Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Banking/  Demonetisation: India to see lower growth for 2 quarters, says HSBC
BackBack

Demonetisation: India to see lower growth for 2 quarters, says HSBC

HSBC report says India's GDP growth numbers are expected to see a decline of 2% in Q3, Q4 of the current fiscal, as effective currency in circulation has contracted significantly

HSBC expects the medium-term addition to GDP growth from demonetisation reform to be about 40 basis points. Photo: BloombergPremium
HSBC expects the medium-term addition to GDP growth from demonetisation reform to be about 40 basis points. Photo: Bloomberg

New Delhi: India’s gross domestic product (GDP) growth numbers are expected to see a decline of 2% in the third and fourth quarters of the current fiscal, as effective currency in circulation has contracted significantly, says an HSBC report. However, it said, as enough notes are printed, growth is likely to return to the “seven percent ballpark".

According to the global financial services major, the government’s decision to abolish old stock of high denomination currency (demonetisation) and issue new notes (remonetisation) could have a mixed impact on the macro economy over a year.

“Using the cash elasticity of GDP, we estimate that growth could be about 2% lower in third quarter and fourth quarter of 2016-17 (ending March), given that effective currency in circulation has contracted by 60% (as of early-December)," HSBC said in a research note.

ALSO READ: RBI cites threat to life, national security as Modi’s note-ban mystery deepens

Lower growth for at least two quarters means that the output gap will take longer to close and the revival of the investment cycle, which is already very weak, could be pushed out even further, it added.

Longer-term gains would depend on follow-up reforms. In order to lower the stock of black money substantially, the government would have to attack other shelters of black money (real estate, gold, foreign currencies). With regard to digital payments, the government should address bottlenecks especially in rural India, it said.

“If the government follows up with a spate of reforms, gains could be immense, as the official economy absorbs the parallel economy," HSBC said.

Regarding the Goods and Services Tax (GST), the report said that the April deadline will be missed and implementation will happen later in the year. HSBC expects the medium-term addition to GDP growth from this reform to be about 40 basis points (bps).

“Both reforms have Indian-style characteristics; an imperfect version is initially implemented and is likely to be disruptive," HSBC said, adding that the quantum of long-term gains will depend on follow-up action.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 12 Jan 2017, 03:09 PM IST
Next Story footLogo
Recommended For You
Banking Stocks
₹1,053.6-0.5%
₹1,440.70.52%
₹1,0841.08%
₹122.751.3%
₹734.052.53%
Switch to the Mint app for fast and personalized news - Get App