Kolkata: Securities and Exchange Board of India (Sebi) chairman U.K. Sinha said on Tuesday that the demonetisation would have a short-term impact on the economy.
Citing International Monetary Fund (IMF) estimates, he said that though the organisation has reduced its forecast for India in the current fiscal by 100 basis points (bps) to 6.5% but for 2017, the growth projection is 7.2% for 2018.
Sinha noted that while India, as per the IMF, would grow 6.5% in the current fiscal, China’s GDP growth will be 6.6%. But China’s growth would decline to 6.4% in 2017-18 while India would grow at 7.2%.
“So we will catch up and I have hope," Sinha said during an interactive session organised by the Bharat Chamber of Commerce.
Terming demonetisation as an “academic exercise", he said the text books say that if money which is outside the formal system comes into the banking system it is good for the country and economic growth and that GDP numbers would grow.
“I have not come across any estimate which is closer to the truth about what percentage of our economy is outside the formal system. There is no reliable guess on this," he added.
Sebi chief also said that about $11 billion of foreign portfolio money had moved out of the country between October and December but the market still “held on".
“We must appreciate the strength of our markets today as compared to 3-4 years back," he said.
He, however, added that there is no “hard data" that can link foreign portfolio investment (FPI) outflow to demonetisation. Demonetisation dovetailed with the outcome of the US presidential election, which had an impact not only on India but in many other parts of the world.
“Money has gone out not only from India but from many parts of the world to US," he added.
“So what percentage moved out of cancellation of legal tender and what percentage was due to development in the US would be analysed but would need some time," Sinha said.
He also said that Sebi was taking several steps to stop misuse of the capital market through steps such as curbing foreign investments through participatory notes in 2016-17 and pulling up those who had been avoiding payments on capital gain taxes.
Over 50% of foreign portfolio investment (FPI) into India came from the participatory notes route in the last two years but that has now come down to 8%, he said.
He also said the process and eligibility of investment via participatory notes is exactly the same at present as it is for any investor coming through the normal FPI route.