India's demonetisation move sparks debt concerns

Author: Brian Yap | Published: 29 Nov 2016

India's crackdown on money laundering by enacting an overnight cash reshuffle could potentially lead to an aggravation of the country’s public debt problems.  

Prime Minister Narendra Modi shocked the cash-oriented economy by announcing on the evening of November 8 that all 500 ($7.28) and 1,000 ($14.56) rupee notes in circulation would be rendered invalid after midnight. But while the move was intended to stamp out so-called black money, or untaxed, illicit cash, it could lead to a potential escalation of the country’s alarming level of non-performing assets (NPAs).

"The NPA situation is likely to increase as a result of this in that if businesses dependent on cash fail to generate revenue, because of the illiquidity in the next two months, they will go into default," said Aashit Shah, partner at J. Sagar Associates & Solicitors in Mumbai. He added that these businesses will have to rely...