The decision to withdraw the Rs 2,000 note and the response to it so far suggests that the move can help boost FY24 GDP growth to over 6.5 per cent 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 percent with an upward bias and may also beat the Reserve Bank of India’s estimate of 6.5 percent, said economists at the country’s largest lender SBI.
“We expect Q1 FY24 GDP growth at 8.1 percent with an upward bias due to the impact of the Rs 2000 note withdrawal event…this strengthens our projection that FY24 GDP could be higher than 6.5 percent, based on RBI estimate,” a note said.
It may be noted that the RBI had earlier this month informed that more than half of the currency notes in the denomination have returned, with 85 percent of it coming as deposits in banks, and the remaining 15 percent to be exchanged at bank counters. .
Based on this experience, the SBI note said consumption could get a boost of Rs 55,000 crore due to the move.
He estimated that Rs 3.08 lakh crore will come back as deposits into the system, of which Rs 92,000 crore will come into savings bank accounts, of which 60 per cent will be withdrawn, giving an immediate increase in consumption by Rs 55,000 crore.
In the long run, the boost can be 1.83 lakh crore because of the consumption multiplier, he said.
“Perhaps one of the major benefits of withdrawing the Rs 2000 note is the immediate increase in consumer demand,” the report said.
High-value volumes are expected to translate into high-value expenditures, such as gold/jewellery, high-end durables such as AC, mobile phones and real estate, according to the note.
He cited reports of an increase in fuel payments and cash on delivery, while online food aggregator Zomato reported three-quarters of users opting for cash payments in Rs 2,000 notes.
The SBI economists also said the RBI move is expected to increase donations to temples and other religious institutions through Rs 2,000 notes and push bulk purchases such as consumer durables and shop furniture.
According to the note, the RBI’s retail central bank digital currency (CBDC), which is already being tested in a close group of users, will also benefit from the move to withdraw Rs 2,000 notes.
“The absence of a denomination note should encourage faster adoption of E-RUPI for purchase transactions, at par with physical fiat currency,” he said.
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