Deconstructing demonetisation

Although demonetisation will pressure GDP growth in the near term, they should lead to higher revenues for the government in the longer term, says Moody’s


Photo: Hemant Mishra/Mint
Photo: Hemant Mishra/Mint

Moody’s Investors Service said the government’s demonetisation of high-value banknotes is affecting all sectors of the economy to various extents, with banks being the key beneficiary. Although the measures will pressure GDP growth, and thereby government revenues in the near term, they should boost tax revenues and translate into higher government capital expenditure and/or faster fiscal consolidation in the longer term, the ratings company said on Thursday. In a separate report, the Centre for Monitoring Indian Economy (CMIE) said the total cost of demonetisation could be close to Rs1.3 trillion.

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