GDP likely to take 3.4-lakh cr hit

​Hyderabad: Notwithstanding the colossal pain that the poorest, the poor, the not-so-poor and the legally-rich, have been going through for the past 14 days to lay their hands on some valid currency after the Narendra Modi government’s shocking decision on November 8 to ‘cull’ 500- and 1000-rupee notes to curb black money,

there is no clarity yet on the benefits that will accrue to the country’s coffers and to the citizens at large from the haphazardly-executed demonetisation move.

But there is some clarity on how much the country’s economy is likely to lose. Conservative estimates peg the damage to be inflicted by the move on the growth of the gross domestic product (GDP), or economy, at Rs 3.4 lakh crore during 2016-17 alone, as it’s widely estimated that the GDP growth rate will come down by at least three percentage points.

That’s a staggering loss, by any stretch of imagination, for an economy which, prior this ill-advised step, was projected to go full steam this fiscal year thanks to the normal monsoon and a slew of economic reforms, after a couple of sluggish years.

According to Ambit Capital, a leading brokerage firm, the country’s GDP growth will go down to 3.5 per cent this fiscal thanks to the demonetisation which, it says, will cripple economic activity in the short-term.

It is a drastic downward revision of over 3 percentage points from Ambit Capital’s earlier GDP growth projection of 6.8 per cent for 2016-17.

Also, this will be a sharp fall of 54 per cent (4.1 percentage points) from last fiscal’s real GDP growth of 7.6 per cent.

Some other rating and brokerage firms even estimated that there would be 50 per cent fall in the GDP growth rate in the current financial year, as compared with the last fiscal, on account of the high-value currency ban that led to acute cash crunch, hitting businesses hard.

In 2015-16, India’s real GDP reached Rs 113.50 lakh crore, clocking a growth of 7.6 per cent from Rs 105.52 lakh crore in the previous financial year.

Therefore, a three percentage point fall in the GDP growth rate due to the note ban will result in a massive economic loss of Rs 3.4 lakh crore in 2016-17.

The loss will be much higher at Rs 4.3 lakh cr if this fiscal year’s economic growth declines by 50 per cent (to 3.8 per cent) from 2015-16’s 7.6 per cent.

“We expect GDP growth to decelerate from 6.4 per cent in the first half of FY17 (as per Ambit estimate) to 0.5 per cent in second half with a distinct possibility of the GDP growth contracting in the third quarter,” Ambit said in its recent research report.

Meanwhile, India is likely to lose its much-vaunted world’s fastest growing economy tag if the note ban brings down the economic growth rate by three percentage points as projected.

The country won the coveted tag when it outpaced China’s growth and clocked 7.3 per cent economic upswing in the year 2015.

With the demonetisation sending the economy into a tailspin, there is every likelihood that India will lose the tag.