Ditching cash hurts growth in India

By Teamspirit on Wednesday, 1 February 2017

The Indian government has admitted for the first time that the withdrawal of high value banknotes in November last year has had an “adverse impact” on the country’s economy.

The sudden move to scrap 500 and 1,000 rupee notes was intended to tackle the country’s growing black economy.

In the short term, taking roughly 86% of the country’s cash supplies of circulation caused chaos as low-income people, regular savers, and small businesses rushed to deposit their cash holdings and withdraw smaller denominations.

In the longer term, the move appears to have contributed to a slowdown in overall economic growth, which is currently forecast at 7.1% for the year to March 2017, down from 7.6% the year before.

However, the government is confident that the negative effect on GDP will only be “transitional.”

The Ministry of Finance’s latest economic report predicts that the economy will grow more healthily in the future as both people move towards digital payment systems and bank note supplies are replenished with new notes.

Time will tell if these predictions are accurate.

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