DeMo to lower India’s GDP growth to 6.6%, says IMF

Washington, February 22

India’s growth is projected to slow to 6.6% in 2016-17 fiscal due to the strains that have emerged in the economy as a result of “temporary disruptions” caused by demonetisation, the IMF said today.

In its annual report, however, the International Monetary Fund (IMF) said demonetisation would have only short-term impact on the economy and it would bounce back to its expected growth of more than 8% in the next few years.

The post-November 8, 2016 cash shortages and payment disruptions caused by the currency exchange initiative have undermined consumption and business activity, posing a new challenge to sustaining the growth momentum, the IMF said in its annual country report on India.

“Growth is projected to slow to 6.6% in FY2016/17, then rebound to 7.2% in FY2017/18, due to temporary disruptions, primarily to private consumption, caused by cash shortages,” it said. India’s economy grew at 7.6% in 2015-16. Tailwinds from favourable monsoon, low oil prices and continued progress in resolving supply-side bottlenecks, as well as robust consumer confidence, will support near-term growth as cash shortages ease, the IMF said.

The investment recovery is expected to remain modest and uneven across sectors, as deleveraging takes place and industrial capacity utilisation picks up, the report said.

In their report, the IMF Directors supported the Indian efforts to clamp down on illicit financial flows, but noted “the strains that have emerged” from the currency exchange initiative. “They called for action to quickly restore the availability of cash to avoid further payment disruptions and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth,” the report said.

‘GST adoption could raise growth to over 8%’

The adoption of the GST could help raise India's medium-term GDP growth to over 8% and create a single national market for enhancing the efficiency of the movement of goods and services, the IMF said today. At the same time, it also expressed concerns over the implementation of the Goods and Service Tax (GST). — PTI