Note ban sucked in cash like a vacuum cleaner: IMF official
According to IMF's Asia and Pacific Department's Assistant Director Paul Cashin, one way to characterise India's demonetisation is as a "vacuum cleaner". "It's sucking in cash, withdrawing it from the economy, and then the vacuum cleaner is going in reverse, slowly replacing cash," he stated. It has led to a lot of cash shortages that adversely affected consumption, he added.
From Lalit K Jha Washington, Feb 24 (PTI) Indias demonetisation led to huge cash shortages that have "adversely affected" consumption and like a "vacuum cleaner" it sucked in cash and then was slowly replacing the currency, a senior IMF official has said. "Youve heard about so-called helicopter drops of money with unconventional monetary policies, so one way to characterise this demonetisation initiative is as a vacuum cleaner," Paul A Cashin, Assistant Director in the IMFs Asia and Pacific Department, and mission chief of India, told PTI. "Its sucking in cash, withdrawing it from the economy, and then the vacuum cleaner is going in reverse, slowly replacing cash but as I said, at a fairly modest pace. Thats led to a lot of cash shortages that have adversely affected consumption," Cashin said in response to a question as the IMF released its annual country-report on India. Given the shortage of cash in the market, IMF in its report urged the Indian Government to continue to enhance the supply of new banknotes, and if needed consider extending or expanding targeted temporary exemptions, including on use of old banknotes, particularly for rural and remote areas. "While the financial system is expected to weather the currency exchange-induced temporary growth slowdown, the authorities should remain vigilant given the potential further build-up of NPAs and elevated corporate sector vulnerabilities, and ensure prudent support to the economic sectors affected by the currency exchange initiative," the IMF said. IMF said the repercussions from Indias currency exchange initiative will likely persist through the first quarter of 2017. Real GDP growth is projected to slow to 6.6 per cent in FY2016/17 and then rebound to 7.2 per cent in FY2017/18, due to temporary disruptions (primarily to private consumption) caused by cash shortages accompanying the currency exchange initiative. 