World Bank or Kejriwal/Mamata – Who would you trust more on economic assessment of demonetization ?

Who would you trust more on an economic assessment of Narendra Modi’s historical step of demonetisation – What Kejriwal or Mamata have to say ? Or what a reputed economic agency like the World Bank has to say ? Well, if you trust World Bank, it has given a thumbs up to the demonetization. The World Bank has praised the reforms undertaken by PM Modi, including demonetization, and said that the “adverse effects” of demonetisation in India will disappear in the medium term. World Bank said that any big reform has some short-term costs associated with it.

Any reform has short-term costs but ultimately reforms will bring long-term gains. In the case of India, we expect whatever the adverse effects of these changing of notes to basically disappear in the medium term,” Ayhan Kose, Director of Development Prospects Group at the World Bank told reporters during a conference call. In its latest report, the World Bank revised its estimates of India’s growth rate in 2016-17 fiscal year from previous projection of 7.6 per cent to 7 per cent. Even the government estimates have put the growth to be 7 %.

Kose said the World Bank is expecting that slow down will remain for a short term and growth will pick up over the period FY18 and FY19, supported by private consumption, increased government spending on infrastructure, ending of parallel economy and a rebound in investment growth. “India has already undertaken a wide range of reforms. These reforms we are expecting loosened domestic supply bottlenecks and increased productivity and, in the coming years, moderate inflation and civil service pay raise should continue to support real incomes and consumption,” he said in response to a question. The World Bank has also said that it is expecting private investment to accelerate as firms and banks will undertake the necessary measures. It added that the effects of important structural reforms initiated by Narendra Modi led government have started to be felt.

World Bank also said that the Indian Government has made a decision and implemented this decision swiftly with the objective that this could help reduce the size of the informal economy. “Whenever these types of policy changes are implemented, they have effects during the transition. The part of the reason the government implemented the scheme was to curb corruption, tax evasion, and counterfeiting. If that were expected, that by broadening the tax base, revenues will eventually go up, besides reducing the size of the informal economy,” Kose said.

Last week, two economics nobel laureates Muhammad Yunus and Jean Tirole hailed the move as a great step against corruption and parallel economy. “Demonetization kills black money and has increased liquidity. Most important, demonetisation has brought the rural and unorganised sectors into the banking fold,” Nobel laureate Muhammad Yunus said.

Kshitij Mohan