IMF cuts India's growth rate to 6.6% from 7.6% due to impact of demonetisation

New Delhi: The International Monetary Fund (IMF) on Monday cuts India's growth rate to 6.6 percent from 7.6 percent due to impact of demonetisation taken by the Modi government in November.

The IMF said it cut India's growth forecast for the current financial year 2016-17 due to the "temporary negative consumption shock induced by cash shortages" following the demonetisation move.

"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 released Monday.

As per new IMF projections, India's growth in 2016 is now estimated to be 6.6 percent as against 7.6 percent earlier forecast.

#IMF cuts India's growth rate to 6.6 per cent from 7.6 per cent due to impact of #Demonetisation.

— Press Trust of India (@PTI_News) January 16, 2017

In 2017, IMF has projected a growth rate of 7.2 percent as against its previous forecast of 7.6 percent.

The Indian economy is likely to revive to go back to its previously estimated growth rate of 7.7 percent 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 percent from its previous estimate of 7.6 percent citing the impact of demonetisation. But forecast issued on January 11 said that India would regain momentum in the following years with a growth of 7.6 percent and 7.8 percent due to a reform initiatives.

Despite IMF's downward revision of 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 percent has edged past India (6.6) with 0.1 percentage point.

The growth forecast for 2017 was revised up for China (to 6.5 percent, 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 percent.

After World Bank, the IMF became the second international entity to cut India's growth rate.

Last week, in its first report after November's demonetisation, the World Bank has lowered the India's GDP growth estimate for this fiscal to 7 percent, from its earlier estimate of 7.6 percent made in June last year.

"The immediate withdrawal of a large volume of currency in circulation and subsequent replacement with new notes announced by the government in November contributed to slowing growth in 2016," the World Bank had said in its report.

 

With PTI Inputs