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Demonetisation is a big loss to the nation, GDP growth to dip below 6% in Financial Year 2017

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The demonetisation decision by India’s government has led to acute scarcity of cash while consumption spends in both rural and urban India has been left suffocated. The economy of India is going to see very low levels of growth in the ongoing as well as the upcoming quarters.

Nomura, a financial services company believes that its Q1 GDP growth projection of 6.9% y-o-y has a downside risk. Economists say that the near term growth may fall even more than anyone has expected.

Demonetization has affected the entire country and has led to quieter markets and very less trade across markets. But cash crunch has hurt the markets of the remote areas of the country much more than the urban ones.

As per reports by the economists at Bank of America Merrill Lynch (BofAML), every month of disrupted businesses post demonetization will cost somewhere around 0.3%-0.5% of GDP. The economists are looking at the FY17 Financial year 2017 GDP growth target, which they have brought down from 7.7% to just 6.9%. In the absence of money to invest, the sales of big markets like property, jewellery, cars, real estate will be harshly affected and will give a great blow to the economy of the country. The markets are going to go slow for a coming while as demonetization and cash crunch has forced people to only spend on what is necessary to them.

Along with the physical goods markets, even corporate earnings will continue to remain affected by demonetization. BofAML also estimates a downside risk of anywhere between 1-6% to its FY17 earnings.

Earnings will remain volatile for the next 3-4 quarters, as per economists. More downgrades can be a possibility too. We may expect 13% and 20% growth in earnings in FY17 and FY18.

Article By: Jagdeep

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27 DEC, 2016 – 05:55pm



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