Prime Minister Narendra Modi at the event to inaugurate Nobel Prize Series Exhibition in Gandhinagar, Gujarat on January 9, 2017. (Source: narendramodi.in)

On a day when Ex-Prime Minister Manmohan Singh predicted the “worse is yet to come” for Indian economy after demonetisation, Prime Minister Narendra Modi’s maverick move received a thumbs-up from the World Bank. Speaking at ‘Jan Vedana’ conclave on demonetisation organised by Congress party in New Delhi on Wednesday, Singh dubbed demonetisation as a “disaster” and predicted things were going from bad to worse. “Demonetisation has hurt the country. Things have gone from bad to worse, but the worse is yet to come,” he said.

Singh slammed PM Modi’s claim that economic situation is improving after demonetisation. He said the claim was “hollow” and “Modi’s propaganda”. “We now know the beginning of the end has come.”

In his brief address, the former PM reiterated what he had said in Rajya Sabha last month, quoting “some rating agencies” that GDP could slow down to 6.6 per cent due to demonetisation. However, a World Bank report released on Wednesday said otherwise.

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The first such report after the announcement of demonetisation on November 8, 2016, appears to be in agreement with PM Modi’s claim that demonetisation is “short-term pain for long-term gain.”

“A benefit of ‘demonetization’ in the medium term may be liquidity expansion in the banking system, helping to lower lending rates and lift economic activity,” the report said while forecasting India’s growth as “still robust”. It said growth in India is estimated to reach 7.0 percent in the financial year ending on March, 31 2017. This is a reduced estimate from the previous 7.6 per cent growth forecast for this year.

Acknowledging the short-term disruption caused by demonetisation, the report said, “In the short-term, demonetisation could continue to disrupt business and household economic activities, weighing on growth. Further, the challenges encountered in phasing out large currency notes and replacing them with new ones may pose risks to the pace of other economic reforms (e.g., Goods and Services Tax, labour, and land reforms).”

The report predicted that growth in India would regain its momentum “with growth rising to 7.6 percent in the financial year 2018 and strengthening to 7.8 per cent in the financial year 2019.”

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The report also said that reform activities taken by Modi government would “unlock domestic supply bottlenecks and raise productivity.” Such as: a) infrastructure spending would improve business climate and attract investment in the near-term. b) “Make in India” campaign may support the country’s manufacturing sector, backed by domestic demand and further regulatory reforms. c) Moderate inflation and a pay hike as per 7th Pay Commission recommendations would support real incomes and consumption.

(Inputs from agencies)