The World Bank on Monday said demonetisation may have had a “disproportionate impact on poorer households” and slowed down the Gross Domestic Product growth to 7% year-on-year during the third quarter of 2016-2017 from 7.3% in the first quarter. “Demonetisation affected poor and vulnerable households, in all likelihood having an impact on construction and informal retail,” it said in its annual India Development Update released on Monday.
The World Bank said even though the informal economy only accounts for 40% of the GDP, it employs almost 90% of India’s workers. “The poor and vulnerable are more likely to work in informal sectors (farming, small retail and construction), and are less able to move to non-cash payments,” the report added.
However, in the long term, the Bank said, demonetisation had the potential to accelerate the formalisation of economy, increase tax collection and further allow greater digital financial inclusion. It also said that the implementation of the goods and services tax starting July 1 will lead to economic gains.
On November 8, 2016, the government had announced that the existing Rs 500 and Rs 1,000 banknotes would cease to be legal tender. This had led to a severe cash crunch in the country.
The World Bank said India must increase women’s participation in the job market to achieve its ambition of double-digit growth. “Low female labour force participation however, remains a serious concern,” World Bank Country Director, India, Junaid Ahmad said. Currently, India stand 120th among 131 countries in female labour force participation.
The World Bank reiterated that India’s economic activity will grow to 7.2% in 2017-2018. “Growth increases gradually to 7.7% by FY20, underpinned by recovery in private investments, which are “crowded-in” by the recent increase in public capital expenditure and improvement in investment climate,” it said.