Note ban to cost India fastest growing crown, IMF cuts FY17 growth to 6.6%

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The Centre’s decision to demonetise high-value currency notes could have stolen India’s crown as the world’s fastest growing large economy, according to the International Monetary Fund, though the slowing is likely to be temporary.

 

has cut India’s economic growth rate forecast by one percentage point to 6.6 per cent for 2016-17 — from its earlier estimate of 7.6 per cent — because of the effect of on consumption and payments. If the projection holds true, the fastest growing large economy in the world would be China, forecast to grow 6.7 per cent in 2016.

 

Last week, the lowered its India growth projection by 0.6 percentage points to seven per cent for the year. But, this was only a shade lower than the Advanced Estimates of 7.1 per cent. estimates are more in line with those of other agencies.

 

also lowered India’s gross domestic product (GDP) forecast for 2017-18 by 0.4 percentage points to 7.2 per cent from its earlier estimate. The has projected the growth rate to be 7.6 per cent — a percentage point lower than its previous assessment.

 

“In India, the growth forecasts for the current (2016–17) and next (2017-18) financial years were trimmed by one percentage point and 0.4 percentage points, respectively, primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative,” said in its latest update on the World Economic Outlook, released Monday.

 

Prime Minister had announced the withdrawal of the old series Rs 500 and Rs 1,000 notes on November 8, 2016. The last date for depositing the old notes in banks was December 30.

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The Advance Estimates of the government’s Central Statistics Office did not take into account the impact of demonetisation. Its revised Advance Estimates, scheduled to be released by February-end, could do that.

 

None of the 10 economists polled by Business Standard had agreed with the Advance Estimates. But the most optimistic of them did talk of a 7 per cent growth rate.

 

projected India’s economy to grow 6.2 per cent during the fourth quarter (January to March) of 2016-17. The economy expanded by 7.3 per cent in the first quarter and 7.3 per cent in the second. The figures for the next two quarters have not been released so far.

 

India’s economy grew 7.6 per cent in 2015-16. says it would grow 7.7 per cent, it said. Lok Sabha elections are due in 2019.

 

Overall, the Washington-based institution retained economic growth for the world at 3.1 per cent in 2016, 3.4 per cent in 2017, and 3.6 per cent in 2018.

 

“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 EMDEs (emerging market and developing economies) 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,” said.

 

Here also, it differed from the World Bank, which has cut the world’s growth estimates projection by 0.1 percentage point at 2.3 per cent for 2016 — the lowest after the global financial meltdown — and 2.7 per cent for 2017.

 

said after a lacklustre outcome in 2016, economic activity is projected to pick up in 2017 and 2018, especially in emerging markets and developing economies.

 

“However, there is a wide dispersion of possible outcomes around the projections, given the uncertainty surrounding the policy stance of the incoming US administration and its global ramifications,” it added.

 

Assumptions underpinning the forecast, the said, should be more specific in the World Economic Outlook of April, as more clarity emerges on US policies and their implications for the global economy.