World Bank drops India’s growth to 7%, after demonetisation

The Dollar Business Bureau

The World Bank on Wednesday lowered down the growth estimates of India for fiscal 2016-17 to a ‘still robust’ 7% from its earlier estimate of 7.6%, as a consequence of demonetisation. However, it asserted that the country would revive its momentum in the coming years with growth between 7.6% and 7.8%.

“The immediate move by the government to withdraw a huge volume of currency in circulation and subsequently replacing with the new notes in November led to slowing of growth in 2016,” said the latest report ‘Global Economic Prospects’ by World Bank.

The Bank, in its first report post-demonetisation, said, “Indian growth is estimated to have decelerated to a still robust 7% (in fiscal 2017 ending on March 31, 2017), with continued tailwinds from low oil prices and solid agricultural output partly offset by challenges associated with the withdrawal of a large volume of currency in circulation and subsequent replacement with new notes.”

Particularly, India keeps the distinction of being the world’s fastest growing emerging economies, overtaking China. “India is likely to revive its momentum, with the growth increasing to 7.6% in fiscal of 2017-2018 and strengthening to 7.8% in 2019-20,” the Bank said,

Several reform initiatives are likely to unlock the local supply bottlenecks and increase productivity, it added.

The Bank further said that the spending on infrastructure should improve the business climate in the country and help to attract investment in the short-term.

“The schemes like ‘Make in India’ may help manufacturing sector in India, supported by domestic demand and additional regulatory reforms. Modest inflation and pay hike in civil services should assist real incomes and consumption, backed by good harvests after favourable monsoon,” said the Bank.

The Bank noted that one of the benefits of ‘demonetisation’ in the medium-term may be increased liquidity in the banking sector, helping to bring down lending rates and boost economic activity,” it said.

Mentioning that cash transactions account for over 80% of the total transactions in India, the Bank said that demonetisation in short-term could continue to hamper business and domestic economic activities, impacting the growth.