IMF Cuts India’s Growth Forecast But Sees Slowdown As ‘Blip’

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In its latest outlook for growth, the International Monetary Fund (IMF) has slashed India’s growth projection to 6.7 percent from 7.2 percent in 2017, blaming it on demonetization and the introduction of the GST. “In India, growth momentum slowed, reflecting the continuing impact of the authorities’ foreign exchange initiative, as well as the uncertainty surrounding the introduction of the Goods and Services Tax throughout the country in the middle of the year,” said in its latest World Economic Outlook report. The World Bank also said in its latest report that India’s economic momentum has been affected by withdrawal interruptions and uncertainties around the GST.

But the IMF said India is expected to recover the fastest growing economy label next year, despite the agency slashed India’s projected growth rate next year to 7.4 percent from 7.7 percent. The international agency projects that India will grow to 7.4 percent, and that China plans to grow 6.5 percent in 2018.

India lost the tag of the fastest-growing economy in China in the March quarter, with GDP growth of 6.1 percent, according to data released by the Central Bureau of Statistics (CSO) of the Indian government. India’s growth slowed to 5.7 percent in the June quarter.

The IMF remains optimistic about India’s future growth prospects with a senior official who says the slowing economy is a “blip” in a much more positive long-term picture of its economy. “The rebate for this year is seen as a detour in a much more positive picture in the long run,” said Maurice Obstfeld, Economic Advisor and Director of the IMF Research Department.

Last week, the World Bank called the economic slowdown an “aberration”, mainly due to temporary disruptions in preparation for the GST. World Bank President Jim Yong Kim also said that the Goods and Services Tax (GST) is going to have a very positive impact on the Indian economy. “There has been a slowdown in the first quarter, but we think it is mainly due to temporary disruptions in preparation for the GST, which is bound to have a very positive impact on the economy,” Kim said.