Demonetisation hits India; IMF cuts growth rate by 1%

RSTV Bureau

The International Monetary Fund (IMF) has cut India’s growth rate for the current fiscal year to 6.6 per cent from its previous estimate of 7.6 per cent.

A man counting his Rs 500 and Rs 1000 notes for depositing in a bank following their demonetization in Agartala, Tripura on Wednesday.

A man counting his Rs 500 and Rs 1000 notes for depositing in a bank following their demonetization in Agartala, Tripura on Wednesday.

The IMF said the the “temporary negative consumption shock” of demonetisation has hit India. IMF’s decision to chop India’s growth rate comes days after the World Bank also decelerated India’s growth estimates.

“In India, the growth forecast for the current (2016-17) and next fiscal year were trimmed by one percentage point and 0.4 percentage point, respectively, primarily due to the temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative,” the International Monetary Fund (IMF) said in its latest World Economic Outlook (WEO) update that was released on Monday.

As per the new projections, India’s growth in 2016 is now estimated to be 6.6 per cent as against 7.6 per cent earlier forecast. And in 2017, a growth rate of 7.2 per cent has been projected as against the previous forecast of 7.6 per cent.

The Indian economy is likely to revive to go back to its previously estimated growth rate of 7.7 per cent in 2018, according to the WEO update.

The cut in India’s growth rates comes days after the World Bank decelerated India’s GDP growth for 2016-17 fiscal to 7 per cent from its previous estimate of 7.6 per cent citing the impact of demonetisation.

Despite IMF’s cut in India’s growth rate and a slight upward revision of China’s growth projections, India continues to be the fastest growing countries among emerging economies.

But in 2016, China with 6.7 per cent has edged past India (6.6) with 0.1 percentage point.

The growth forecast for 2017 was revised up for China (to 6.5 per cent, 0.3 percentage point above the October forecast) on expectations of continued policy support, the IMF said. India’s growth rate in 2017 as per the latest IMG projections is 7.2 per cent.

In 2018, China’s growth rate is projected to be 6 per cent against India’s 7.7 per cent.

The global growth for 2016 is now estimated at 3.1 per cent, in line with the October 2016 forecast.

Economic activity in both advanced economies and emerging market and developing economies (EMDEs) is forecast to accelerate in 2017-18, with global growth projected to be 3.4 per cent and 3.6 per cent, respectively, again unchanged from the October forecasts, it said.

(With inputs from agencies)