Note ban may hit GDP growth

Economy likely to slowdown in FY17.

Hyderabad: While the demonetisation may have positive impact over the longer term, experts claim that the Indian economy is likely slow down to seven per cent or below in this financial year.

Singaporean brokerage DBS has estimated that the gross value added to the economy can come down by up to 0.80 per cent lower than its 7.6 per cent target.

“There are downside risks to the tune of 0.40-0.80 per cent to our gross-value added estimate of 7.6 per cent,” it said in a note on Mon-day, nearly a fortnight after the government demonetised the Rs 500 and Rs 1,000 banknotes.

Other brokerages have already projected a 50 per cent dip in GDP growth, with Ambit Capital being the steepest at 3.6 per cent. With a 7.6 per cent GDP growth rate, the Indian economy has been the fastest growing among major economies in the world.

However, any prolonged disruption in business caused by cash shortage could lead to India losing its fastest growing tag as it will almost near China’s projected GDP growth of 6.7 per cent this year.

According to Japanese brokerage Nomura, the heavy impact of demonetisation could slow down the economy and growth can accelerate only in the second quarter (June 2017) of the next financial year.

According to domestic rating agency Icra, “consumption-oriented sectors, particularly those involving large cash transactions, such as real estate, construction, jewellery, retail, travel and tourism and trade are likely to experience a lull in the short-term. Cash-based transactions in the unorganised sector would also get disrupted, particularly in rural areas.”

DBS, however, said that there will be some pent-up demand which can give an upside to growth starting the first quarter of the next fiscal as the lower bank lending rate could propel consumption demand.

By acting on the demand side, the demonetisation move can help reduce inflation by up to 0.20 per cent over the next few months and make the case for a 0.25 per cent rate cut from RBI in first half of 2017 stronger, the brokerage said, adding there will not be a rate cut in the December 6 policy announcement.

On the fiscal side, there will be “windfall gains” if the move results in unearthing unaccountable money from the system and will help to increase the proportion of direct tax revenues over indirect collections, it said. But it did not quantify the fiscal gains.

( Source : Deccan Chronicle with agency inputs )
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