The demonetisation exercise undertaken on November 8 last year has led to a significant improvement in the use of digital modes of payments, although their base is small, an RBI staff paper has said.

The paper, prepared by the Monetary Policy Department of the RBI with contributors from other departments, expects greater formalisation of the economy with increased use of digital payments. Reduced use of cash will also lead to “greater intermediation” by the formal financial sector, which should also help monetary transmission, the RBI paper, ‘Macroeconomic Impact of Demonetisation – A Preliminary Assessment’, concluded.

Overall, the assessment is that the impact of demonetisation on the real economy has been “transient”, given the information so far. The analysis in this paper suggests that demonetisation impacted various sectors of the economy, however, the adverse impact, in general, was shortlived as it was felt mainly in November and December 2016, it claimed.

The impact moderated significantly in January and dissipated by and large by mid-February 2017, reflecting an accelerated pace of remonetisation, it said.

Noting that the impact on gross value added (GVA) growth, albeit modest, was felt in Q3 of 2016-17, the paper concluded that the organised sector remained largely resilient.

The GVA growth is estimated to recover significantly in 2017-18, the paper said.

It also concluded that the impact of demonetisation on different segments of the financial market has been varied.

Reflecting the expected slowdown in sales and earnings, the share prices of cash-intensive sectors such as automobiles, FMCG, consumer durables and real estate declined sharply in November-December 2016.

But most of these sectors have more than recovered the lost ground subsequently, it said.

Demonetisation has impacted some segments of the export sector such as readymade garments and gems and jewellery. The impact, however, was transitory. Imports of gold increased sharply in November, but moderated in December.

Also, surplus liquidity with banks post the note ban has led to an improvement in monetary policy transmission as reflected in a significant decline in deposit and lending interest rates, the paper said.