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Post-demonetisation, IMF says growth slowing, UN disagrees

business Updated: Jan 18, 2017 16:08 IST
Suchetana Ray

In a surprise move Modi had announced the scrapping of high denomination notes on November 8, 2016. This demonetisation drive has been blamed by several rating agencies for slowing India’s growth in 2016-2017.(AP)

The United Nations World Economic Situation and Prospects (WESP) 2017 report said that India’s economy is projected to grow by 7.7% in 2017-2018 and 7.6% in 2018-19, benefiting from strong private consumption. UN’s stand is in complete contrast to forecasts made by several rating agencies.

On the other hand, according to IMF’s downgraded India’s growth forecast for 2016-17 by a full percentage point to 6.6% while it raised the forecast for China’s economic growth this year by 0.1 percentage points to 6.7%.

The India downgrade is attributed to the disruption caused by the government’s demonetisation drive.

In its update to the World Economic Outlook, IMF said India is likely to grow 6.6% in 2016-17, against its earlier estimate of 7.6%. IMF said the Chinese economy grew by 6.7% in 2016 as against the previously projected 6.6%.

How worried should India be?

Economists brush aside any concerns for India as far as the IMF projections are concerned as they point towards the forecast for 2017-2018. The Fund expects India’s growth to pick up at a slower pace in 2017-18, at 7.2%, against its earlier estimate of 7.6%. On the other hand, China’s growth forecast in 2017 was raised to 6.5% from 6.2% projected in October on expectation of continued policy stimulus.

“We will get to know the real impact of demonetisation on the GDP once Central Statistical Organisation releases the final data next month. But a slight blip or competition with China by a decimal point does not scare investors,” said an economic advisor working with the finance ministry, who did not wish to be named.

But there could be cause for worry on account of a global survey that puts India in the sixth place when it comes to enthusiasm to invest here.

According to the annual global CEO survey by PwC, as reported by news agencies, the most favoured markets are the US, as voted by 43% of respondents, followed by China (33%).

Others in the pecking order are Germany (17%), UK (15%), Japan (8%) and India (7%).

Last year, India was among the top five most promising markets globally.

News reports quoted the survey saying that “Over time, CEOs have become less enthusiastic about India perhaps because structural reforms have been slow to come (and there have been recent short-term difficulties with its rupee conversion programme).”

“This survey should be a matter of concern for Indian policymakers,” said Rajiv Kumar, senior fellow at the Centre for Policy Research. “Policy measures are needed to improve the business environment while the government should boost public spending in infrastructure and housing to draw out private investment,” he added.

India, which has recorded some of the world’s strongest recent growth, is experiencing a shock to consumption from the government’s November 8 decision to scrap high-value currency notes. Citing the blow to the cash-reliant economy, several rating agencies have revised their growth projections for India in 2016.