2017 will be a year of economic growth recovery for India but the trajectory is likely to be uneven as the impact of the demonetisation plays out. The return to normalcy may take another 2-3 quarters, according to Nirmal Bang.
“While the immediate recovery will be V-shaped, with the worst of demonetisation probably behind us, we expect a lingering aftertaste at least for the next two to three quarters,” the brokerage said in a report.
It pegged India's GDP growth at 6.5 percent for financial year 2016-17, 7.3 percent for financial year 2017-18, and 7.8 percent for financial year 2018-19.
While urban demand is making a comeback, the cash-dominated rural sector is still feeling the pinch of demonetisation, Nirmal Bang said, adding that it will take another couple of quarters for the situation to normalise.
The Mumbai-based brokerage believes measures announced by the prime minister on the new year's eve is a curtain raiser for the budget, which will likely see higher expenditure on the rural, agricultural and micro small and medium enterprise sectors.
In a bid to support growth, Modi in his address to the nation on December 31 announced a series of incentives to farmers, women and small businesses, and defended his recent decision to abolish high-denomination bank notes.
Also Read: Did The Prime Minister Admit To The Nation That Demonetisation Has Failed?
The brokerage, however, sees limited room for the Reserve Bank of India to cut interest rates on the back of domestic deflationary pressure, rebound in global commodity prices and rate hikes in the developed markets.
“We believe the ability of the RBI to cut rates below 6 percent is limited,” Nirmal Bang said.
The recent spate of cuts in the benchmark lending rate is the result of lag in transmission, excess liquidity due to spurt in cash deposits on account of the demonetisation, and “partially on nudges by the government”. Going forward though, the brokerage expects further lending rate cuts to be restricted by policy rates and the need to attract long-term deposits to support growth.
Also Read: Lower Lending Rates To Cushion Note Ban, Expect 50-75 Basis Point Cut: BofA Merrill Lynch
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
