The World Bank has cut India’s growth forecast to 7 per cent for 2016-17 from its previous estimate of 7.6 per cent made in June last year, citing demonetization which weighed on growth in the third quarter.
“Indian growth is estimated to have decelerated to a still robust 7 per cent, with continued tailwinds from low oil prices and solid agricultural output 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 in a report released on Tuesday.
India is expected to regain its momentum, with growth rising to 7.6 per cent in FY2018 and strengthening to 7.8 per cent in FY2019-20, it said.
In its report, the World Bank said that various reform initiatives are expected to unlock domestic supply bottlenecks and raise productivity. Infrastructure spending should improve the business climate and attract investment in the near-term.
The “Make in India” campaign may support India’s manufacturing sector, backed by domestic demand and further regulatory reforms. Moderate inflation and a civil service pay hike should support real incomes and consumption, assisted by bumper harvests after favorable monsoon rains, it added.
A benefit of ‘demonetization’ in the medium-term may be liquidity expansion in the banking system, helping to lower lending rates and lift economic activity, noted the report.