Tuesday , August 22 2017
Home / Business / Demonetization move declines India’s FY17 growth forecast to 6.9%

Demonetization move declines India’s FY17 growth forecast to 6.9%

Delhi: GDP forecasts decline of growth to 6.9 per cent from 7.4 per cent saying that the economic activity will be hit in the October- December quarter.

“Indian growth has also been revised down to reflect temporary disruptions to activity related to the RBI’s surprise demonetisation of large-denomination bank notes,” Fitch said, as it revised real GDP growth forecast down to 6.9 per cent for 2016-17, from 7.4 per cent projected earlier.

The US-based ratings agency also revised GDP growth forecast for 2017-18 and 2018-19 lower to 7.7 per cent from 8 per cent earlier.

“Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income, supported by an almost 24 per cent hike in civil servants’ wages.

“But the anticipated recovery in investment looks a bit less certain in light of ongoing weakness in the data,” Fitch said in its ‘Global Economic Outlook – November’ report.

There have been reports of supply chains being disrupted and farmers unable to buy seeds and fertiliser for the sowing season there by effecting the economic growth.

“Time spent queueing in banks is also likely to have affected general productivity. The impact on GDP growth will increase the longer the disruption continues,” Fitch said, adding the medium-term effect of the currency withdrawal on GDP growth is uncertain, but is unlikely to be large.

“Most importantly, demonetisation is a one-off event. People who operate in the informal sector will still be able to use the new high-denomination bills and other options (such as gold) to store their wealth,” it added.

Post the demonetisation announcement on November 8, the government and banks have been taking several steps to push digital transactions.

“A surge in low-cost funding due to the demonetisation may remove a constraint on banks that prevented lending rates from keeping pace with the RBI’s policy rate cuts in recent years, although this will depend on deposits remaining in banks beyond the next few months,” it said.