IMF Cuts India's Growth Forecast But Sees Slowdown As 'Blip'

Last week, the World Bank had termed the slowdown in the economy as "aberration" mainly due to the temporary disruptions in preparation for the GST.

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IMF Cuts India's Growth Forecast But Sees Slowdown As 'Blip'

IMF lowered India's growth projection to 6.7 per cent, from 7.2 per cent, in 2017.

Highlights

  1. IMF cuts India's growth projection to 6.7%, from 7.2%, in 2017
  2. IMF attributes the move to notes ban, introduction of GST
  3. Expect India to regain fastest growing major economy tag in 2018, it adds
The International Monetary Fund (IMF) in its latest growth forecast has lowered India's growth projection to 6.7 per cent, from 7.2 per cent, in 2017, attributing it to demonetisation and introduction of GST (Goods and Services Tax). "In India, growth momentum slowed, reflecting the lingering impact of the authorities' currency exchange initiative as well as uncertainty related to the midyear introduction of the country-wide Goods and Services Tax," the multilateral funding body said in its latest World Economic Outlook report. The World Bank also in its latest report said India's economic momentum has been affected by disruptions from the withdrawal of banknotes and uncertainties around the GST. 

But the IMF said that India is expected to regain the fastest growing major economy tag next year, despite the agency cutting down India's projected growth rate next year to 7.4 per cent, from 7.7 per cent. The international agency projects India to grow at 7.4 per cent, with China projected to grow at 6.5 per cent in 2018.

Hit hard by demonetisation, India lost the tag of the fastest growing economy to China in the March quarter with a GDP growth of 6.1 per cent, according to data released by the Indian government's Central Statistics Office (CSO). India's growth further slumped to 5.7 per cent in the June quarter.

The IMF remains optimistic about India's future growth prospects with a top official saying that the slowdown in the economy is a "blip" in a much positive long-term picture of its economy. "The downgrade for this year's looks like a blip in a much positive longer-term picture," said Maurice Obstfeld, Economic Counsellor and Director of Research Department of the IMF.

Last week, the World Bank had termed the slowdown in the economy as "aberration" mainly due to the temporary disruptions in preparation for the GST. World Bank President Jim Yong Kim also said that the Goods and Services Tax (GST) is going to have a hugely positive impact on the Indian economy. "There's been a deceleration in the first quarter, but we think that's mostly due to temporary disruptions in preparation for the GST, which by the way is going to have a hugely positive impact on the economy," Mr Kim said.

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