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Demonetisation Impact: Growth to Accelerate only in Second Quarter of Next Financial Year

Press Trust Of India

First published: November 21, 2016, 7:06 PM IST | Updated: November 21, 2016
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Demonetisation Impact: Growth to Accelerate only in Second Quarter of Next Financial Year
New Rs 500 and Rs 2000 currency notes (Original image: Reserve Bank of India. Modified by News18.com)

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.

"Due to a temporary cash shortage, we see a risk that GDP growth could slow to 6.5 per cent in the fourth quarter of 2016 against our current estimate of 7.3 per cent, and to 7.5 per cent in the first quarter of 2017 from 7.9 per cent," 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."

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 governments surprise move to decommission Rs 500 and Rs 1,000 notes to curb black money and currency counterfeiting.

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