ADB cuts India’s growth rate to 7% due to demonetisation

The Dollar Business Bureau

The Asian Development Bank (ADB) on Tuesday cut down its growth estimate for India this year to 7% from its earlier 7.4% due to demonetisation, lower investments and slowdown in agricultural output. However, it kept the growth forecast for next year at 7.8%.

“Economic growth in Asia’s developing economies remains largely stable, but a little slowdown in India has trimmed the region's growth outlook for this year,” said the latest report by ADB.

In addition to its report ‘Asian Development Outlook 2016 Update’, the development has downgraded this year’s growth forecast for Asia to 5.6%, less than its last projection of 5.7%. The growth forecast remains unchanged at 5.7%, for 2017.

“India's tempered growth projection to 7% from the previously forecast 7.4% in 2016 is due to weak investments, a slowdown in the country's agriculture sector, and lack of available cash due to the government's decision to ban high-denomination banknotes,” it said.

The scrapping of old banknotes of Rs.500 and Rs.1,000 will likely affect mainly cash-based sectors in India, including the small and medium-scale enterprises.

“The transition effects are likely to be short-term and the country’s economy is likely to grow at 7.8% in 2017,” it said.

The region’s most dynamic part is South Asia, with expected growth rate of 6.6% in 2016, down from the last forecast of 6.9%. The region’s growth is likely to be at 7.3% in 2017, ADB said.

China is on the course of 6.6% growth rate this year and 6.4% next year, it added.