Broadly speaking, demonetisation is a good move and will help unearth unaccounted money. But the suddenness has sucked out liquidity from the market and the overall transactions have fallen significantly.
I anticipate growth to slow down during the third and fourth quarters. For the full financial year, we expect GDP growth to be lower by 0.6 per cent and likely settle at 7 per cent as against the earlier estimate of 7.6 per cent.
This revision is mostly because of lower transactional demand. Of the Rs 5 trillion cash (in Rs 500 and Rs
1,000 notes) surrendered to banks, roughly about Rs 1.4 trillion or just about 20 per cent has been withdrawn.
On a structural basis, sectoral growth may not be affected significantly, but those dealing with cash like hotels and transport will continue to record fewer transactions for some time.
Though efforts are being made, the shift from cash-based transactions to cashless will take a significant time. Recovery will depend on how fast the government and RBI work together to get money faster back in circulation.