GDP report to be presented tomorrow, will reveal impact of Modi's note ban
The Gross Domestic Product (GDP) report, which will come out on Wednesday will highlight the amount of loss which has taken place due to the currency demonetisation of November 8.
According to a Bloomberg survey of economists, expansion has probably accelerated to 7.5 per cent, while analysts are cutting down the growth forecast to 7.4 per cent from 7.7 per cent this year.
"Attention has shifted to the impact of the demonetization initiative on the real economy," Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a report on Monday. Growth in October-December could dip below 6 percent, she said.
The biggest concern though is how soon the Indian economy will be able to rebound from Modi’s measure. A projected slowdown has certainly put the world’s fastest growing economy at risk.
Thomas Rookmaaker, director in Fitch Ratings's Asia-Pacific Sovereigns Group said that "Macroeconomic effects of the cash crunch include a temporary delay of consumption and investment, disrupted supply chains, farmers being unable to buy inputs, and some loss in productivity due to time lost to deal with cash issues."
Modi may need until May to replace the 23 billion bank notes he's sucked out, say some estimates. But Morgan Stanley's Chetan Ahya says that about 98 per cent of cash required for transactions will be in the system by mid-December. This means that consumption, which accounts for 60 per cent of GDP, will recover from the April-June quarter though private investment will take time to improve.
According to the median of 15 estimates in a Bloomberg survey conducted after Modi announced currency demonetisation, India's GDP will grow at 7.4 percent in the current fiscal year.
Central Bank Review
Following Wednesday's GDP data report presentation, which is scheduled to take place at 5:30 p.m. in New Delhi, attention will shift to a purchasing managers' index on Thursday, which will give first hand assessment of the impact on manufacturing. The Reserve Bank of India (RBI) will be reviewing interest rates on December 7.
According to reports from Citigroup Inc, Reserve Bank of India Governor Urjit Patel will probably reduce the benchmark repurchase rate to 6 percent from 6.25 percent to arrest negative spillovers from the shock. Compilation of a private index by BSE Ltd. and the Centre for Monitoring Indian Economy showed a sharp surge in urban unemployment this month.
According to Citigroup economists Samiran Chakraborty and Anurag Jha, "In an uncertain economic environment since the demonetization exercise, the December monetary policy has to focus on a prudent risk management approach rather than a simple growth-inflation trade-off."
