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Demonetisation paralyses economy, to hit GDP growth

 PTI |  2016-11-19 23:45:32.0  |  New Delhi

Demonetisation paralyses economy, to hit GDP growth

The cash crunch arising out of demonetisation is expected to paralyse economic activity in the short-term, and the 2017-18 GDP growth is likely to be 5.8 per cent, says a report. According to Ambit Capital, GDP growth is likely to decelerate from 6.4 per cent in first half of this fiscal to 0.5 per cent in the second half with a distinct possibility of GDP growth contracting in third quarter of this fiscal.

From October-December 2016 until October-December 2019, Ambit Capital expects a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40 per cent share in GDP) become unviable and cede market share to their organised sector counterparts.

“We expect this dynamic to crimp GDP growth in India in FY18 as well and hence we cut our FY18 GDP growth estimate to 5.8 per cent (from 7.3 per cent),” the report said. The demonetisation move is expected to disrupt economic activity in the short term, especially those segments where cash-based transactions are the norm like real estate, unsecured lending, real estate construction services and building materials.

“Whilst in the near-term, we expect these businesses to suffer, over the next couple of years the strongest players in these sectors will gain market share as competition from unscrupulous/unorganised players reduces,” the report added.

The report said that in the light of negative effects of the recent steps taken by the NDA Government and with just four months to go before this fiscal year comes to a close, Ambit Capital scraped its current March 2017 Sensex target of 29,500 and has set a March 2018 Sensex target of 29,000.

“We also scrap our March 2017 Sensex target of 29,500 and unveil our March 2018 Sensex target of 29,000,” it added. Regarding the Reserve Bank’s monetary policy stance, the report said that the dampening of economic activity is likely to lead to an accomodative policy stance.

“As a response to the slowing GDP growth, we expect the RBI to consider rate cuts of 25-50 bps over 2HFY17 itself,” the report said. The Monetary Policy Committee headed by RBI Governor Urjit Patel last month cut benchmark interest rates by 0.25 per cent to 6.25 per cent. The next RBI policy review is on December 7.

Meanwhile, nearly 700 petrol pumps across the country on Friday started dispensing cash through debit card swipe in a bid to ease the cash crunch in the economy following the government’s decision to withdraw 1,000 and 500 rupee notes.

The facility to provide Rs 2,000 per day per card will be extended to Rs 2,500 petrol pumps by this week end and will in due course be available at 20,000 outlets across the country. The government had yesterday decided to allow up to Rs 2,000 per day per person to be dispensed against swiping of debit cards at select petrol pumps where POS machines of SBI are already available.

POS machines are the machines which are generally used for debit or credit card transactions. Petrol pumps have been accepting old and now-defunct currency notes of 500 and 1,000 denominations and the same will continue till November 24, 2016. There is no shortage of petroleum products at the petrol pumps and consumers can purchase them as per their needs, an official statement said. 

As of 1600 hours today, “cash dispensing facility had become operational at 686 retail outlets”, it said. Of these, 350 outlets are of Indian Oil Corporation (IOC), 266 Bharat Petroleum Corp Ltd (BPCL) and 70 Hindustan Petroleum Corp Ltd (HPCL).

“The public sector oil companies, namely IOC, BPCL and HPCL, in association with State Bank of India, have come forward to ease some of the challenges being faced by the common public regarding availability of currencies for day to day transactions, post demonetization of Rs 500 and Rs 1,000 currency notes,” the statement said.

Senior officials of the three companies had a meeting with SBI Chairman Arundhati Bhattacharya yesterday where it was decided that an amount of up to Rs 2,000 per day per person in cash can be dispensed against swiping of debit card from select petrol pumps where POS machines of SBI are already available. 

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