RBI predicts that Demonetisation effect could extend this fourth quarter (January to March, Q4). Some of the Sector might be susceptible to its impact.
The Demonetisation impact can be observed in the fourth quarter (January to March, Q4) of the current financial year (2016-17, FY17), when some sectors will be susceptible to the effects of Note ban. Deputy Governor Viral V Acharya of Reserve Bank of India declared on Monday. He participated in the G-20 preparatory meeting in the finance ministry, where he said it, and moreover he told that remonetisation exercise should be completed in two to three months.
On November 8, Prime Minister Narendra Modi had declared the demonetisation of old notes (Rs 500 and Rs 1,000) to which Economists and analysts raised the concern that it would unfavorably effect the gross domestic product (GDP) growth in the third quarter (October-December). How-so-ever the note ban did not have any adverse effect on GDP rather the growth was 7 per cent.
Acharya said that the after effects of demonetisation could impact some sectors and it could extend to the January-March quarter. “Ultimately, the cash shortage is like the liquidity shock and unless it had led to a substantial wealth destruction, one would expect its effects to be quite temporary. I’m not saying that the temporary impact is not hard on some parts of the economy; you would expect the effect to be temporary,” he said
There may be a couple of sectors, such two-wheeler sales, where there is slightly slower rebound, he said.
When he was asked about regarding the GDP he said that the MPC (Monetary Policy Committee) resolution depicts that the Finance Ministry estimates was actually reasonably close to that (of CSO estimate).
Acharya said that people had few complaints – how much of the informal sector gets fully captured other than through its links to the formal sector — which would be interesting and worth thinking about.
The GDP growth for the entire 2016-17, was projected to be 7.1 per cent in the second Advanced Estimates, the same as the first Advanced Estimates. Although the first Advanced Estimates did not consider the impact of demonetization, while the second Advanced Estimates did so.
He claimed that the impact of the Demonetisation would only be temporary and has the potential to help informal sector to function normal. He said that the remonetisation is occurring at a fast pace and will reach the expectations by 2 or 3 months. The Asset Quality Review is to be exercised and it should be covered for all public sector banks within the stipulated time of March 2017, as set by RBI.