IMF says India's growth is projected to slow to 6.6 per cent in 2016-17 fiscal due to the strains that have emerged in the economy as a result of "temporary disruptions" caused by demonetisation.
In its annual report, however, the International Monetary Fund (IMF) said demonetisation would have only short term impact on the economy and it would bounce back to its expected growth of more than eight per cent in the next few years.
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.
Growth is projected to slow to 6.6 per cent in FY2016/17, then rebound to 7.2 per cent in FY2017/18, due to temporary disruptions, primarily to private consumption, caused by cash shortages.
India's economy grew at 7.6 per cent in 2015-16 due to a favourable monsoon, low oil prices and continued progress in resolving supply-side bottlenecks, as well as robust consumer confidence.
The investment recovery is expected to remain modest and uneven across sectors, as deleveraging takes place and industrial capacity utilization picks up, the report said.
IMF Directors supported the Indian efforts to clamp down on illicit financial flows, but noted "the strains that have emerged" from the currency exchange initiative.
IMF EDs commended New Delhi for its strong policy actions, including continued fiscal consolidation and an anti-inflationary monetary policy, which have underpinned macroeconomic stability.
As such, the IMF recommended continued vigilance to potential domestic and external shocks and urged the authorities to further advance economic and structural reforms to address supply bottlenecks, raise potential output, create jobs, and ensure inclusive growth.
All About the IMF- Headquarters: Washington, D.C., United States
- CEO: Christine Lagarde (since 2011)
- Founded: 27 December 1945, Bretton Woods, New Hampshire, United States
- Leader: Christine Lagarde
- Staff: 2700
- Founders: John Maynard Keynes, Harry Dexter White
- Parent organization: United Nations
