Demonetisation effect: IMF cuts India’s growth forecast to 6.6%

The International Monetary Fund has downgraded India�s growth forecast for the year 2016-2017 by a full percentage point to 6.6% on the back of economic disruption caused by demonetisation.

Demonetisation effect: IMF cuts India’s growth forecast to 6.6%

The International Monetary Fund has downgraded India’s growth forecast for the year 2016-2017 by a full percentage point to 6.6% on the back of economic disruption caused by demonetisation.

IMF said that India may lose the “fastest growing major economy” tag to China, though it categorised the slowdown as temporary.

India’s growth slowed to 6.6% last year from 7.6% in 2015, according to the fund’s latest World Economic Outlook, which estimates that China’s economy grew by 6.7% in 2016.


IMF  expects India’s expansion to bounce back to 7.2% this year and accelerate to 7.7% in 2018. China, meanwhile, is projected to continue decelerating, to 6.5% in 2017 and 6.0% the year after.

For most economies, IMF makes forecasts on calendar year basis while for India, it follows the fiscal year (April-March).

IMF also expects India’s growth to pick up at a slower pace in 2017-18 at 7.2% against its earlier estimate of 7.6%.

“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,” IMF said in its WEO Update.

IMF’s sister institution, the World Bank, doesn’t think that was enough for India to lose the global growth crown, however.

In the latest update to its global forecasts, released last week, the bank lowered its estimate of India’s 2016 growth to 7.0%—down from its earlier prediction of 7.6% but still ahead of China’s 6.7% growth.

Earlier this month, India’s Central Statistics Office said it expected growth for the financial year to come in at 7.1%. But that projection was calculated using economic data only through last October, before demonetisation move was announced