While the jury is still out on demonetisation and the economic cost of the most radical decision by the Narendra Modi government, the different matrices so far have implied that ‘note ban’ had not impeded domestic growth in any significant manner.
Close on the heels of the Central Statistics Office (CSO) estimating 7 percent growth in the third quarter (Oct-Dec) of 2016-17, another growth number has rather blunted the opposition charge of the Indian economy reeling under strain post demonetisation.
The domestic services sector rebounded in February 2017 post demonetisation, which was announced by Modi on the night of November 8, 2016. The services sector being tracked by Nikkei India Services’ Purchasing Managers’ Index (PMI) breached the 50 mark last month vis-à-vis a little under 49 in January 2017.
In November 2016, the index had slumped to almost three year’s low, but it has now entered the positive territory, although the recovery could at best be termed marginal with the sentiments still to recoup.
Meanwhile, the survey also revealed the Board rooms were still to regain confidence of the businesses going full throttle in the coming few quarters.
Yet, the entry of the index in positive zone points to businesses shifting gears and conceding to the ‘new normal’ in their contexts.
Earlier, CSO had pegged Q3 growth at 7.1 percent despite the headwinds of demonetisation and the epithet written by the opposition and some economists about the irreparable damage to Indian economy.
Demonetisation decision was taken as a radical measure against black money, counterfeit tender, illegal trading, unaccounted cash economy, tax evasion etc. In one go, demonetisation effectively junked almost 85 percent of liquidity estimated at Rs 15 lakh crore, which was floating in economy in the form of currency. The decision has already completed 100 days.
Reserve Bank of India (RBI) had downgraded growth forecast from the earlier 7.1 percent to 6.9 percent for 2016-17. However, the central bank is bullish on the Indian economy in coming quarters and forecast the growth rate of 7.4 percent in 2017-18.
Experts believe demonetisation could be a force multiplier for a more liberal and macro-integration of domestic economy.
The challenge for Indian policymakers is to prop up the sagging domestic economic sentiments and increase public and private investment to create jobs, increase income and consequently spur consumption of goods and services without spiking inflation rates and fueling fiscal deficit.
Demonetisation is also a precursor to the uniform tax regime Goods and Services Tax (GST), which is targetted to be implemented from July 2017.
Besides, the sale of cars in domestic market is projected to touch 3 million mark this fiscal, more than about 2.5 million clocked during 2015-16.
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