The Reserve Bank Of India had projected only a 50-basis point drop in gross value addition in the economy in 2016-17 due to demonetisation. (Reuters)

With no clear estimates forthcoming from the government on the extent of black money unearthed by demonetisation, about a dozen agencies have trimmed their forecasts for India’s GDP growth for the current fiscal in the range of 40-330 basis points, reports fe Bureau in New Delhi. And many have cast shadow over the growth projections for 2017-18 as well. Finance minister Arun Jaitley last week cited a 26.2% annual jump in indirect tax collection and a 6% rise in winter crop sowing to suggest demonetisation didn’t hurt the economy as much as assumed by some commentators critical of the government’s unprecedented decision. However, data showed excise duty collections rose an annual 32% in November, down from 41% in October, and the growth in service tax mop-up slowed to just 13.3% in November from as much as 68.8% in the previous month. The slowdown in excise revenue growth in November was despite another round of hike in the excise duty on petroleum products in the month. Also, the increase in Rabi crop area seems rather muted at 2.8% if compared with the normal acreage by this time of year.

While the note ban put spokes in the wheels of the economy when it was struggling to accelerate (although Q2 GDP growth was 7.3% against 7.1% in Q1, investment in fixed capital contracted 5.6% in Q2, recoding third straight quarter of fall). Banks’ credit growth, at multi-year lows for quite some time, too touched a new low of 5.8% in the fortnight through December 9 from a year before even though banks were flush with funds post demonetisation.

The Reserve Bank Of India had projected only a 50-basis point drop in gross value addition in the economy in 2016-17 due to demonetisation.

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With private consumption–a key driver of GDP growth for close to two years now–hit by demonetisation, it is more incumbent on the government to continue to stir demand through its own spending. The government is relying on the expected jump in tax revenue (by an estimated Rs 1 lakh crore) from the new income disclosure scheme PMGKY to step up spending. Additionally, banks could enhance fresh lending as demonetisation has dramatically increased their liquidity (leading lenders have already announced steep rate cuts in their benchmark lending rates).

According to Nomura, demonetisation has hit rural consumption demand harder than urban demand, services more than manufacturing, and exports more than imports.Market research firm Nielsen says that the Rs 2.5-lakh crore FMCG sector witnessed a 1.2% net negative impact on consumer sales in value terms in November, with one in every five housewives surveyed said she cut spending by 50% or more. Auto sales, too, hit a 44-month low in November.

PMI for services for November witnessed the sharpest monthly decline since November 2008 (just after the Lehman crisis) and manufacturing PMI, too, slowed down. In signs that the impact of demonetisation will continue into the next fiscal, the Composite Leading Index of Nomura, which tracks non-farm GDP growth with a two-quarter lead, for early 2017 has slumped to the lowest level since the series started in 1996. Even SBI’s near-term composite index that predicts industrial activity hit a record low of 45.5 year-on-year, down from the revised level of 50 in the previous month.