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 per cent from 7.9 per cent earlier for the current fiscal.
At the same time, the agency said it expects the consumer price index (CPI)-based inflation to print lower at 4.7 per cent as compared to its earlier estimate of 5 per cent.
“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 per cent from 7.9 per cent 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 per cent of GDP) directly, and cull GDP growth in the third and fourth quarters of the current fiscal,” 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”.