Fitch sees slower growth for In­dia

The Myanmar Times - - Business -

RAT­INGS agency Fitch will re­vise down its In­dia growth forecasts for the fourth quar­ter of 2016, af­ter the coun­try’s shock move to pull most of its cur­rency out of circulation.

Fitch Rat­ings said the move, aimed at forc­ing In­di­ans to de­clare their un­taxed money, had cre­ated a cash crunch that “seems to be hold­ing back eco­nomic ac­tiv­ity”, with con­sumers un­able to make pur­chases, sup­ply chains dis­rupted and farm­ers un­able to buy seeds.

“Time spent queue­ing at banks is also likely to have af­fected gen­eral pro­duc­tiv­ity,” Fitch said.

“The im­pact on GDP growth will in­crease the longer the dis­rup­tion con­tin­ues, but we will al­ready need to re­vise down our forecasts to re­flect what will cer­tainly be a weak Q4 2016.”

In­dia, the world’s fastest-grow­ing ma­jor econ­omy, op­er­ates largely on cash and huge queues have formed out­side banks and ATMs in ci­ties across In­dia as peo­ple try to swap their old notes for new ones.

The govern­ment has said the move will bring bil­lions of un­ac­counted money into the bank­ing sys­tem and ul­ti­mately boost the econ­omy.

But Fitch said there were “con­sid­er­able un­cer­tain­ties” about the po­ten­tial ben­e­fits, par­tic­u­larly as new, higher-de­nom­i­na­tion notes are in­tro­duced to re­place the banned 1000 and 500 ru­pee bills.

“There are no new in­cen­tives for peo­ple to avoid cash trans­ac­tions. The in­for­mal sec­tor could soon go back to busi­ness as usual,” it said.

Re­sponses to the move have been mixed to say the least.

Many poor In­di­ans have said they sup­port it de­spite the dis­rup­tion if it forces the rich to pay their taxes, but some economists say the im­pact on the wealth­i­est will likely be lim­ited.

“We strongly sus­pect that those with the largest amount of ill-got­ten gains do not hold their wealth in cash but in­stead have long since con­verted it into for­eign ex­change, gold, bit­coin or some other store of value,” wrote the for­mer US Trea­sury sec­re­tary Larry Sum­mers, who has called for a mora­to­rium on print­ing high-value notes, in a blog post.

“So it is petty for­tunes, not the hugest and most prob­lem­atic ones, that are be­ing tar­geted.”

Only six peo­ple earn­ing over 500 mil­lion ru­pees – now equiv­a­lent to US$7.3 mil­lion – filed tax re­turns in 2012-13, the lat­est fig­ures avail­able, even though an es­ti­mated 2100 In­di­ans have a net worth that ex­ceeds $50 mil­lion. –

Photo: AFP

In­di­ans queue out­side a bank as they wait to de­posit and ex­change 500 and 1000 ru­pee notes in Allahabad.

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