The Rs 2,000 note withdrawal decision and response to it so far suggest that the move can help boost FY24 GDP growth beyond the 6.5% estimated by the RBI, a report said on Monday.
The real GDP growth for the first quarter of FY24 will come in at 8.1% with an upward bias, and the Reserve Bank of India's 6.5% estimate can also be exceeded, economists at the country's largest lender, SBI, said.
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"We expect Q1 FY24 GDP growth at 8.1% with an upward bias due to the impact of the Rs 2000 note withdrawal event...this reinforces our projection that FY24 GDP could be higher than 6.5%, based on the RBI estimate," a note said.
It can be noted that earlier this month, the RBI informed us that over half of the currency notes in the denomination have been returned, with 85% of them coming as deposits into banks, while the remaining 15% have been exchanged at bank counters.
Based on this experience, the SBI note said consumption could get a Rs 55,000 crore boost because of the move.
It is estimated that Rs 3.08 lakh crore will come back as deposits into the system, of which Rs 92,000 crore will come into saving bank accounts, of which 60% will get withdrawn, thus giving an immediate increase in consumption of Rs 55,000 crore.
In the long run, the boost can be Rs 1.83 lakh crore because of the consumption multiplier, it added.
"One of the major benefits of the withdrawal of the Rs 2000 note might be the immediate uptick in consumption demand," the report said.
According to the note, it is expected that high-value amounts could move to high-value spends, such as gold and jewellery, high-end consumer durables like AC, mobile phones, and real estate.
It cited reports of an increase in fuel payments and cash on delivery, with online food aggregator Zomato reporting three-fourths of users opting for cash payments of Rs 2,000 notes.
The SBI economists also said that the RBI move is expected to increase donations to temples and other religious institutions through Rs 2,000 notes and will push various purchases like consumer durables and boutique furniture.
As per the note, the RBI's retail central bank digital currency, which is being tested in a close user group already, will also benefit from the move to withdraw Rs 2,000 notes.
"The absence of higher denomination notes should propel faster adoption of E-RUPI for merchant transactions, concurrent with physical fiat currency," it said.
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