Cash shortage may slow down GDP growth to 6.5% in Q3: Nomura

Nomura also said that in the light of the near-term growth slowdown, it is expecting the RBI to deliver a 25 basis point repo rate cut to 6% in its policy review next week


As per the report, cash-dependent sectors like agriculture, trade, real estate, construction and transport would be hit the most. Photo: Mint
As per the report, cash-dependent sectors like agriculture, trade, real estate, construction and transport would be hit the most. Photo: Mint

Mumbai: The cash crunch post demonetisation is expected to slowdown India’s GDP growth to 6.5% for the fourth quarter of 2016 and is likely to spill over into the first quarter of 2017, says a report.

According to global financial services firm Nomura, the cash shortage is likely to last till January. Nomura noted that even though the economy experienced a robust aggregate momentum before the demonetisation, its recovery was narrow-based due to weak investments and slow non-agriculture sectors with consumption serving as the only growth engine.

“We expect the cash shortage triggered by demonetisation to last until January and GDP growth to slow to 6.5% in fourth quarter (October-December) and to remain subdued at 7% in the first quarter 2017,” Nomura said. “However, once the cash shortage eases, we expect a gradual recovery to take hold in the second half of 2017, owing to a boost to government fiscal finances and improved banking system liquidity,” it added.

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As per the report, cash-dependent sectors (agriculture, trade, real estate, construction and transport) and conspicuous consumption demand (high-end white goods, high-end cars, gold and jewellery and travel) would likely to be “particularly hit” by demonetisation.

Nomura also said that in the light of the near-term growth slowdown, it is expecting the Reserve Bank of India (RBI) to deliver a 25 basis point repo rate cut to 6% in its policy review next week. India’s GDP growth accelerated to 7.3% for three month-ended September 2016, better than 7.1% in the previous quarter but marginally below expectations.

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