People will now use Rs 2,000 notes to store wealth: Fitch

Supply chains have been disrupted and time spent queueing in banks has meant lost hours of productive work

GN Bureau | January 10, 2017


#black money   #money   #Fitch   #currency   #Rs 2000   #demonetisation   #RBI   #cash  
People will now use Rs 2,000 notes to store wealth: Fitch
Photo: Arun Kumar

There are considerable uncertainties over the potential positive effects of demonetisation, said global ratings agency Fitch. “Most importantly, demonetisation is a one-off event. People that operate in the informal sector will still be able to use the new high-denomination bills and other options [like gold] to store their wealth.”
 
There are no new incentives for people to avoid cash transactions. The informal sector could soon go back to business as usual, it said on Tuesday.
 
The demonetisation of large-denomination bank notes has caused short-term disruption in India’s economy and led us to downgrade our growth forecasts for 2017. “The move has some potential benefits, but the positive effects are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects.”
 
The withdrawal of Rs 500 and Rs 1,000 currency notes has left consumers without the cash needed to complete purchases and farmers without the funds to buy seeds and fertiliser for the sowing season. “Supply chains have been disrupted and time spent queuing in banks has meant lost hours of productive work. The impact on the economy will increase the longer the disruption continues, but Fitch has already revised down its GDP growth forecast for the financial year ending 31 March 2017 (FY17) to 6.9% from 7.4%.”
 
It noted that demonetisation could boost government revenue to the extent that it helps to move economic activity from the informal to the formal sector, as more earnings would be declared. It is possible that this positive effect would soon outweigh the drag on revenue collection from lower short-term economic activity. Government finances may also benefit from a proportion of high-denomination notes not being traded. This potentially significant amount would be subtracted from the Reserve Bank of India’s (RBI) liabilities, and the authorities would have the option to transfer this windfall to the government.
 
There are similar uncertainties over the impact on the banking sector.
 
Some banks have already reported large increases in deposits since demonetisation began. A surge in low-cost funding might encourage credit growth and support the economy. However, demonetisation could also affect the ability of some borrowers, especially SMEs, to service their loans, with negative effects on bank asset quality. Moreover, the positive impact on funding conditions will depend on deposits remaining in banks beyond the next few months. There is nothing to prevent them being withdrawn again.
 
The intentions behind demonetisation were positive and in keeping with broader reform efforts, but the short-term pain might outweigh the uncertain long-term gains.
 

Comments

 

Other News

SC issues notice to Govt, TRAI, Facebook, WhatsApp over data privacy

The supreme court on Monday has issued notice to the government, telecom regulatory authority of India (TRAI), WhatsApp and Facebook regarding data privacy. The issue was first taken up by the Delhi high court last year, based on a PIL filed by two law students, Karmanya Singh Sareen and Shr

Digital literacy awareness programme for senior citizens in Mumbai

A digital education and awareness programme was organised by Centre for the Study of Social Change (CSSC) under union ministry of social justice and empowerment. Principal Advisor, CSSC and former Mumbai Mayor, Advocate Nirmala Samant Prabhvalkar explained to senior citizens about how to us

India fares poorly in global talent competitiveness index

India stood 92nd in the latest rankings of the global talent competitiveness index. Switzerland topped the rankings, with Singapore coming second. United Kingdom was in the third position. The report accompanying the rankings said that India’s information technology (IT) sector is alre

Gandhigiri, chamchagiri and the spinning-wheel doctors

There are two kinds of acts from the so-called fringe elements of the BJP: one embarrasses only the secular-liberals but resonates well with the party’s core constituency, and the other embarrasses the party more than the rest. Sakshi Maharaj’s latest rant is of the first type.

About 2.68 crore disabled in India: Govt report

As per census 2011, in India, out of the 121 crore population, about 2.68 crore persons are ‘disabled’ which is 2.21 percent of the total population. In an era where ‘inclusive development’ is being emphasised as the right path towards sustainable development, focussed initiatives f

44 high potential regional connectivity scheme airports in India: Report

As many as 44 high potential RCS airports have been identified from among 414 airfields available in India, said a report. The FICCI-KPMG report has presented over 370 possible destinations from the high-potential RCS airports, the projected financial statements for four aircraft types and s

Video

एक प्रतिशत लोगों के पास देश की 58 प्रतिशत संपत्ति

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter