Demonetisation will dampen India’s 2017 GDP growth

Subject

Economic impact of demonetisation.

Significance

On the night of November 8, Prime Minister Narendra Modi’s government withdrew the 500-rupee (7.30 dollars) and 1,000-rupee notes as legal tender. Notes of those denominations accounted for around 25% of all notes in circulation and 85% of the value of currency in circulation in the country. The government’s ostensible aim is to curb illicit wealth and “terrorist financing”. This move has flushed out a large chunk of the currency in circulation in a very short time.

Impacts

• Urban and rural demand is likely to suffer due to demonetisation.
• Prices of agricultural products are likely to fall due to trade disruptions.
• Demonetisation will reduce employment in sectors such as informal manufacturing and construction.