Reported by Rakesh Kumar, Managing Editor, ISHRAE Journal
The Indian economy, which grew at a healthy 7.3% in 2015 and maintained its growth at 7.4% during January-September 2016, took a hit in the October-December 2016 quarter due to the decision by the government to demonetise high value currency notes of INR 1,000 (US$ 15) and INR 500 (US$ 7.5) to combat black money, counterfeit currency and terrorist financing. These notes comprised 84% of the total currency in circulation. Almost 90% of the Indian economy is in the informal sector (including agriculture) that relies primarily on cash for its transactions, and cash transactions account for about 80% of the total financial transactions in India. The drastic measure by the government had the short-term impact of creating a cash shortage, shrinking economic activity and reducing employment. India Ratings & Research, a Fitch Group company, cut its Gross Domestic Product (GDP) growth forecast for the financial year April 2016-March 2017 to 6.8%, much lower than its initial estimate of 7.9%. During the next financial year 2017-18, the rating agency expects GDP to grow at 7.4%, backed by consumption demand and government spending.