Demonetisation will have positive impact on Indian economy, says World Bank CEO

Prime Minister Narendra Modi’s decision to ban high-value banknotes as part of efforts to stamp out corruption will have a profound and positive impact on India’s economy, World Bank CEO Kristalina Georgieva has said.

Georgieva told Hindustan Times that “demonetisation” may have caused some hardship to people living in the cash economy but in the long run the move will help foster a clean and digitised economy.

“What India has done will be studied (by other countries). There hasn’t been such demonetisation in a country so big,” she told HT in an interview late on Wednesday.

The World Bank CEO’s praise is the latest for Modi’s November 8 decision, which culled 1000-and 500-rupee bills with immediate effect, triggering a months-long cash crunch. In November, the International Monetary Fund said it supported India’s efforts to fight corruption through currency control measures, which have since eased.

Georgieva compared Modi’s decision to that of the European Union, which is also phasing out high denomination bills but over a longer period of time.

“While demonetisation has, in the short term, created some impact on businesses dependent on cash, in the long term the impact will be positive… The reforms India is targeting are profound.”

She said the government’s financial inclusion programme along with the move towards digital payments and direct transfer of subsidies will help the poor.

Georgieva, who was in India for two days, travelled on a local train in Mumbai and visited the world’s biggest slum in Dharavi. She said people were eager to get a better life and that they were willing to pay more for improved services.

She also appreciated the competition among states to improve the ease of doing business saying the situation has “improved”.

“India is the bright spot in today’s global economy and it is visible in the country’s performance and more so in the aspirations of the people here,” she said.

“Our growth projection for India for this year is 7%. The signs are positive with the reform process underway and GST expected to be implemented soon.”