Note ban impact: India loses fastest-growing economy tag

OUR BUREAU New Delhi | Updated on January 12, 2018 Published on January 16, 2017

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013. REUTERS/Yuri Gripas (UNITED STATES - Tags: POLITICS BUSINESS)

China regains top spot as IMF trims India’s FY17 growth forecast to 6.6%

The International Monetary Fund (IMF) has trimmed its GDP growth forecast for India by one percentage point in its latest report, citing the impact of demonetisation, and said the country would cede its position as the world’s fastest growing large economy in 2016, with China set to regain the top spot.

In its World Economic Outlook Update, the IMF has pegged India’s growth rate at 6.6 per cent for the ongoing financial year, and 7.2 per cent in 2017-18. It expects GDP growth to rise to 7.7 per cent in 2018-19.

“(This was) 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,” said the report released on Monday.

In October 2016, the IMF had projected a GDP growth of 7.6 per cent for India this fiscal year and the next.

The IMF’s downward revision comes soon after Finance Minister Arun Jaitley cited tax collection data for November and December to underline that the decision to demonetise notes of ₹500 and ₹1,000 notes would not hurt economic activity.

Demonetisation drag

The adverse impact of the note ban on the economy was also highlighted by rating agency Moody’s Investors Service and its affiliate ICRA. The two agencies said on Monday that though India would remain one of the fastest-growing major economies in 2017, GDP growth would moderate in the first half of the year.

ICRA expects growth of gross value added (GVA) at basic prices to ease to about 6.6 per cent from around 7 per cent in 2016, with a likely pick-up in the second half of 2017.

In the recent first advance estimates, the Central Statistics Office has projected growth at a three-year low of 7.1 per cent this fiscal year.

Brazil, Mexico take hits

The IMF has also scaled down growth forecasts for Brazil and Mexico, but an upward revision of China’s economy, thanks to a policy stimulus, would mean that the Asian giant would regain its position as the world’s fastest growing economy, with a GDP growth of 6.7 per cent.

The agency has maintained its global growth estimate for 2016 at 3.1 per cent, in line with the October 2016 forecast.

The IMF has also maintained its US growth projection at 1.6 per cent for 2016 and 1.9 per cent in 2017.

Published on January 16, 2017
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