The International Monetary Fund (IMF) has cut India’s annual growth estimate for 2017 by 0.4 percentage points to 7.2 per cent, mainly owing to temporary negative consumption shock induced by cash shortages and payment disruptions from recent currency note withdrawal and exchange initiative.
However, the IMF, in its World Economic Outlook, also estimated that Indian economy would grow at 7.7 per cent in 2018-19. The report also stated that the country’s medium-term growth prospects are favourable, with growth expected to increase to about 8 per cent due to implementation of key reforms, loosening of supply-side bottlenecks and appropriate fiscal and monetary policies. Adding further, it said that in the recent years, Indian economy has grown at a strong pace due to the implementation of critical structural reforms, favourable terms of trade and lower external vulnerabilities.
According to the report, beyond the immediate challenge of replacing currency in circulation following the demonetization move, policy actions should focus on reducing labour and product market rigidities to ease firm entry and exit, expand the manufacturing base, and gainfully employ the abundant pool of labour. It also pointed out that policy actions should also fillip financial stability through full recognition of non-performing loans and raising public sector banks' capital buffers and secure the public finances through continued reduction of poorly targeted subsidies and structural tax reforms, including implementation of the recently approved nationwide Goods and Services Tax (GST).