* India's GDP growth tipped to slip to 3-yr low in Dec qtr
* Cash conditions improve but not yet normal
* Consumers turn wary following demonetisation
* Firms not ready to invest until consumer spending recovers
By Rajesh Kumar Singh
GHAZIABAD, India, Feb 27 Struggling with
customers unable to pay on time and plummeting sales, Indian
small-business owner Ravi Jain fears the government's crackdown
on cash will have a much larger impact than predicted by top
Jain's bath taps manufacturing firm Supreme, along with many
other Indian businesses, has been shaken by New Delhi's shock
decision last November to scrap 86 percent of the cash in
circulation. And it wasn't certain when things will get back to
normal as much depends on a revival in consumer spending.
"Demonetisation has developed a psychology among customers
to spend only on essential items," Jain told Reuters from his
factory on the outskirts of the Indian capital.
"We expect the cash situation to become normal in a couple
of months, but we don't know when this psychology will change."
Asia's third-largest economy is tipped to slow down to a
near three-year low in the October-December period, losing the
title of the world's fastest-growing major economy to China.
The median estimate from a Reuters poll showed economists
expect economic growth to slip to 6.4 percent in
the last quarter, lower than China's 6.8 percent in the same
period and slower than a 7.3 percent annual expansion in the
The data is due on Tuesday at 1200 GMT.
Prime Minister Narendra Modi's currency ban, aimed at
fighting tax evasion, corruption and forgery, had caused huge
disruption to daily life, leaving farmers, traders and companies
- reliant on cash transactions - in disarray.
Chief Economic Adviser Arvind Subramanian last month said
the official GDP figures may not fully reflect the "real and
significant hardships" experienced by the informal sector, in
which an estimated nine out of 10 Indian workers are employed.
But the pain, policymakers promised, will be short-lived.
The Reserve Bank of India (RBI) has called the slowdown a
transitory phenomenon and expects a sharp rebound in economic
growth in the next fiscal year as cash conditions improve.
That confidence prompted the central bank to keep interest
rates on hold this month and shift its monetary policy stance to
"neutral" from "accommodative", signalling the end of the
To be sure, the cash situation is improving gradually.
Currency in circulation increased to 7.2 percent of GDP in
mid-February from 5.9 percent in early January, the central bank
data showed. But it was lower than the 12 percent ratio before
the cash crackdown began.
With the cash situation still not back to normal and weak
consumer confidence, many economists predict the aftershocks of
Modi's move will linger for months.
Consumer confidence has fallen sharply with households
uncertain about their income, employment and spending
capability, according to RBI's consumer confidence survey
published earlier this month.
In rural India, the situation is no better. Sales of two-
wheeler vehicles, a proxy for rural demand, fell for a third
straight month in January.
Leading consumer goods firm Dabur India, with
exposure to rural India, slashed its revenue growth guidance
last month, citing the demonetisation fallout.
Indian companies had hoped for a fiscal stimulus to revive
consumer spending, but the federal budget this month belied
With factories running nearly 30 percent below capacity,
companies were not ready for fresh investments until demand
roars back to life.
"We have seen extreme volatility in the market," Jain said
about his company Supreme, whose sales have improved slightly
since dropping as much as 50 percent after Modi's November
"Once things stabilize ... we will think in terms of
expansion. But it would be reasonable to assume that all this
will take at least a year."
(Reporting by Rajesh Kumar Singh; Editing by Randy Fabi)