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The widely unpopular move by Indian Prime Minister Narendra Modi last November that led to the demonetization of INR 500 & INR 1000 notes was expected to have just one outcome – slowdown in economy. However, a third-quarter FY17 GDP at 7 per cent compared with 7.2 per cent last year left many surprised.
Echoing the Indian government’s sentiment that demonetization will do long-term benefit is World Bank’s CEO Kristalina Georgieva who spoke with Indian media organization Hindustan Times.
In her interview, she has compared Modi’s decision to the European Union, which is also phasing out high denomination bills but over a longer period of time.
“While demonetisation has, in the short term, created some impact on businesses dependent on cash, in the long term the impact will be positive… The reforms India is targeting are profound,” Georgieva told the newspaper.
Indian Prime Minister Narendra Modi has defended the move, which came unexpected to all.
Modi has called the move historical suddhi yagna (cleanliness act) and good for the economy.
“The people of the country should make digital economy a way of life. This will be empowering, it will give the poor people their rights and also help combat the evils of black money and corruption,” Modi had said last year.
According to the Central Statistics Office India’s third quarter GDP grew at a faster-than-expected pace despite demonetization. The GDP numbers strongly surpasses China’s 6.7 percent growth number retaining India’s position as the world’s fastest growing major economy.
Last week, the International Monetary Fund said India’s economic growth is expected to slow to about 6 per cent in the second half of fiscal 2016-17, before rebounding in the course of 2017-18.
Among the international community, big names like Bill Gates and Sundar Pichai have lauded the move. Among Indian entrepreneurial community, names like India's richest entrepreneur Mukesh Ambani. Mahindra Group’s Anand Mahindra & Infosys veteran Narayan Murthy called the move a step in the right direction.
Nielsen’s Global Consumer Index released earlier this month said Indian consumers’ confidence remained highest when it came to employment prospects, per capita income in the Q4 results of December 2016.
However, demonetization hit Indian citizens enormously. Shortage of cash in bank ATMs and long waits to get old currency notes exchanged at the banks left Indians furious and cashless.
The move has also spurred fast-paced growth among startups such as the Alibaba-backed digital company Paytm and about a dozen other digital mobile wallets.