Demonetisation distress: Alarming gap observed between India’s share in world GDP and market cap

New Delhi: With people losing confidence in the market owing to the demonetisation of Indian currency of Rs 500 and Rs 1000 notes, investment has taken a backseat making it one of the reason—at least in the near term—why there has been an alarming gap between India’s share in world GDP and world market cap.

According to a report in LiveMint, India’s share of world market capitalization and its share in world gross domestic product (GDP) has witnessed a difference which is at highest in 13 years.

Indian markets have underperformed in comparison to the developed and emerging markets; and a stronger dollar, induced by the unexpected US presidential election victory by Republican Donald Trump, has only added to the misery of the inflow from the emerging markets. 

While India’s GDP as a share of global GDP is 2.99%, its share of market capitalization is 2.26%, a gap of 73 basis points and the highest since at least 2003, said a data from the Bloomberg and the International Monetary Fund (IMF). 

Riding on good monsoon and sharp pay hikes under the 7th pay commission, the consumption by the people would increase, which would thereby lead to a boom in the corporate earnings. 

However, with the sudden withdrawal of high-value currency notes, consumption was hit; and as the banks struggled to replace the demonetised notes, cash crunch prevailed.

India, which wasn’t yet ready for a cashless economy—fully or partially—faced the wrath of demonetisation as Asia’s third largest economy failed to capitalise on the increase in consumption after a favourable monsoon and 7th pay commission recommendations.

Written By Mayank Mohanti