NEW DELHI: The Asian Development Bank joined the bandwagon of agencies predicting a fall in India's GDP for the current fiscal year on Tuesday, revising its forecast for 2016-17 down to 7 per cent. The prediction comes less than a week after India's own Reserve Bank lowered growth targets from 7.6 per cent to 7.1 per cent.
However, the ADB said that while the impact from demonetisation is likely to result in falling GDP growth this year, the fall out would be temoporary. Consequently, it has retained growth projection at 7.8 per cent for the next fiscal (2017-18).
"India's tempered growth projection to 7 per cent from the previously forecast 7.4 per cent in 2016 is due to weak investments, a slowdown in the country's agriculture sector, and the lack of available cash due to the government's decision to ban high-denomination banknotes," ADB said. “The 7.8 per cent will be possible if positive approach is maintained by the government post demonitisation. The current slowdown is temporary, because the demand has not diminished,” said Seema Sharma, Economist, IIT Delhi, Department of Management Studies. The junking of old Rs 500 and Rs 1,000 notes is also likely to affect largely cash-based sectors in the country, including small and medium scale businesses.
“This is was expected as SMEs constitute 60 per cent of the cash economy. It is not easy for the rebound to happen, unless government facilitates higher public spending in 2017, especially in the rural economy,” added Aamirullah Khan, visiting Professor at Amity University.
On its part, the RBI had said in its latest monetary policy statement that short-term disruption in economic activity and demand compression arising out of demonetisation have led to downside risks to growth.
The trimming of India's growth forecast has had a bearing on the Asian economy's prospects for the current year. Economic growth in developing Asia remains broadly stable, but a slight slowdown in India has trimmed the region's growth outlook for 2016, said ADB, while downgrading 2016 growth to 5.6 per cent, below its previous projection of 5.7 per cent.