The World Bank today indicated that the adversarial effects of demonetization in India have short term pain; however it also claimed that in the medium term, the pain will disappear.
Ayhan Kose, Director of Development Prospects Group at the World Bank was discussing the impacts of demonetization and Indian economy at a conference call. The World Bank also revised the GDP growth estimates for 2016-17 to 7 percent from 7.6 percent.
The World Bank report also suggests that the Indian growth story in intact and GDP will pick up in FY18 and FY19. It also expects that private consumption and infrastructure spending require significant increment from current levels.
The World Bank also believes that due to regular reforms in recent times, India’s bottlenecks of Supply and Productivity have decreased. It believes that moderate inflation as well as civil service pay raise will support the consumption story of India.
Kose said that demonetization may have impact mostly in the rural areas and people are still apprehensive about RBI’s approach towards printing new currency notes. He also said that the decision of demonetization was implemented almost swiftly and will reduce the size of informal economy.