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Note ban could cut economic growth by 1-2% this fiscal: Montek Singh Ahluwalia

Ahluwalia also urged the government to immediately try to get back to 7 per cent-plus growth rate.

By: Express News Service | Kolkata |
January 7, 2017 4:52:25 am
demonetisation, demonetisation effects, note ban, montek singh ahluwahlia, india economy, economic growth, business news, economy news, indian express Montek Singh Ahluwalia. (File Photo)

Former deputy chairman of the erstwhile Planning Commission Montek Singh Ahluwalia Friday reiterated note ban could potentially cut economic growth by 1 or 2 per cent in the present fiscal year. “I would not have recommended demonetisation…I would not have said demonetisation is an instrument for digitisation,” he said.

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Ahluwalia also urged the government to immediately try to get back to 7 per cent-plus growth rate. “The country had an underlying strength for growth of over 7 per cent, but demonetisation has disrupted that strength and I think GDP will get affected between 1 and 2 per cent. So now it should be 5 to 5.5 per cent for the current year,” Ahluwalia said after a close-door meeting with members the Bharat Chamber of Commerce. “Once the shock is behind us, economic growth should be above 7 per cent,” he added.

The Reserve Bank has cut the economy’s growth forecast for the current fiscal to 7.1 per cent from 7.6 per cent earlier. It said that short-term disruption in economic activity and demand contraction arising out of demonetisation had led to downside risks to growth.

Ahluwalia went on to say that the present government had not set any road-map for long-term benefits out of note recall despite recognising the short-term pain.

“We have to wait till the economic survey is placed by the government to get a clear picture on long-term benefits the government expects,” the economist said, when asked whether he sees any positive long-term benefit accruing from the move.

He went on to say that said he was not sure whether the Central Statistical Organisation would consider demonetisation while preparing its report, which is usually based on Q1 and Q2 data of the year.

Ahluwalia recognised addressing the problem of black money, but observed that there are several other things which can be considered for that end like making tax rates attractive to encourage compliance.

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