India losses the long-held tag of world’s fastest growing major economy

Economy - Himanshu Gill - Jan 17,2017

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india losses the long held tag of worlds fastest growing major economy

The International Monetary Fund (IMF) has cut down India’s GDP growth rate to 6.6 percent, stealing its place of the world’s largest growing big economy.

India lost the prime position to its own neighbor China, whose growth is estimated at 6.7 percent, according to the IMF’s World Economic Outlook 2016 statistics.

India’s fall in growth rate is majorly driven by its self-created cash crisis. The IMF highlighted that a "temporary negative consumption shock" from the country's decision to ban its notes of the highest denomination (500 and 1000) about two months ago, has ended the country’s run as the fastest growing major economy.

On November 8, India’s Prime Minister Narendra Modi announced the note ban in an attempt to curb the country’s black money inflow and tax evasion, canceling nearly 90 percent of the cash in circulation in India.

India’s growth slowed down to 6.6 percent last year from 7.6 percent in 2015, according to the World Economic Outlook, which estimates that China’s economy grew at a rate of 6.7 percent in 2016.

However, the IMF expects India’s economy to bounce back to 7.2 percent this year and further accelerate to 7.7 percent by 2018. China, on the other hand, is projected to continue to decelerate, to 6.5 percent in 2017 and a further dip to 6 percent in the year after.

According to Indian government’s figures, the country’s growth rate was 7.3 percent in the quarter that ended in September 2016, before the cash ban. But it has now lowered its growth estimates for the ongoing fiscal year.

The adverse impact of the note ban on India’s economy was also highlighted by rating agencies like Moody’s Investors Service and the ICRA. The two agencies said that India’s growth rate would be moderate in the first half of 2017.

Meanwhile, the IMF also scaled down the growth forecasts for Mexico and Brazil.