The World Bank on January 11, 2017 cut the India’s GDP growth for 2016-17 fiscal ending on March 31, 2017 to 7 percent from its previous estimate of 7.6 percent due to demonetization.
The bank cited the immediate withdrawal of a large volume of currency in circulation and subsequent replacement with new notes as the main reason behind the deceleration of the GDP growth rate.
Highlights of the Report
The report mentioned that demonetization would have negative impact on the Goods and Services Tax, labour reforms and land reforms.
● However, the bank also asserted that India is expected to regain its momentum with GDP growth at 7.6 percent in Fiscal Year (FY) 2018-19 and strengthening to 7.8 per cent in FY 2019-20.
● Bank stated that India is still the fastest growing emerging market economies of the world, bypassing China. Infrastructure spending will improve the business climate and attract investment in the near-term.
● The ‘Make in India’ campaign may support India’s manufacturing sector to meet the domestic demand besides regulatory reforms.
● Moderate inflation and a civil service pay hike may support real incomes and consumption, besides, huge harvests after favourable monsoon rains leading to better economic growth prospects.
● The bank also noted that a benefit of ‘demonetisation’ in the medium-term may be liquidity expansion in the banking system, helping to lower lending rates and lift economic activity.
Estimates by Other Agencies
Earlier, Fitch cut India’s 2016-17 growth forecast to 6.9% from 7.4%, and 2017-18 projection to 7.7% from 8% due to the impact of demonetisation.
● Morgan Stanley has reduced its projection to 7.3% from 7.6% for the same period.
● The Asian Development Bank (ADB) on reduced India’s growth forecast for the current fiscal 2016-17 to 7% from 7.4%.
About World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programs. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA).
● Headquarters: Washington, D.C., United States
● Founded: 27 December 1945
● President: Jim Yong Kim