India's program to remove 500 and 1,000 rupee bank notes (around $7.36 and $14.72) from the financial system has entered its final day on Friday, but it wasn't clear when the subcontinent's economy would get back to normal.
The program, dubbed demonetization, was aimed at removing around 86 percent of India's hard currency from circulation, leading to huge lines at banks around the country as consumers tried to deposit their notes.
Supporters had hailed the move, which was initially pegged as an important step in the fight against counterfeit notes as well as the so-called black money that has plagued the economy for years. But the unexpected step also spurred hardship as much of the country's economy is cash-based, especially in poorer areas.
The government planned to replace the defunct notes with new 500 and 2,000 rupee (Exchange: INR=) notes, but media reports indicated the distribution of the new bills to banks was slow.
While the program may have largely succeeded in getting India's people to take their bank notes out of their mattresses and put them in a bank account, spending the money has become a sticky wicket for returning the economy to normal.
Bank withdrawals remained limited, with account holders only able to remove around 24,000 rupees a week (around $353), or around 2,500 rupees a day from cash machines.
"The money has been deposited in the banks. For people to use it, they need to make withdrawals," noted Radhika Rao, an India economist at DBS Bank. "Those limits on withdrawals need to be lifted. That part has been extremely slow. It's not allowing people to spend."
Other analysts have noted that the demonetization would likely have a chilling impact on consumer spending, at least in the short term.
Nomura said in a mid-December note that it expected the demand-supply mismatch of currency notes would affect the cash-dependent wholesale trade channel, which accounted for as much as 80 percent of consumer sales. The wholesale channel for fast-moving consumer goods was largely dependent on cash transaction, it noted.
Nomura forecast that the consumer companies it covered would see no significant growth for the second half of the 2017 fiscal year.
"Business for November has been hit for all the consumer companies under our coverage," it said, adding it didn't expect a complete recovery until the end of the fiscal third quarter, with revenues likely to fall around 5-7 percent in that quarter for most consumer staples companies.
While in the short term, demonetization will likely sideswipe economic growth and corporate earnings, analysts generally believe the program will be a positive longer term as it puts the kibosh on some black market activity.