Analysts expect PM Modi's crack down on tax dodgers to have negative impact on India's GDP in Q3.

Highlights India's September quarter GDP likely grew 7.5% as per a Reuters poll

Analysts expect GDP to be hit in the coming quarters by note ban

Analysts say the cash situation is unlikely to be normal by end-December

India will release its September quarter data on economic growth today as businesses, farmers and families are grappling with the government's sudden demonetization drive. Today's numbers are unlikely to reflect the impact. July-September will be the last quarter before the impact is felt from Prime Minister Modi's bold and risky move this month.



"The move will weigh on GDP growth for a few quarters, dampening government revenues," warned credit ratings firm Moody's Investors Service. "The decline in economic activity will lower corporate sales volumes and cash flows."



PM Modi's crackdown on tax dodgers and counterfeiters by removing 500 rupee and 1,000 rupee banknotes from circulation is likely to hit economic growth.



The median estimate from a Reuters poll showed economists expect economic growth accelerated to 7.5 percent in the September quarter from 7.1 percent in the June quarter.



That's not as fast as the 7.9 percent posted in the March quarter, but it had recovered momentum, and might have gone higher until PM Modi launched his attack on black money.



While PM Modi has been praised for his intentions, people are desperately in need of cash after 86 percent of the country's banknotes were taken out of circulation overnight.



The most optimistic forecasts suggest that India will finish this fiscal year in March with a respectable, but slightly lower growth rate of 7.3 percent.



But the most pessimistic forecast, from Mumbai-based brokerage Ambit Capital, for a precipitous drop to 3.5 percent growth shows just how worried people are.



The better off may have more money to change, but for the mass of Indians living on the margins, the disruption and loss of earnings has caused real hardship.



PM Modi expects the cash situation to become normal by end-December, but critics say he is being over-optimistic.





Meantime, consumers are spending less, which is hurting small producers who, in turn, are being forced to scale back their activities.As a consequence, supply chains at small, medium and even larger companies are breaking down. Trucks are stranded with no money for fuel, workers won't load goods for free, and distributors can't pay up. Wholesale markets in many cities are shut.The cash crunch has jeopardised production of key commodities and hurt rural communities - just recovering after two years of drought - as farmers lack cash to buy seeds and fertiliser.CMIE, an economic think tank, reckons the big banknote swap would cost at least $19 billion by the end of 2016 in foregone wages, lost business, and higher administrative expenses alone.The liquidity shortage will retard efforts to revive private investment that has been plagued by weak external demand and a slow recovery in domestic demand.And, despite the high economic growth rates seen over the past year-and-a-half, factories' capacity utilization ratio remains stuck near their lowest level since 2009.

"Given that the growth recovery has still not taken full hold, the impact of this demonetisation ... could delay the private corporate capex recovery," analysts at Morgan Stanley wrote in a note, adding that they don't expect that recovery to happen before 2018.At least the potential for lower inflation holds out some hope that the Reserve Bank of India will extend its easing cycle with a quick interest rate cut.