Cash ban hits India economic growth
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Its annual economic survey concluded that the so-called demonetisation scheme had hit a host of sectors including real estate and farming but also said tax revenues could be boosted in the long-run.
New Delhi. India’s government acknowledged yesterday that its decision to pull high-value bank notes from circulation has caused pain in large parts of the economy .
Its annual economic survey concluded that the so-called demonetisation scheme had hit a host of sectors including real estate and farming but also said tax revenues could be boosted in the long-run.
“The adverse impact of demonetisation on GDP (gross domestic product) growth will be transitional,” said the survey compiled by the government’s chief economic advisor Arvind Subramanian.
In the survey, the government lowered its growth forecast for the 2016-17 fiscal year ending in March to 7.1 per cent, down from 7.6 percent in the previous year. But the survey said the estimate was based mainly on data for the first seven to eight months of the financial year, before the shock move in November to pull all 500 and 1,000 rupee notes from circulation.
That decision effectively removed around 86 percent of the cash in circulation at one stroke, triggering massive queues outside banks as the authorities struggled to print enough new notes. The survey said cash-intensive sectors such as agriculture, real estate and jewellery were the worst affected and that there had been job losses and a decline in farm incomes in the broader economy. “Growth slowed as demonetisation reduced demand... and increased uncertainty,” said the survey.
Speaking at a press conference in Delhi, Subramanian said that “there have been short-term costs which are real and significant”. “I think there has been hardship and inconvenience especially for those in the informal sector but there is also potential for long-term benefits,” he added.
Finance minister Arun Jaitley said in the survey he expected cash supplies would be fully “replenished” by the end of March and the economy should then “revert to normal”, projecting growth in 2017-18 in the range of 6.75 to 7.5 per cent.
The cash crunch has already prompted the International Monetary Fund to knock a percentage point off its forecast for India’s economy. (AFP)
