IMF CUTS INDIA GROWTH TO 6.6%
IMF ALSO EXPECTS INDIA’S GROWTH TO PICK UP AT 7.2% IN 201718, AGAINST ITS EARLIER ESTIMATE OF 7.6%
India may lose the “fastest-growing major economy” tag to China in 2016-17 with the International Monetary Fund (IMF) lowering India’s growth forecast for the year by a full percentage point to 6.6%, due to disruption caused by the government’s move to invalidate highvalue banknotes.
In its update to the World Economic Outlook (WEO) released in October, the IMF said India is likely to grow 6.6% in 2016-17, against its earlier estimate of 7.6%. China’s growth forecast during the same period was raised to 6.7% from 6.5% projected in October due to “expected policy stimulus”.
For most economies, the IMF makes forecasts on a calendar year basis; for India it follows the fiscal year (April-March).
IMF said it sees world growth of 3.4% this year and 3.6 % in 2018.
India’s economic growth is likely to decelerate to 7.1% in 2016-17 from 7.6% the previous year, mainly due to an industrial slowdown, the statistics department said earlier this month, sidestepping the possible impact of the demonetisation exercise.
“In India, the growth forecasts 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 currency note withdrawal and exchange initiative,” the IMF said.
Andreas Bauer, senior resident representative of the IMF in India, said the downgrade for 2016-17 was because growth in the first half of the fiscal year was slower than the Fund’s expectations, and also due to demonetisation. “We expect the impact of demonetisation will gradually dissipate in 2017-18 and there will be a recovery in economic growth,” he added.
Meanwhile, Moody’s and its Indian unit Icra Ltd on Monday said India’s gross value added (GVA) growth at basic prices will ease in 2017 to about 6.6% from around 7% in the 2016 calendar year, with a likely pick-up in the second half, as the economy readjusts after demonetisation.
After a temporary dampening effect on consumption and investment, demonetisation will likely strengthen India’s institutional framework by reducing tax avoidance and corruption, the rating agencies added. “Even after the currency in circulation is replenished, we expect India’s economic growth to stabilise with a lag, while remaining strong,” said Aditi Nayar, principal economist, Icra.
In its outlook, the IMF also raised its estimate of US growth to 2.3% this year and to 2.5% in 2018, on the back of a possible stimulus by the Trump administration.