“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.

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In the first three quarters of the fiscal year that ends in March, overall indirect tax collections were up 25 percent from a year earlier.  Tax collection was up 12.01 percent in April-December 2016, compared to revenue in the year-ago period.

On November 8, Prime Minister Narendra Modi announced a ban on all 500 and 1,000 rupee notes aimed at counterfeiters and hoarders of black money. Demonetisation affected the nation as a whole causing a major liquidity crisis.

The shock decision prompted most private economists to slash growth forecasts for Asia’s third largest economy to 6.3-6.4 percent for the fiscal year 2016/17 from over 7.5 percent, citing the impact of demonetisation, which they said would linger for one more year.

Jaitley called those concerns unfounded. “All the stories about job losses or businesses suffering losses are anecdotal,” he told reporters.

“Tax collection data is real and not an estimation,” Mr. Jaitley explained, while dismissing fears of a slowdown following the currency crackdown.

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