Consumption slowdown started with note ban: RBI

“Basically, it works through the income route, so there were two factors that seem to have impacted the dip in Bank’s exposure to consumer durables post-demonetisation — one is that the MSMEs had serious problems in terms of cash crunch, employees’ departure which eventually led to their shutdown, and second is inventory pile-up, as people did not have cash to buy, along with increased unemployment and loss of income in the same year,” said Govind Rao, member, 14th Finance Commission.

Post-demonetisation, the gross bank exposure to the consumer goods loans numbers has dropped by 73%.

“Basically, it works through the income route, so there were two factors that seem to have impacted the dip in Bank’s exposure to consumer durables post-demonetisation — one is that the MSMEs had serious problems in terms of cash crunch, employees’ departure which eventually led to their shutdown, and second is inventory pile-up, as people did not have cash to buy, along with increased unemployment and loss of income in the same year,” said Govind Rao, member, 14th Finance Commission.

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