January 20, 2017: The World Bank has slashed India’s GDP projections from 7.6% made last June to 7% for 2017. World Bank attributes the fall in projected GDP to demonetisation.
“Growth in India is estimated to reach 7 per cent in financial year (FY) 2017… reflecting a modest downgrade to India’s expansion,” the multilateral lender said in its Global Economic Prospects report released on January 10.
“Unexpected demonetisation – the phasing out of large denomination currency notes – weighed on growth in the third quarter of FY 2017,” it said.
According to the World Bank, the ‘unexpected demonetisation’ weighted in on the growth of the third quarter. The bank expects the impacts to spill over to the next quarter as well.
India, a country where about 80% of the transactions are cash based, will be impacted in the short run because of demonetisation. According to the World Bank, the medium term implications of the move will be positive as it will help improve the liquidity position of banks as well as develop the banking system as a whole.
However, despite the reduced GDP forecast, it continues to maintain that the country will be the fastest growing economy of 2017.