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India plans removal of cash withdrawal limits to free economy

Due to the rising financial technology systems in India, its central bank Wednesday said it is freeing up the cash space so that people can take all they want with ease.

The Reserve Bank of India capped cash withdrawals after Prime Minister Narendra Modi’s shock decision in November to take all 500 ($7.40) and 1,000 rupee notes out of circulation to deter tax-dodging — 86 percent of the currency in the cash-reliant nation.

Already, cash crunch saw long queues outside banks and ATMs, which ran dry within hours and left many without the means to buy food or daily essentials, especially in rural areas.

In a statement, Indian apex bank explained that withdrawal limits would be nearly doubled from 24,000 rupees to 50,000 from February 20 and removed altogether from March 13.

The bank also said it was leaving interest rates unchanged at 6.25 percent, despite pressure for a cut to stimulate the economy amid fears the cash ban had slowed growth.

Ashutosh Datar, economist at IIFL Institutional Equities “It’s a bit surprising and slightly perplexing that they didn’t do a cut,” saying “Maybe they could have been a bit more aggressive… their assumption is that the impact of demonetisation is transitory but if it isn’t, and if it continues for a few months, that could lead to a sub-seven percent growth for the first half of next year.”

Statistics show that India’s economy grew by 7.6 percent in the year to April 2016, but the government has forecast that will slip to around 7.1 percent in the current financial year.

Besides, the prevailing cash squeeze has also prompted the International Monetary Fund to knock a percentage point off its forecast for India’s economy in the current fiscal year. The new estimate is 6.6 percent, bringing it below China’s projected rate of 6.7 percent.