Harvard, IMF researchers assess damage due to demonetisation, claim 3% drop in economic activity | WeForNews | Latest News, Blogs Harvard, IMF researchers assess damage due to demonetisation, claim 3% drop in economic activity – WeForNews | Latest News, Blogs
Connect with us

Business

Harvard, IMF researchers assess damage due to demonetisation, claim 3% drop in economic activity

The report says both the RBI and the Centre maintained secrecy prior to the policy’s announcement and that the RBI “did not print and distribute a large quantity of new notes before the announcement”, which led to an immediate shortage of cash

Published

on

Modi Notebandi

The Narendra Modi government’s demonetisation move, which turned around 86 per cent of cash in circulation illegal tender overnight on November 8, 2016, led to a significant decline in cash, which lowered India’s economic growth and led to a reduction in jobs by at least 2-3 percentage points in the quarter of the note ban, a new study has found. The study shows that Indian districts that experienced more “severe demonetisation shocks” had much larger contractions in ATM withdrawals, and highlights its effects on the Indian economy. It also talks about the rise of alternative forms of payment options, including mobile wallets, after demonetisation.

The paper, ‘Cash and the Economy: Evidence from India’s Demonetisation’, written by Gabriel Chodorow-Reich, an associate professor of economics at Harvard; Gita Gopinath, the Economic Counsellor and Director of the Research Department of the IMF; and Prachi Mishra of Goldman Sachs and RBI’s Abhinav Narayanan, was done to highlight “the consequences of demonetisation in the cross-section of Indian districts”.

Talking about the effects on economic activity, the paper says the economic activity declined by 2.2 percentage in November and December 2016. “To reach this number, we first cumulate the cross-sectional effects on employment and nightlights over districts. Next, we argue that this calculation provides a lower bound for the aggregate consequences of the cash decline. Such a lower bound arises in our model due to cross-district trade. Combining these two results yields a decline in nightlights-based economic activity and of employment of 3 pp or more in November and December of 2016 relative to the counterfactual path, which translates into a decline in the quarterly growth rate of 2 pp or more,” it said.

The paper also says there was around 2 percentage points or more decline in credit in Q4 of 2016. Talking about the poor implementation of the note ban, the report said both the RBI and government maintained secrecy prior to the policy’s announcement and the RBI “did not print and distribute a large quantity of new notes before the announcement”, which led to an immediate shortage of cash. “Printing press constraints then prevented the government from quickly replacing more than a fraction of this total with new notes. Thus, the total currency declined overnight by 75 per cent and recovered only slowly over the next several months,” said the report.

The study said while the slow replacement of notes led to a decline in the currency, it did not affect the overall size of the RBI’s balance sheet. “The immediate consequence was to increase deposits at commercial banks as households deposited old notes but could not freely withdraw new notes due to the cash shortage,” it said.

The RBI initially required banks to hold these deposits as reserves at the central bank by increasing the cash reserve ratio to 100 per cent on all incremental deposits received between September 16 and November 11, said the report. “Since these reserves paid no interest while banks continued to pay positive interest on their deposits, on December 6 the RBI withdrew the increase in the reserve ratio and instead absorbed the deposits by issuing short-term Market Stabilization Bonds (MSB),” it maintained.

“We conclude that in modern India cash continues to serve an essential role in facilitating economic activity,” said the report.

On November 8, 2016, at 8:15 pm, Prime Minister Modi had announced in an unscheduled national televised address that the two largest denomination notes, the 500 and Rs 1000 rupee, would “cease to be legal tender”, and that they would be replaced by new Rs 500 and Rs 2,000 notes. The Centre said the decision was taken to target black money, reduce corruption, and remove fake currency notes.

Business

Kotak Mahindra Bank, CEO commit Rs 50 cr to PM-CARES Fund

The bank has also separately committed Rs 10 crore for the cause to the Chief Minister of Maharashtra.

Published

on

By

Kotak Mahindra Bank CEO

New Delhi, March 29 : Kotak Mahindra Bank and its CEO Uday Kotak have together committed a total of 50 crore to the PM-CARES Fund for the fight against the coronavirus pandemic.

In a tweet on Sunday, the bank said: “Kotak Mahindra Bank & Mr. Uday Kotak personally, commit immediate support of Rs 50cr to PM-CARES (Rs 25cr each).”

The ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’ (PM- CARES Fund)’ is a public charitable trust with the primary objective of dealing with any kind of emergency or distress situation, like posed by the COVID-19 pandemic, and to provide relief to the affected.

The bank has also separately committed Rs 10 crore for the cause to the Chief Minister of Maharashtra.

“Kotak Mahindra Bank commits immediate support of Rs 10cr to Chief Minister of Maharashtra towards COVID relief and rehabilitation efforts. @CMOMaharashtra,” said another tweet by the bank.

Several corporate entities have made announcements and come up with steps help combat the deadly virus.

The total tally of coronavirus cases in India climbed up to 1,024 on Sunday, said the Health Ministry. Of this 901 are active COVID 19 cases, 95 people have recovered from the disease and 27 have died. One coronavirus patient migrated abroad.

Continue Reading

Business

Lockdown period to be excluded from timeline for resolution process

Published

on

bankrupty insolvency bill

New Delhi, March 29 : In a major relief for companies going through insolvency under the Insolvency and Bankruptcy Code (IBC), the IBBI on Sunday said that the period of lockdown will not be counted within the timeline for resolution process.

In a notification, the IBBI announced the insertion of regulation ’40C’, a special provision related to timeline of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The notification said that as per the regulation, “The period of lockdown imposed by the Central Government in the wake of COVID19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”

It said that the regulation would immediately come into effect.

This is another major relief for the corporate world amid the coronavirus crisis. Among other recent changes under the IBC, Finance Minister Nirmala Sitharaman last week said that the threshold for default under the IBC has been raised to Rs 1 crore from the current Rs 1 lakh.

She also assured that the government will keep a watch on the situation and if the situation remains the same beyond April 30, the government may consider suspending Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code (IBC) for six months. This will prevent companies from being forced into insolvency proceedings in such force majeure causes of default.

Continue Reading

Business

SpiceJet pilot tests positive for coronavirus

All the aircraft of SpiceJet are being disinfected thoroughly since the end of January and the disinfectants used are as per the WHO standards, said the spokesperson.

Published

on

By

Spicejet

New Delhi, March 29 : SpiceJet on Sunday said that one of its pilots has tested positive for novel coronavirus infection.

A spokesperson with the airline said that the ‘First Officer’ did not operate any international flight in March and the last domestic flight he operated was on March 21 from Chennai to Delhi. Since then, he had quarantined himself at home

“One of our colleagues, a First Officer with SpiceJet, has tested positive for COVID-19. The test report came on March 28,” said the spokesperson.

All crew and staff who had been in direct contact with the pilot have been asked to self-quarantine by staying at home for the next 14 days.

The spokesperson said that all measures are being taken to provide appropriate medical care to him.

“Safety of our passengers and employees is our topmost priority. We have been diligently following the guidelines issued by the WHOand the Government of India.”

All the aircraft of SpiceJet are being disinfected thoroughly since the end of January and the disinfectants used are as per the WHO standards, said the spokesperson.

According to government data, the total number of positive coronavirus people in India so far, reached up to 979 on Sunday. Of this, at least 867 are active coronavirus cases, 86 people have cured and discharged from hospitals while 25 people succumbed from the highly infectious COVID-19 disease.

Continue Reading
Advertisement

Most Popular