Also, with the new IIP and WPI series, FY17 GDP growth is expected to be revised from 7.1 percent to 7.6 percent along with upward revision for past three quarters. The announcement of GDP will be on May 31
After over six months of demonetisation, nearly 65 percent of incremental deposits of Rs 7 lakh crore that came into the system is still in the banks.
"We also estimate that nearly 65 percent of incremental deposits of Rs 7 lakh crore that came into the system between 8 Nov’16 and 12 May’17 is still sloshing around," said Soumya Kanti Ghosh Chief Economic Adviser of State Bank of India (SBI) in a research report.
This means, of the total Rs 7 lakh crore, Rs 4.55 lakh crore deposited is still not withdrawn by depositors.
Meanwhile, of the total the level of remonetisation has reached 80 percent of the total extinguished currency in circulation as on 19 May 2017.
Effective November 9, 2016, the Government of India in a sudden announcement withdrew the legal tender status of all existing Rs 500 and Rs 1,000 banknotes in a bid to attack black money hoarded in cash, address tax evasion, tackle counterfeiting, and curb financing of terrorism.
This impacted notes with a total value of about Rs 15.5 lakh crore, accounting for about 86 percent of all cash in circulation.
Revised GDP numbers expected
With the government set to announce GDP (gross domestic product) numbers on May 31, the new IIP and WPI (Index of Industrial Production and Wholesale Price Index) series will impact the new GDP numbers positively from FY14.
FY17 GDP growth is expected to be revised from 7.1 percent to 7.6 percent. There will also be an upward revision for the previous three quarters. The Q1, Q2 and Q3 GDP numbers are expected to be revised by 40 bps, 60 bps and 40 bps, respectively to 7.6 percent, 8.0 percent and 7.4 percent.
Additionally, "We expect FY14 GDP growth to be revised from 6.5 percent to 7.3 percent while FY16 GDP is expected to be revised from 7.9 percent to 8.3 percent because of the new IIP and GDP series," Ghosh’s research report said.
A better GDP number, coupled with abundant liquidity and very soft inflation numbers going forward, will make the job of RBI monetary management relatively difficult, it said.However, given the disruption of informal sector activity in FY17, we still believe the new volatile IIP series has opened up a Pandora’s box of description of current economic activity. Also, industrial activity has decelerated in H2FY17 to half of what was it in H1FY17. The RBI thus needs to look at all these for its policy action going forward, the report added.
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