Prime Minister Narendra Modi's demonetisation may have thrown economic activity out of gear, but the Reserve Bank of India says that it could lead to far-reaching changes in the economy that would help foster a new digital age.
“The withdrawal of specified bank notes will impart far-reaching changes going forward,“ RBI Governor Urjit Patel has said in the foreword to the Financial Stability Report, a half-yearly report that diagnoses the health of the financial system and examines t ..
“It is expected to significantly transform the domestic economy in due course in terms of greater intermediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments, notwithstanding the short -term disruptions in certain segments of the economy and public hardship,“ he said.
Although the RBI is the prime actor behind the demonetisation exercise, it is now aggressively batting for the success of the programme. On November 8, Modi had declared that Rs 500 and Rs 1,000 won't be legal tender any more.
Although the RBI is the prime actor behind the demonetisation exercise, it is now aggressively batting for the success of the programme. On November 8, Modi had declared that Rs 500 and Rs 1,000 won't be legal tender any more.
RBI's latest instalment of the Financial Stability Report also said that recent initiatives towards reducing the size of the cash economy are likely to sharply increase the use of digital money and its equivalents.
RBI's latest instalment of the Financial Stability Report also said that recent initiatives towards reducing the size of the cash economy are likely to sharply increase the use of digital money and its equivalents.
“Initiatives for encouraging the use of non-cash and digital payments and withdrawal of legal tender status of specified bank notes (SBNs), accompanied by changes in income-tax rules are expected to result in a shift away from the significant dependence of Indian economy on cashbased transactions,“ the report said.
The central bank has also lauded the Modi administration's determination to disrupt the shadow economy. “The government's resolve to take on the shadow economy through various measures is expected to deliver net di rect and collateral benefits to the economy in the long run,“ it said.
The central bank has also lauded the Modi administration's determination to disrupt the shadow economy. “The government's resolve to take on the shadow economy through various measures is expected to deliver net di rect and collateral benefits to the economy in the long run,“ it said.
The report also said that measures like the income disclosure scheme, setting up of a Special Investig ation Team, enacting a law regarding undisclosed foreign income and assets will improve India's international standing.
The immediate impact of demonetization has been a dampening effect on inflation with a temporary loss of momentum in growth. The central bank in its last monetary policy statement had revised downward the GVA growth for 2016-17 to 7.1% from 7.6%.
“The precise impact of the same (demonetisation) on the economy may be dif ficult to capture at this stage and the disruptions in the cash intensive sectors of the economy are likely to be transitory,“ the RBI report said.
The Economic Times,New Delhi 30th December 2016
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