NEW DELHI: Commerce and industry minister Nirmala Sitharaman on Friday sought to dispel the notion that the Narendra Modi-led government’s decision to scrap old Rs 500 and Rs 1,000 currency notes would pull down the country’s economic progress.
While Sitharaman did admit that there would be some impact in the current quarter (October-December 2016) owing to currency shortage, she said that the economy would gradually adjust to the “new normal”, where most formal transactions happen through cheques, debit/credit cards and e-wallets.
“The government and the Reserve Bank of India are working, but despite all the preparations, there will be an impact this quarter. But, I don’t think it’ll continue further because gradually, things will have to come back to some kind of normal...,” she said.
According to Sitharaman, the stress in the economy has eased with new currencies now reaching the people. Unaccounted money is also getting extinguished and so is the government’s liability, she added in a television interview.
Prime Minister Narendra Modi had on November 8 announced the demonetisation of Rs 500 and Rs 1,000 notes, withdrawing 86 per cent or Rs 14 lakh crore worth currency from circulation, and imposed restrictions on cash withdrawal from banks and ATMs.
Since then, millions of people across the country have been queuing up at banks and ATMs to exchange old notes and withdraw cash.
Traders and manufacturers have also raised concerns over the shortage of cash, with many stating that they are facing problems in paying wages and procuring raw material. In fact, Sitharaman had earlier this week that exporters especially have been hit badly by the cash crunch.
Analysts have pegged the impact of demonetisation on the economy and on GDP growth as largely negative in the short term, with most predicting a fall in GDP growth for the current financial year.
Moody’s Investors Service on Thursday had said that demonetisation would, in the near term, significantly disrupt economic activity and lead to weaker growth, but in the long run can boost tax revenues and translate into faster fiscal consolidation. Similarly, on Friday, a Deutsche Bank report said that India’s real GDP growth would slow to 6.5 per cent in FY17.