Note ban to cost Rs1.5 lakh cr in FY17, says India Ratings

Tribune News Service

New Delhi, December 2

The economic cost of demonetisation of Rs 500 and 1,000 notes will be Rs 1.5 lakh crore for financial year 2017, says India Ratings.

The agency says that demonetisation has eroded Rs 1.5 lakh crore from FY17 GDP and growth will fall to 3-year low.

While there are no two opinions about the need to root out black income, India Ratings’ analysis shows that at best the current measures are likely to destroy Rs 4 lakh crore worth of cash held in black money and fake currency.

It said this constitutes a mere 12% of the black economy in India, leaving 88% of the black money to remain in the system.

Global experience, including that of India in the past, has shown that the impact of such measures have been fairly short-lived (India followed the demonetisation route twice in the past, first in 1946 and then 1978) as it does not attack or plug the mechanism that gives rise to black money, it said.

The agency has also revised its GDP growth forecast for FY17 to 6.8%, 100 basis points lower than its earlier projection of 7.8%. The downward revision is fallout of the disruption caused at various levels in the economy due to the demonetisation.