India’s economic growth for the final calendar quarter of 2016 is expected to slow a three-year low of 6.4%, a Reuters poll released on Friday has found. The study of 34 economists cites the impact of the Centre’s decision to demonetise nearly 86% of the country’s liquidity as the main reason for the slowdown, with some of those surveyed still unsure of the move’s full impact.
Motilal Oswal Economist Nikhil Gupta said the country’s gross domestic product would “underestimate the actual impact of demonetisation” because of its effect on the informal sector, “which does not get captured in quarterly estimates”. While 13 out of the 34 economists expect only the current quarter to be affected because of the cash crunch, 12 expect it to influence at least the first half of 2017.
Another seven said it would hurt economic activity in the country till September, while only two said it would take the country a whole year to recover from the move. However, two-thirds of the economists surveyed said there were bigger challenges to the Indian economy, including low capital expenditure in the private sector.
The country’s economic growth had risen to 7.3% for the July-September quarter from a year go, making India the fastest growing economy in the world. The demonetisation of the Rs 500 and Rs 1,000 notes caused a cash crunch in the country. The move was heavily criticised by Opposition parties and economists, even as the Centre said it would help fight counterfeiting and terrorism. On February 17, RBI Governor Urjit Patel said that the Indian economy would suffer from a slowdown because of demonetisation, but would recover from it as well.
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