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

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

Mumbai Development Plan annoys activists and experts

Approximately one-eighth of Mumbai’s existing landmass is proposed to be added for development works, especially for housing of low income groups. Maharashtra CM Devendra Fadnavis gave green signal to the 2034 development plan that will make more land available by adding over 3,650 he

My musical journey has been really beautiful: Harshdeep Kaur

Harshdeep Kaur is a playback singer better known for her Sufi renditions. She sings Hindi as well as Punjabi. She sang ‘Ik Onkar’ in Rang De Basanti apart from several other soulful songs. Her track ‘R.I.P.’ composed by AR Rahman was part of Oscar-winner Danny Boyle’s film

BJP lawmakers top the list in hate speech cases

Out of all MPs and MLAs in office, 58 have declared cases related to hate speech. This includes union minister for drinking water and sanitation Uma Bharti along with 14 other Lok Sabha MPs. The list also includes 8 state ministers. A party wise analysis reveals that BJP has the highest numb

After its withdrawal from Meghalaya and Arunachal, is it time to review AFSPA in other areas too?

After its withdrawal from Meghalaya and Arunachal, is it time to review AFSPA in other areas too?

Togadia, Sinha and anti-Modi prejudices masked by empty rhetoric

There is an uncanny similarity in the pathological opposition to prime minister Narendra Modi by two members of the right wing, Pravin Togadia and Yashwant Sinha. They come from a diverse social and political background; yet they share a common strand that shows an unmitigated hatred towards

“We are becoming American digital colonies”

Data is the new oil; and it needs to be protected. In an interaction with Governance Now, Lionel Baraban, CEO of Famoco, talks about how the French tech firm is developing secure business devices to safeguard data against going to other countries. What are the major roles o

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter