Demonetisation Trigged World Bank Downgrade to India’s Growth Forecast

The World Bank has downgraded the Indian economy’s growth forecast as sharp falls in the country’s automobile and real estate sales flagged the short-term impact of recalling India’s two most-used bank notes.

The Washington-based financial institution predicted India’s economy would grow by a “still robust” 7% in the fiscal year to March 2017 – a 0.6% drop from its earlier forecast but still the fastest rate of any major economy in the world.

It attributes the fall to November’s decision to recall all 1,000 and 500 rupee currency bills from circulation, a surprise demonetisation move intended to weed out untaxed wealth, hasten the digitisation of India’s economy and disrupt terrorist and other criminal networks.

“Continued tailwinds from low oil prices and solid agricultural output [were] partly offset by challenges associated with the withdrawal of a large volume of currency in circulation and subsequent replacement with new notes,” the World Bank said on Wednesday.

Demonetisation has suffocated the vast informal economy, which employs up to 80% of Indians, but the World Bank said the impact of the policy was likely to be short term. “India is expected to regain its momentum, with growth rising to 7.6% in fiscal year 2018-19 and strengthening to 7.8% in fiscal year 2019-20,” the bank said.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza