Fitch Ratings on Tuesday said the demonetisation of old `500, 1,000 notes will raise revenue for the Government but warned that the positive effects of the move are unlikely to be strong and long-lasting to support credit profiles. It said the demonetisation of notes has caused short-term disruption in the economy but if it continues for longer period, there would be impact on the country’s GDP growth.
“The move has the potential to raise Government revenue and encourage bank lending, but we believe the positive effects are unlikely to be strong and sufficiently enduring to support credit profiles,” Fitch said in a report. The Centre on November 8 announced to demonetise old `500 and `1,000 notes in a fight against black money, fake currency and corruption. It said the withdrawal of bank notes, accounting for 86 per cent of the value of currency in circulation, has created a cash crunch, and seems to be holding back economic activity.
“Consumers have not had the cash needed to complete purchases, and there have been reports of supply chains being disrupted and farmers unable to buy seeds and fertilisers for the sowing season. Time spent queueing in banks is also likely to have affected general productivity,” Fitch said.