Demonetisation of old ₹500 and 1,000 notes had a “material impact on spending” as reflected in significant slowing of GDP growth in January-March, Fitch Ratings said on Tuesday, warning that the ongoing steep decline in investment could spell risks to growth potential. In its latest Global Economic Outlook (GEO), Fitch ha said that the Indian GDP growth has slowed “significantly” to 6.1 % in first quarter of 2017 from 7 % in October-December. It appears that the cash squeeze of November 2016- whereby the government pulled 86 % of cash in circulation out of the economy virtually overnight - did have a material impact on spending,” it said. Stating that the lagged effect of demonetisation on the economy is “quite puzzling”, Fitch has said that this partly reflects the challenges of measured spending in an economy with a large informal sector. “This should help drive a pick—up in GDP growth, which we forecast at 7.4—7.6 % in the next two fiscal years,” it said.

Source: The Hindu June 20, 2017 06:56 UTC