The Naredra Modi government’s demonetisation move could dampen India’s growth by one percentage point in the current fiscal year and 0.4 percentage point next year, compared to its earlier projections, the International Monetary Fund (IMF) said. The IMF now expects India to record a growth of 6.6 percent for the current year, and 7.2 percent next year. Earlier, IMF had projected 7.6 percent this year and next year.
According to the IMF World Economic Outlook (WEO) update released on Monday, there is marginal upward shift in prospects for the U.S and China until 2018, but India, Brazil, and Mexico are among the large economies that have their projections revised downwards.
“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 report said.
Other Asian countries such as Thailand and Indonesia also will face headwinds in the medium term, while stimulus policies expected and already underway in the U.S and China will hold the world economy from further slowdown, the report said. ”Global growth for 2016 is now estimated at 3.1 percent, in line with the October 2016 forecast,” the report said.
The recent election of Donald Trump could have a positive impact on the U.S economy, the report suggests, but it adds the extent of this could not be gauged immediately. “Markets have noted that the White House and Congress are in the hands of the same party for the first time in six years, and that change points to lower tax rates and possibly higher infrastructure and defense spending,” said the report.
According to the IMF, the revised estimate for India’s growth in 2016 is 6.6 percent as against 7.6 percent in 2015. In earlier estimates, IMF had expected India to sustain its 2015 growth rate in 2016 too. For next year, the IMF has projected a growth rate of 7.2 percent as against its previous forecast of 7.6 percent. In 2018, Indian economy should be growing at 7.7 percent, as estimated earlier.
For China, the growth forecast for 2017 has revised upwards, to 6.5 percent, 0.3 percentage point above the October forecast. In 2018, China’s growth rate is projected to be 6 percent against India’s 7.7 percent.
Maurice Obstfeld, Economic Counselor and IMF Research Department Director, said China remains a major driver of world growth. “Our China growth upgrade for 2017 is a key factor underpinning the coming year’s expected faster global recovery. This change reflects an expectation of continuing policy support; but a sharp or disruptive slowdown in the future remains a risk given continuing rapid credit expansion, impaired corporate debts, and persistent government support for inefficient state-owned firms,” he said.
