India’s demonetization to have short term impact: IMF
IMF has said the demonetization will slow down India's growth to 6.6% in 2016-17, but it would soon bounce back to 8% in the coming years
International Monetary Fund (IMF) has said that demonetization of high value currency will slow down India’s growth to 6.6% in 2016-17, but was hopeful of a rebound.
In its annual report, IMF has said the demonetization will only have a short-term impact on the economy and it would bounce back to its expected growth of more than 8% in the next few years, reports PTI news agency.
The post-November 8, 2016 cash shortages and payment disruptions caused by the currency exchange initiative have undermined consumption and business activity, posing a new challenge to sustaining the growth momentum, the IMF said in its annual country report on India.
“Growth is projected to slow to 6.6% in FY17, then rebound to 7.2% in FY18, due to temporary disruptions, primarily to private consumption, caused by cash shortages,” it said. India’s economy grew at 7.6% in 2015-16.
However, the Washington-based lending agency was hopeful that a favorable monsoon, low oil prices and continued progress in resolving supply-side bottlenecks, as well as robust consumer confidence, will support near-term growth as cash shortages ease.
In their report, the IMF Directors supported the India’s efforts to clamp down on illicit financial flows, but noted that “strains that have emerged” from the currency exchange initiative.
“They called for action to quickly restore the availability of cash to avoid further payment disruptions and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth,” the report said.
Earlier last week India’s Reserve Bank Governor Urjit Patel too had expressed optimism about the country’s recovery from the slowdown triggered demonetization.
“Almost everyone agrees that the impact is going to be a sharp ‘V,’ that we would have a downgrade of growth for a short period of time,” Patel told CNBC-TV18.
He felt the benefits of demonetization will take time to play out and more work needs to be done to ensure its lasting impact.