India’s war on cash pushed its economy into contraction as anticipated: American economist Steve H Hanke

Criticising Prime Minister Narendra Modi’s decision to demonetise higher value currency notes, noted American economist Steve H Hanke on Wednesday said India’s “war on cash” has pushed its economy into contraction as anticipated.

“#Modi has officially steered #Indias economy into contraction as a result of his war on cash. Just what I anticipated would happen,” Hanke, an American applied economist at the Johns Hopkins University in Baltimore, Maryland said in a series of tweets.

“Manufacturing takes the hit as the war on cash in  #India adversely impacts the economy. #Modi,” he added.

Hanke, who is also a Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, DC further said, “Demonetization will cause #India to slip from the leaders board for economic growth in #2017.”

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Referring to interest rate cut by some Indian banks post demonetisation, the eminent economist said,’Indian #banks have slashed interest rates to stave off economic decline and to spark investment. A #demonetization disaster @zerohedge.”

Prime Minister Narendra Modi on Novermber 8 had announced demonetisation of Rs 1,000 and Rs 500 notes making them invalid in a major assault on black money, fake currency and corruption.

Following demonetisation, the manufacturing sector contracted in December as new work orders and output took a knock for the first time in 2016.

The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) -- an indicator of manufacturing activity—fell to 49.6, down from 52.3 in November.

The index came in below the crucial 50 threshold— which separates contraction from expansion—for the first time in 2016 in December.