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Fight over interest rate policy exposes India's economic vulnerabilities

Government pushes for monetary easing despite central bank doubts

| India

While India swelters in record high June temperatures, senior officials in Prime Minister Narendra Modi's government are sweating for another reason. The heat is coming from a debate over whether the country is poised for a V-shaped recovery after last November's shock demonetization or if it is teetering on the edge of a broad slowdown.

Demonetization, which involved the withdrawal from circulation of large-denominated bank notes in an effort to combat the underground economy, was seen as highly disruptive. It dealt a blow to India's cash-reliant economy and caused big job losses in the informal economy, which employs more than 90% of the workforce. Government officials now say economic growth started to slow markedly in mid-2016, months before demonetization was launched on Nov. 8.

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