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Modi's Cash Takeaway Seems Not to Dent India's Growth

By NexChange
Capital Markets

The Indian government’s surprise decision to withdraw millions of banknotes from circulation in November caused only a modest drag on economic growth.

The country’s growth rate fell to 7%, on an annualised basis, during the quarter ending on December 31, according to official figures. The comparable rate for the preceding three-month period was 7.4%.

The latest growth rate was, “above most of the estimates made by various economists and rating agencies who had expected demonetisation to have a deeper impact on the GDP number”, said a report by Mumbai-based investment firm ZyFin.

“India remains a bright spot after the growth numbers beating China,” added the company.

The demonetisation policy withdrew all 500-rupee and 1,000-rupee notes from circulation, equivalent to about 86% of India’s cash by value. Prime minister Narendra Modi explained the initiative as an assault on corruption.

Although many financial analysts predicted long-term economic gains from the policy, the surprise move caused chaos across the country.

“For now the country is in a state of panic. Hotels don’t have exchangeable cash. Corporates don’t know what will happen. Logistics have come to a halt,” wrote Avinash Vazirani, a fund manager at Jupiter Fund Management, at the time.

©2017 funds global asia

This article was originally published in Funds Global Asia.

Photo: Edwin Poon

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