Seeing signs that impact of demonetisation in India has abated, says IMF

The IMF on Saturday said the impact of demonetisation in India has abated but insisted on quickly replacing the defunct currency in order to restore missing transactions and also to support the peoples’ capacity to spend.

“We are seeing signs that the impact of demonetisation has abated. Some estimates point to about 75 per cent of the cash has been replaced in the economy. And recent indicators such as industrial production and PMI have also recovered nicely,” Kenneth Kang, deputy director, Asia and Pacific Department of the International Monetary Fund, told reporters.

Kang said the financial body in general support the Indian government’s efforts to combat the illicit financial flows, and to produce the share of the informal economy.

“That being said, since cash is such an important element in the Indian economy, it is very important to as quickly as possible replace this currency in order to restore missing transactions, but also to support to the household’s capacity to spend,” Kang said in response to a question.

Demonetisation, he said, came as a surprise.

“In our forecast we did reflect the temporary dislocation associated with the scheme. We had lowered our forecast by almost a full percentage point compared to the October we owe for growth this year. And about a half a per cent for growth next year,” he said.

Changyong Rhee, Director, IMF Asia and Pacific department, noted that demonetisation had some negative impact on growth, but it is expected to gradually dissipate in 2017.

“Thus our growth is projected to rebound to 7.2 per cent in 2017, and 7.7 per cent in 2018, in fiscal-year basis. India remains as the fastest growing large emerging economies in Asia and in the world,” he said.