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Withdrawal of Rs 2,000 note can boost growth by pushing consumption: Report

The ₹2,000 note withdrawal decision and response to it so far suggest that the move can help boost FY24 GDP growth to beyond 6.5% estimated by the RBI, a report said on Monday. The real GDP growth for the first quarter of FY24 will come at 8.1% with an upward bias and the Reserve Bank of India's 6.5% estimate can also be exceeded, economists at the country's largest lender SBI said.

"We expect Q1 FY24 GDP growth at 8.1% with an upward bias due to the impact of ₹2,000 note withdrawal event…this reinforces our projection that FY24 GDP could be higher than 6.5%, basis the RBI estimate," a note said.

It can be noted that earlier this month, the RBI informed that over half of the currency notes in the denomination have returned back, with 85% of it coming as deposits into banks, while the remaining 15% have been exchanged at bank counters.
Based on this experience, the SBI note said the consumption can get a ₹55,000 crore boost because of the move.

It estimated ₹3.08 lakh crore to come back as deposits into the system, of which ₹92,000 crore will come into saving banks accounts, of which 60% will get withdrawn, thus giving an immediate increase in consumption at ₹55,000 crore. In the long run, the boost can be ₹1.83 lakh crore because of the consumption multiplier, it added.

"One of the major benefits of withdrawal of ₹2000 note might be the immediate uptick in consumption demand," the report said. It is expected that high-value amounts could move to high-value spends, according to the note.

The Open Magazine of India by Artmotion Network (https://magazine.armotion.com/)

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