TALKING POINT: GDP growth to drop by 2% in Q3

“Growth is going to be weaker for a few quarters. The GDP growth over this quarter and the next will be two per cent lower at 5.5 per cent from the earlier expected 7.5 per cent,” HSBC Chief India Economist Pranjul Bhandari said. “FY 18 first quarter will see normalisation. But come April, 7.5 per cent for Indian economy will not be back,” Bhandari added. 

She, however, said the impact of demonetisation on the growth is temporary because the currency in circulation has been contracted by as much as 70 per cent.  “Permanent wealth shock is not that drastic. A lot is coming back. At least 75 per cent is already back and whole of December is left,” she added. 

Bhandari said the disruptions were in the short run as consumers figure how to use the digital means, especially in rural areas. HSBC said it was the unclarity on demonetisation that the Reserve Bank of India took the accommodative stance in the monetary policy but by February when the data starts coming in the apex bank is likely to go for a rate cut. “By February, maybe RBI sees the data and provides some rate cut. It was a big surprise in this monetary policy as the markets had a consensus of 25 bps cut,” she said. 

The Congress had alleged that the RBI Governor was working under government pressure and so had not spoken on the November 8 move to declare 500 and 1,000 rupee notes illegal. “What RBI did was ascertain its independence. Post-demonetisation there was a question on RBI’s independence. In one swoop, the RBI said it will stand its ground despite any pressure,” she said. 

The RBI seems to be in the wait and watch mode, she added. On increasing the Market Stabilisation Scheme ceiling to Rs 6 lakh crore, she said: “RBI has taken a right attitude on the banking sector liquidity. They will take away any surplus in banking sector liquidity. Any excesses may lead to risky investment.”