Demonetisation impact may spill over to fourth quarter: Viral Acharya

The Dollar Business Bureau

RBI Deputy Governor Viral V Acharya said that the impact of demonetisation could spill over to the January-March quarter for a few sectors, as the fast-paced remonetisation process could take another 2-3 months to conclude.

He said that the impact on informal sector is left out of the GDP equation, which takes into consideration only partial activity in the unorganised sector that is routed via the formal sector. He also credited the note-ban for encouraging formalisation of the economy.

"There may be a couple of sectors, like 2-wheeler sales, where there is slightly slower rebound," he said, explaining that the liquidity crunch could have a relatively long-term impact on certain sectors.

This comes after the release of GDP growth rate for the October-December quarter, which took everybody by surprise. The 7% year-on-year GDP growth in the third quarter belied the predictions of critics, who had expected the economic growth to be hard hit by demonetisation.

Admitting that certain parts of the economy would face an adverse impact, Acharya also gave the assurance that such impact would only be temporary.

"Ultimately, the cash shortage is like a liquidity shock and unless it had led to a substantial wealth destruction one would expect its effects to be quite temporary," he said

After 15.4 lakh crore worth of currency was washed off the economy, RBI claims that the remonetisation process would restore liquidity in the same ballpark figure, albeit a little less than the net worth of the demonetised currency.

The March 2017 deadline stipulated by RBI for the process of Asset Quality Review (AQR) in public sector banks is also nearing. The process was started in 2015 by RBI, in which banks were asked to reassess their assets and categorise non-realisable loans under NPAs.