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People queue up outside a bank to exchange demonetised Rs 1000 and 500 notes on November 17, 2016.IANS

The spike in deposits has ebbed, bond yields have moved up from low levels of 6.1-6.2 percent and the queues have vanished, all indications that India — the world's fastest-growing economy — is back on track, albeit slowly. On the flip side, easy availability of currency post the lifting of withdrawal limit could make people switch to cash again, undoing the gains of digital push.

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"The economy is recovering from the post-demonetisation lull, a quarter after the move in Nov16. Deposit growth slowed to 13 percent YoY in Jan17 from 16 percent in Nov-Dec16 as withdrawals resumed. Ten-year bond yields have meanwhile bounced off sub-6.2 percent lows in Jan17 to 6.8 percent," Radhika Rao, economist, group research at Singapore-based DBS Bank said in a note on Monday. 

On Friday, the 10-year bond yield was 6.852 percent.

The fall in economic activities has also been checked, as is evident from the stem in decline for January auto sales and Services PMI.

Automobile sales were down 4.7 percent during the month, though two-wheeler sales dropped at a higher clip of 7.3 percent compared to passenger vehicles sales that grew 10.8 percent.

The Nikkei India Services Purchasing Managers' Index (PMI) stood at 48.7 in January, a modest recovery from 46.8 in December 2016. A reading below 50 denotes contraction.

"Economic activity is also on the mend, after a soft patch in Nov-Dec16. Jan PMIs ticked up, with the composite reading at 49.4 from Dec's 47.6. Auto sales fell by a smaller 5% in Jan17 from Dec's 16% drop as higher passenger and two-wheeler sales helped. The infra industries output was relatively steady in Nov-Dec on higher coal and steel production, despite the cash crunch," Rao said.

After factoring in the overall impact for the second half of the current fiscal (H2, FY2017), she said that the economy is likely to grow at 6.5 percent during the period as against 7.1 percent in H1.

Nomura, in its update, said that the shift towards going cashless was picking up, citing Reserve Bank of India (RBI) data. "One of the intended goals after demonetisation was to push individuals towards a less-cash (more digital) economy. This has worked: Reserve Bank of India payment data show that volume growth of retail electronic payments (using credit/debit cards, mobile wallets, immediate payment service etc.) rose to 37.7 percent y-o-y in December 2016 from 22.7 percent in October 2016, while value growth of electronic payments rose to 23 percent from 16.9 percent," Sona Varma of Nomura Securities Limited (NSL) said in her Monday note.

However, she sounded a word of caution, saying that with the cash crunch almost fading away, people may revert to cash, a classic case of old habits dying hard. The RBI will lift all restrictions on cash withdrawals from March 13.