Demonetisation’s impact on GDP growth to linger till Q2 of next fiscal: Nomura

Once the shortage of bank notes eases, the availability of cash coupled with other factors will result in a faster clipped growth from the June quarter, the Nomura report said.


Photo: AP
Photo: AP

Mumbai: The economy would stabilise in the March quarter, but the heavy impact of demonetisation means growth can accelerate only in the second quarter of the next financial year, says a report.

“While leading indicators point to a stabilisation in the first quarter of 2017, demonetisation is likely to exacerbate the near-term slowdown due to temporary cash shortage. Pre-demonetisation data suggest activity is likely to stabilise in the first quarter,” Japanese brokerage Nomura said in a note on Monday, adding that consumption is the “brightest spot” for the economy.

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“Due to a temporary cash shortage, we see a risk that GDP growth could slow to 6.5% in the fourth quarter of 2016 against our current estimate of 7.3%, and to 7.5% in the first quarter of 2017 from 7.9%,” it said. “Once the shortage of banknotes in a predominantly cash economy eases, the availability of cash coupled with other factors will result in a faster clipped growth from the June quarter.”

Also Read: New rules on cash withdrawal as of 21 November

The other factors that can push growth include softer interest rates, increased banking sector liquidity, higher rural consumption, salary hikes for state government employees and greater traction in public capex.

There have been lower growth rate projections by analysts and brokerages following the government’s surprise move to decommission Rs500 and Rs1,000 notes to curb black money and currency counterfeiting.

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