After World Bank, IMF Too Downgrades India Growth Story Post-Demonetization

after the traumatic brakes on India growth story due to demonetisation, India will see a GDP loss of 1% in the current fiscal year and 0.4% next year, said IMF within days after the World Bank downgraded India growth estimate.

The International Monetary Fund (IMF) estimates India’s growth rate for the current fiscal year to 6.6% from its previous estimate of 7.6% due to what it termed a “temporary negative consumption shock” from demonetization.

“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 IMF said in its latest World Economic Outlook (WEO).

But China with 6.7% will be the fastest growing economy surpassing India now with 0.1 percentage point more. The revised estimate for China to 6.5%, 0.3 percentage point above the October forecast was attributed to continued policy support.

In 2018, China’s growth rate is projected to be 6% against India’s 7.7%. The global growth for 2016 is now estimated at 3.1% as per the October 2016 forecast.

Economic activity in both advanced economies and emerging market and developing economies (EMDEs) will accelerate in 2017-18, with global growth projected to be 3.4% and 3.6%, respectively, said IMF keeping its October forecast in tact.

Earlier, even the World Bank decelerated India’s GDP growth for 2016-17 fiscal to 7% from its previous estimate of 7.6% citing the impact of demonetization. But it said India would regain momentum in the following years with a growth of 7.6% and 7.8% due to a reform initiatives.

Maurice Obstfeld, Economic Counsellor and IMF Research Department Director, at a news conference was upbeat on China growth story.

“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.

In light of the US economy’s expected momentum coming from new President-elect Donald Trump’s policies may likely shift the next two-year projections for US growth, IMF said.