IMF cuts India’s growth rate after demonetisation

The International Monetary Fund (IMF) on Monday cut India's growth rate for the 2016-17 fiscal year to 6.6 per cent from its previous estimate of 7.6pc due to "temporary negative consumption shock" of demonetisation, days after the World Bank also decelerated India's growth estimates.

"In India, growth forecast for the present year (2016-17) and the next fiscal year were trimmed by one percentage point and 0.4 percentage point, respectively, primarily due to temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative," said a World Economic Outlook (WEO) update released by the IMF.

The IMF said that after a lacklustre outturn in 2016, economic activity was projected to pick up pace in 2017 and 2018, especially in emerging markets and developing economies. The global growth for 2016 is now estimated at 3.1pc, in line with the October 2016 forecast.

Economic activity in both advanced and developing economies is forecast to accelerate in 2017-18, with global growth projected to be 3.4pc and 3.6pc respectively, it said.

As per new IMF projections, India's growth in 2016 is now estimated to be 6.6pc against 7.6pc forecast earlier. In 2017, the IMF projected inflation of 7.2pc against its previous forecast of 7.6pc.

The Indian economy is likely to revive back to its previously estimated growth rate of 7.7pc 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 year to 7pc from its previous estimate of 7.6pc citing the impact of demonetisation.

But the forecast issued on Jan 11 said India would regain momentum in the following years with a growth of 7.6pc and 7.8pc due to a reform initiative.

In 2016, China with 6.7pc has edged past India (6.6) with 0.1 percentage point.

The growth forecast for 2017 was revised up for China (to 6.5pc, 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 7.2pc. In 2018, China's growth rate is projected to be 6pc against India's 7.7pc.