAL INFRASTRUCTURE: RURAL WELFARE AFTER INDIAN DEMONETIZATION (Wharton, Nov 18, 2016)

Impact of Demonetization on Macroeconomic factors (Nov 24, 2016)

Demonetization Will Impact Amazon’s Growth In India (Nov 29, 2016)

Demonetization in India: Who Will Pay the Price? (Wharton, Nov 16, 2016)

How Could Demonetization Impact the Indian Economy?

Demonetization of Rs 500 and Rs 1000: The Ultimate Brahmastra on Parallel Economy –

Macroeconomic implications of the Indian Rupee Demonetization?

India: Demonetization and its Discontents

India: Growth picks up in the second quarter of FY 2016

Inflation India 2016

India: Demonetization and its Discontents

Several Interesting Topics to Read on – FinanceProfessor.com

Macroeconomics (National Institute of Public Finance Policy)

Macroeconomic Policy (Mapping Finance)


Updated link (below) added on Feb 27, 2017 –

http://www.financialexpress.com/economy/brexit-to-demonetisation-why-is-economic-forecasting-so-difficult-asks-meghnad-desai/567674/

Surgical and Chemotherapy Options for Treating Advanced CRC

Basic understanding on Colorectal Cancer

If you want to learn basic anatomy and gather understanding on CRC and the different options, below sites have helpful information –

Introduction and review of anatomy of colon cancer

You may also visit

Selected Animations of Colorectal Cancer (CRC)

Above site has great animations and offers succinctly information on current Treatment Strategies –

  • Surgery
  • Radiation
  • Chemotherapy
  • Targeted Therapy

For Understanding the different molecular laboratory test required for colorectal cancer, you may click here.

Chemotherapy and Targeted Therapy Options (please click hyperlink)

Different options are given and you may want to discuss these with your Oncologists

TREATMENT FOR STAGE IV, METASTATIC CANCER OR RECURRENT CRC

Site helps us understand that it is a worthwhile effort to manage this, never a futile effort.

  1. Your metastatic tumors are limited enough to be removed surgically (resectable) and might be curable
  2. Your tumors are not resectable now, but with adjuvant treatment might become resectable and converted to a curable situation
  3. Your cancer is widespread and unlikely to become resectable and should be treated palliatively with the goal of extending your quality of life for as long as possible

I also saw other interesting content worth reading on this same site –

  • QUESTIONS TO ASK IF YOU HAVE STAGE IV OR RECURRENT CRC
  • EXAMPLES OF TREATMENT OPTIONS COMBINED TO TREAT METASTATIC DISEASE OVER TIME
  • CHEMOTHERAPY COMBINATIONS
  • TARGETED THERAPIES

Chemo drugs for treating CRC

Current Options for Third-Line Treatment of Metastatic Colorectal Cancer

Surgical Options – Colorectal Cancer: Treatment Options

Approved by the Cancer.Net Editorial Board, 06/2016

You may want to consider chemo options per your case. Another Interesting Site that indicates Chemo Options per Stage

  • Stage I – No adjuvant treatment is recommended for stage I colon cancer.
  • Stage II & III – Adjuvant therapy is recommended for stage III and high-risk stage II colon cancer patients.
  • Stage IV – Treatment for stage IV colon cancer is generally palliative. There are many new cytotoxic chemotherapy and targeted agents available for treating metastatic colon cancer, such as 5-FU, oxaliplatin, irinotecan, cetuximab, and bevacizumab.

What is the cancer cells have seeded to peritoneum (abdominal cavity)?

Options for treating CRC that has spread to peritoneum are –

  • Old Traditional method such as
  • Newer Option such as

However, before we chose the options, we have to measure the baseline with scores. Socres are counted using two scales, Peritoneal Cancer Index (PCI ) and Peritoneal Surface Disease Severity Score (PSDSS). The scales compute information from three distinct parameters –

  1. Patient’s symptoms
  2. Location and
  3. CRC tumor burden (Size)
  • Older Methods – removal of the omentum, systemic and/or palliative chemotherapy, and palliative surgery.
  • Newer Regimen – cytoreductive surgery (CRS), hyperthermic intraperitoneal chemotherapy (HIPEC), and intraperitoneal chemotherapy.

Survival benefit –

Note: Older systemic chemotherapy regimens such as 5-flurouracil (5FU) and leucovorin offer a limited survival benefit of approximately 7 months, whereas, if Oxiplatin or irinotecan are added, survival can be extended to approximately 2 years.

Newer Regimens such as CRS and HIPEC have survival benefit of approximately 63 months with a 5-year survival near 50%. To say it simply, 50% patients will survive beyond 5 years.

The scales help in understanding the 5 years survival more objectively –

  • PCI 10 or less – 50% 5-year survival
  • PCI of 11 to 20 – 20% 5-year survival
  • PCI more than 20 – 0% 5-year survival

For Information on Gene Expression Profiling, you may visit following site –

Disclaimer:

The information available is for information purpose only. These are not recommendations. You are advised to consult your oncologist to get the recommendations for managing CRC patients.  The above site has all relevant references hyperlinked to the subtopics. The author holds no responsibility for any information mentioned herein.