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Demonetisation effect to spill over to next quarter: RBI Deputy Governor Viral Acharya

With the latest GDP data failing to register any negative blip at all to the surprise of most analysts, expectations were that the impact of the note ban order by Prime Minister Narendra Modi announced on November 8 last, that caused shortage of currency notes in the financial system, would be seen in the next quarter has been affirmed by the Reserve Bank of India (RBI). Speaking on the subject today, RBI Deputy Governor Viral Acharya said, “Effects of demonetisation to spill over to the next quarter in some segments.”

 

However, Acharya added that recovery was going on apace and the system per se would get back to its original state soon. The Deputy Governor added, “Remonetisation pace quick, should be completed in 2-3 months.”

While the fight against black money is going on in the wake of the demonetisation drive, Acharya highlighted a key gain for the Indian economy that has come through the note ban order by the government. One of the key goals of the ban on Rs 500 and Rs 1000 currency notes was to move the Indian economy to a less-cash status and that seems to have happened even though the sudden surge towards digital payments by the people has reduced as the cash component in the system increased as RBI pumped in notes to get back to the pre-November 8 period and thereby end the cash crunch situation that led people to stand in long, snaking lines at bank ATMs. He said, “Level of cash in circulation to be less in post-demonetisation era.”

December GDP data revealed on February shows 7% yoy growth versus 7.4% in September, and with GVA at 6.6% versus September’s 6.7%. However, this shocked the economists as statistics that had been coming through other sources had painted a darker scenario. Data for sales of cars, two-wheelers and commercial vehicles had contracted both in November and December and the same was the case with sales of consumer staples, cement and steel. What is more, CSO kept GDP growth forecast for the current financial year at 7.1%.

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