IMF Cuts India’s 2017 GDP Forecast to 7.2% Citing Note Ban Impact

The Indian government in February had pegged GDP growth at 7.1 percent for the current fiscal despite the note ban.

International Monetary Fund (IMF) Managing Director Christine Lagarde. (Photo: AP)

The International Monetary Fund (IMF) on Tuesday trimmed India's annual growth forecast by 0.4 percentage points to 7.2 percent for 2017, citing the impact of demonetisation.

"In India, the growth forecast for 2017 has been trimmed by 0.4 percentage point to 7.2 per cent, primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the recent currency exchange initiative," the IMF said in its latest annual World Economic Outlook (WEO).

The World Economic Outlook was released before the start of the annual spring meeting of the International Monetary Fund and the World Bank.

Medium-term growth prospects are favourable, with growth forecast to rise to about eight percent over the medium term due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies.

Excerpt from the IMF Report

The Indian government in February had pegged GDP growth at a higher-than-expected 7.1 percent for the current fiscal despite the note ban.

However, analysts had raised concerns over the figure, saying it had not taken into account the full impact of demonetisation.

According to the IMF report, India's economy has grown at a strong pace in recent years owing to the implementation of critical structural reforms, favourable terms of trade, and lower external vulnerabilities.

Beyond the immediate challenge of replacing currency in circulation following the November 2016 currency exchange initiative, policy actions should focus on reducing labour and product market rigidities to ease firm entry and exit, expand the manufacturing base, and gainfully employ the abundant pool of labour.

Excerpt from the IMF Report

(This article has been edited for length.)