Accelerated remonetisation to spur consumer spending: RBI

Mumbai: The Reserve Bank today said accelerated pace of remonetisation will spur consumer spending over the next several quarters pushing growth.

"First, with the accelerated pace of remonetisation, discretionary consumer spending held back by demonetisation is expected to have picked up from fourth quarter 2016-17 and will gather momentum over several quarters ahead," RBI said in its Monetary Policy Report.

It also noted that the impact of demonetisation on sectoral indices was transitory as they have recovered their losses and scaled higher than their pre-demonetisation levels.

Exports of some labour intensive sectors such as ready-made garments, gems and jewellery, and leather and products experienced transient pressures from demonetisation, it said.

"All broad categories of imports, viz. Oil, gold and non-oil non-gold imports, increased during October-February 2016-17. Gold imports, which rose in November after demonetisation and declined sharply in the next two months, increased in February 2017 due to domestic stockpiling ahead of festive (Akshaya Tritiya) and wedding season," it said.

The impact of demonetisation on the overall Gross value added (GVA) growth was mitigated by a significantly higher growth in agriculture and public administration and defence and other services (PADO) components of the services sector, it said.

Even after excluding government spending, the momentum of GVA growth remained broadly unchanged in third quarter of 2016-17, it said.

The report said the recovery is also likely to be aided by the reduction in banks' lending rates due to large inflows of current and savings accounts (CASA) deposits, although the fuller transmission impact might be impeded by stressed balance sheets of banks and the tepid demand for bank credit, it said.

The shock of demonetisation, however, veered the inflation trajectory sharply below its projected path, essentially on account of an abrupt compression in food inflation, it said, adding, prices of vegetables sank into deflation and pulled down headline inflation during November 2016-January 2017.

"Notwithstanding the hardening of global crude oil prices in the wake of the agreement on production cuts by OPEC in late November, the negative wedge between actual and projected inflation widened through the second half of 2016-17," it added.

Prime Minister Narendra Modi on November 8 surprised the country by scrapping Rs 1000 and Rs 500 notes to deal with menace of black money.