ALSO READIndian economy racing before PM Modi removed oxygen of cash Demonetisation effect: Fitch cuts India's FY17 growth forecast to 6.9% from 7.4% Demonetisation: Cash crisis to hopefully end by Jan 2017, says Chandrababu Naidu Chilled by demonetisation, India to take cold comfort from strong GDP Demonetisation to cover up Narendra Modi's failure, says Kerala CPI
Expecting economic recovery from demonetisation to take a couple of months, ratings firm Crisil today lowered the country's GDP growth forecast by 100 basis points to 6.9% from 7.9% earlier for the current financial year.
At the same time, the agency said it expects the consumer price index (CPI)-based inflation to print lower at 4.7% as compared to its earlier estimate of 5%.
"Assuming that it will take at least a couple of months for the situation to normalise, we have sliced 100 basis points off this fiscal's GDP growth to 6.9% from 7.9% estimated earlier. The jolt to demand will also pull inflation down," Crisil said in a report.
"We believe the cash crunch will impact private consumption demand (55% of GDP) directly, and cull GDP growth in the third and fourth quarters of the current financial year," it added.
Calling it the '8/8' move — or the announcement made by Prime Minister Narendra Modi at 8 pm on November 8 -— to demonetise Rs 500 and Rs 1,000 bank notes, Crisil said, "The problem is, the infusion of replacement notes has been very sluggish and the ensuing cash choke has pulled back the business cycle, which was beginning to accelerate on the back of a good monsoon, the seventh pay commission pay hike, and the one rank one pension scheme for veterans".
Noting that there is uncertainty on how much time it will take for the economy to return to 'business as usual', Crisil said that uncertainty coupled with a fall in consumption demand and inventory build-up, will push back recovery in private corporate investments.
Additionally, it said that the problem "gets compounded because of a preponderance of cash transactions in the humongous informal sector, which cannot be accurately measured or monitored".