Domestic rating agency, ICRA in its latest report has said that it expects the note ban to selectively affect some of the sub-sectors of industry and services, dampening the expansion of the Indian gross value added (GVA) at basic prices to ease to 6.2 percent in Q3 FY17 from 6.9 percent in Q3 FY16 and Gross Domestic Product (GDP) growth likely to decline to 6.5 percent from 7.2 percent a year ago. It added that the slippages will be driven by the slowdown in growth of the industry and services, offsetting the healthy agricultural expansion during the period.
However it said that during the third quarter surprise could come from the agricultural sector and the robust kharif harvest is expected to contribute to a turnaround in the performance of agriculture, forestry and fishing to a growth of 5.0 percent from the 1.0 percent contraction in the same quarter previous year. Also, services sector is expected to ease to 8 percent from 9.1 percent in line with moderation in fuel demand following the note ban. Similarly, industrial growth is set to more than halve to 4 percent from 8.6 percent, led by manufacturing, construction and mining and quarrying.
ICRA further said that corporate earnings for manufacturing companies in Q3 FY17 suggest that cost control helped contain the weakness in earnings relative to revenues, which were impacted by low volumes in the period after the note ban. Based on this, and an unfavorable base effect, it expects real manufacturing GVA growth to decline to 5.0 percent in Q3 FY2017 from the high 11.5 percent in Q3 FY2016, while continuing to exceed the volume growth displayed by the Index of Industrial Production.
It also expects cash-intensive construction sector to be one of the worst hit sub-sectors due to demonetisation, as signaled by falling output of its key inputs such as cement. While the annual growth of systemic deposits improved to 15.2 percent as of December 23, 2016 from 10.2 percent, with the surge in deposits after the note ban, growth of non- food credit off-take halved to 5.3 percent from 10.7 percent during this period, reflecting a subdued demand for credit and relatively limited transmission of monetary easing to lending rates.