Demonetisation is likely to have a short-term effect on the economy, UK Sinha, Chairman, SEBI, said on Tuesday.

Quoting data from the International Monetary Fund, Sinha pointed out that although the international organisation has scaled down growth projection by 100 basis points to 6.6 per cent for the current fiscal, growth for 2017 is pegged at 7.2 per cent, and it has kept the projection for the year 2018 intact at 7.7 per cent.

“If these projections are anything to go by, then you will see that the GDP is steadily growing. Hence, the impact of demonetisation will be short term,” he said during an interactive session organised by the Bharat Chamber of Commerce.

Demonetisation, from the academic point of view, would lead to more money coming into the formal system. This would be good for the economy. And IMF’s projections show just that, he pointed out.

$11 billion outflow

According to Sinha, there has been an outflow of $11 billion in foreign portfolio investment during the October-December period of this fiscal. However, the jury is still out on the extent to which demonetisation is responsible for this outflow.

“It will take three to four months time (for the analysis),” he said, adding that certain other global developments, such as US Presidential election results and a hike in US Fed rates, coincided with India’s decision to demonetise ₹500 and ₹1,000 currency notes.

Pointing out that the Indian capital market is more resilient now thanks to lower dependence on foreign fund inflows, Sinha said the Indian rupee was still stable despite the capital outflows. Had it been three to four years before, the situation would have been different.

Since 2014, some 200 cases involving ₹10,000 crore tax avoidance have been detected, he also said. The Centre, Sinha pointed out, is looking at a comprehensive law encompassing all deposit-taking companies. The legislation is still under process.

At present, there are a number of legislations that deal with different types of legal deposit-taking companies ranging from chit funds, to NIDHIs and cooperative societies.

SEBI and RBI, he said, are working together with State governments to see that investors are not defrauded by deposit-taking companies and Ponzi schemes.

According to the SEBI Chairman, many States, including West Bengal, have already put in place State-level depositors protection Acts. As a result, the onus is now on the States to probe irregularities indulged in by deposit-taking companies and Ponzi operators.

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