Demonetisation likely to be credit positive for India, Moody's says

Research and ratings agency Moody's Investors Services on Wednesday said that it expects India's economic growth to pick up as liquidity conditions normalise. It said that economic disruption caused by demonetisation will be short term in nature.

On India latest GDP numbers, Moody's said that the growth will moderate to about 6.4% for January – March 2017 period, compared to 7% growth recorded in October – December 2016 quarter.

But Moody's further feels that the India's GDP growth will pick up after March 2017 quarter as the temporary drag from demonetisation fades.

Meanwhile, for the sectors like real estate, automobile and steel that took major hits due to note ban, Moody's said, “These sectors are gradually improving and expects the trend to continue over the second half of 2017.”

Furthermore, Moody's stated that recovery in total stock of currency in circulation is also rebounding which illustrates incremental improvement in liquidity.

Currency in circulation in India which declined from Rs 17 lakh crore before demonetisation to a low of Rs 7.8 lakh crore in early December 2016, has rebound to Rs 9.8 lakh crore in early February 2017.

Although, there has been rise in banks deposit on the back of this note ban drive, Moody's expects it to increase by only around 1% to 2%, compared to before demonetisation, with cash remaining the dominant means of retail transactions.

Additionally, Moody's believes that the government's reform agenda remains on track, supported by a prudent budget. 

Progress on the pending Goods and Services Tax (GST) reform and Finance Minister Arun Jaitley's 2017 budget speech to parliament both underscore the government's commitment to reform in the wake of demonetisation.