Rush for Indians to salvage their savings
INDIANS lined up outside banks across the country yesterday, the last day for them to deposit their savings or see them become worthless after large denomination notes were scrapped in a bid to fight corruption.
Prime Minister Narendra Modi last month said 500 and 1 000 bank notes – worth a combined R3.5-trillion and 86% of cash in circulation – would cease to be legal tender after yesterday, disrupting the lives of hundreds of millions.
Only 35% to 40% of ATM machines were currently dispensing cash, according to Ramaswamy Venkatachalam, managing director, India and South Asia, Fidelity Information Services, a banking technology provider.
Modi had said his government would end the chaos and restore normality in 50 days.
But analysts said the impact would last at least six more months, with concerns about lower economic growth, job losses and a fall in demand for goods.
“Economic growth, the obvious casualty, will tank to about 6.5% in the second half of the 2016-17 fiscal year against an average 7.2% in the first half,” said DH Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi.
Another cost would be job losses, especially in the informal sector, Panandiker said.
The informal sector accounts for 20% of gross domestic product and more than 85% of total employment.
In an interview with India Today magazine, Modi on Thursday said the demonetisation decision would provide the economy with long-term benefits, including forcing the vast shadow economy into the open.
He has said the demonetisation action was needed to fight corruption and cut off financing for attacks by militants who target India.
Paranjoy Guha Thakurta, editor of Economic and Political Weekly, said there was “a fair amount of evidence” to suggest that economic activity had shrunk because of the move. — Reuters