IMF cuts India's FY17 growth rate to 6.6% from 7.6%

The International Monetary Fund (IMF) has cut its estimate of India's growth rate to 6.6 per cent from its earlier forecast of 7.6 per cent citing the negative impact of demonetisation on the country's economic activity.

The IMF said it cut India's growth forecast for the current financial year 2016-17 due to the sudden impact of the cash shortage that the Narendra Modi government's demonetisation move brought about.

''In India, the growth forecast for the current (2016–17) and next fiscal year were trimmed by one percentage point and 0.4 percentage point, respectively, primarily due to the temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative,'' IMF stated in its latest World Economic Outlook released on Monday.

IMF now projects India's economic growth rate in 2016 to be around 6.6 per cent against 7.6 per cent estimated earlier and in 2017 to be around 7.2 per cent against its previous forecast of 7.6 per cent.

India's GDP growth rate for 2016 is a percentage point lower compared to the 6.7 per cent growth that China achieved during the year.

The Indian economy is expected to get back to its previously estimated growth rate of 7.7 per cent in 2018, according to the WEO update.

IMF's forecast of a lower growth rate of the Indian economy comes days after the World Bank pegged India's GDP growth rate for 2016-17 fiscal down to 7 per cent from its previous estimate of 7.6 per cent, also citing the impact of demonetisation.

However, the World Bank forecast issued on 11 January said the Indian economy would regain momentum in the following years with a growth of 7.6 per cent and 7.8 per cent due to a reform initiatives.

Despite IMF's downward revision of India's growth rate and a slight upward revision of China's growth projections, India continues to be the fastest growing countries among emerging economies.

But in 2016, China with 6.7 per cent has edged past India (6.6) with 0.1 percentage point.

The growth forecast for 2017 was revised up for China (to 6.5 per cent, 0.3 percentage point above the October forecast) on expectations of continued policy support, the IMF said. India's growth rate in 2017 as per the latest IMG projections is 7.2 per cent.

Elsewhere in emerging Asia, growth was also revised down in Indonesia, reflecting weaker-than-projected private investment, and in Thailand, in light of a slowdown in consumption and tourism.

In Latin America, the growth downgrade reflects to an important extent more muted expectations of short-term recovery in Argentina and Brazil following weaker-than-expected growth outturns in the second half of 2016, tighter financial conditions and increased headwinds from U.S.-related uncertainty in Mexico, and continued deterioration in Venezuela.

In the Middle East, growth in Saudi Arabia is expected to be weaker than previously forecast for 2017 as oil production is cut back in line with the recent OPEC agreement, while civil strife continues to take a heavy toll on a number of other countries.