World Bank: India growth slowed to 6.8% in 2016-17 on note ban, to rebound to 7.2% this year on reforms

Warning that demonetisation may have slowed economic growth sharply in 2016-17, the World Bank on Monday projected India to expand by 7.2% in this financial year as the country reaps the benefits of reforms such as the Goods and Services Tax scheduled to be rolled out from July.

In its India Development Update report, World Bank said India’s GDP growth may have slowed to 6.8% in 2016-17, from 7.9% in the previous year, as November’s note ban decision slowed activity in cash-dependent sectors.

The demonetisation drive that weeded out Rs 15.44 lakh crore of high denominated currency notes impacted the poor and the vulnerable the most, it said.

But economic growth was expected to pick up to 7.2% in 2017-18, and accelerate to 7.7% by 2019-20, riding on strong fundamentals along with implementation of reforms.

“Despite renewed weakness in private investment and limited lift from external demand, India was poised to continue growing robustly in FY17 until demonetization dented growth, albeit moderately, causing cash immediate crunch and affecting activity in cash-reliant sectors,” the report said.

“India remains the fastest growing economy and its growth fundamentals remain sound…Implementation of GST (goods and services tax) will make it even stronger,” said Junaid Ahmad, World Bank Country Director in India.

However, continued uncertainties in the global environment including rising global protectionism and a renewed slowdown in the Chinese economy besides weak private investment and a high level of bad assets with the Indian banks continue to remain challenges to the economy.