The decision to ban notes from 8 November mid-night sucked out 86 percent of the currency in circulation leading to deep slowdown fears in the economy. While the recent data showed GDP in the July-September quarter grew at 7.3 percent, the number was still below economists’ estimates. However, experts opine the growth could definitely take hit in the ensuing quarters because of subdued spending. Also, there is no sign of investment activity picking up yet.
The cash crunch followed the demonetisation that has also caused considerable pain on the ground. Small traders, construction workers, services sector, perishable goods market are all hit due to the ongoing cash-crunch. The activities in the informal sector have come to a standstill given that, even on conservative estimates, close to 70 percent of India lives on cash economy.
The recent PMI data, the first set of economic indicators after the demonetisation exercise, showed a decline to 52.3 in November compared with 54.4 in October. Though, theoretically, a number above 50 is growth-positive, what it indicates is a slowing trend ahead.
