Indian economy to grow at lower rate in 2017-18 due to demonetisation: Paris-based think tank

Indian economy is projected to grow at a lower than expected rate of 6.7 per cent this fiscal due to the “transitory effects” of demonetisation and the GST implementation, according to Paris-based think tank OECD.

The Organisation for Economic Cooperation and Development (OECD) has also revised downwards its estimate for the country’s growth in next financial year (2018-19) to 7.2 per cent. For this period, the GDP expansion was pegged at 7.7 per cent in June.

In 2017-18, India’s growth is forecast to be 6.7 per cent compared to June projection of 7.3 per cent, as per the OECD Interim Economic Outlook.

The report said that in India, “the transitory effects of demonetisation and of the implementation of the Goods and Services Tax (GST) have led to a downward revision in 2017 growth projections, while business investment has remained weak”.

In the longer run, the GST is expected to boost investment, productivity and growth, it added.

The GST came into effect from July 1 while demonetisation– cancellation of old Rs 500 and 1,000 currency notes as part of efforts to tackle black money menace — happened in November last year.

With regard to the global economy, the OECD said growth this year is projected to pick up to around 3.5 per cent and rise to 3.7 per cent in 2018.

“Overall, the global GDP projection has slightly improved since the OECD June 2017 Economic Outlook, with the near-term momentum becoming more synchronised across the world… Developments in emerging market economies have been more diverse with positive surprises in China and Russia, and a downward revision in India in part due to transitory factors,” it said.

About monetary policy, the report said there could be room for further cuts in interest rates in India if inflation durably remains around or lower than 4 per cent.

“Policy rates have recently been cut in Brazil, India, Indonesia and Russia in light of falling inflation and the continued need for monetary stimulus,” the OECD said.