The withdrawal of specified bank notes (₹500 and ₹1,000 bank notes) will impart far-reaching changes in the economy going forward, said RBI Governor Urjit Patel, in his foreword to the 14th Financial Stability Report.

“It is expected to significantly transform the domestic economy in due course in terms of greater intermediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments, notwithstanding the short-term disruptions in certain segments of the economy and public hardship,” Patel said.

The report said the immediate financial impact of withdrawal of specified bank notes , announced on November 8, was a surge in bank deposits with a commensurate fall in currency in circulation. In terms of the macro-economic impact, there is a dampening effect on inflation with a temporary loss of momentum in the growth of real gross value added (GVA).

The Reserve Bank of India has revised downward the GVA growth for 2016-17 to 7.1 per cent from 7.6 per cent, with evenly balanced risks.

However, the report observed that the precise impact of this on the economy may be difficult to capture at this stage and the disruptions in the cash-intensive sectors of the economy are likely to be transitory.

Related Topics