Demonetization: Will it hurt growth?2 min read . Updated: 15 Nov 2016, 08:32 PM IST
A fairly common conclusion is the demonetization move will cause 'short-term pain' but growth gains in the long term
The unanticipated shock of demonetization, making 86% of cash with the public illegal, is a massive disruption for the Indian economy. Following this, many reports and analyses have focused on its growth impact. A fairly common conclusion is the move will cause “short-term pain" but growth gains in the long term: In the short-run, consumption spending is particularly likely to be hit as also vast tracts of the cash-based productive segments. As the dust settles, and agents realign to higher levels of formal or recorded transactions, growth benefits will follow through a wider tax-base, better tax compliance, reduced transaction costs and enhanced efficiencies in various supply-chains; macroeconomic indicators are likely to improve too as inflation slows, fiscal balances improve and interest rates soften further on the ground.
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