14:08 GMT +318 October 2019
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    Demonetization Leads to India Loosing Top Position

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    The shortage of cash after Modi declared 86% of India's currency worthless has toppled India from its top position as the world's fastest growing economy.

    NEW DELHI (Sputnik) − The International Monetary Fund (IMF) has predicted that the Indian economy is expected to grow by 6.6% in fiscal 2017. That should cheer up quite a few countries but not India. The IMF had earlier forecast a higher growth rate that would have helped India retain its ranking as the world's fastest growing economy.

    The 1% drop in India's anticipated growth rate will mean that China will reclaim the number one position.

    The economic outlook before Indian PM Narendra Modi took the demonetization plunge was rosier at 7.6% growth in fiscal 2017. The IMF expects the Chinese economy to grow at 6.7 percent in 2016.

    "In India, the growth forecasts for the current and next fiscal year were trimmed by one percentage and 0.4 percentage points, respectively, primarily due to the temporary negative consumption shock induced by cash shortages and payment disruptions," said the IMF's latest World Economic Outlook.

    India may face difficulties in the coming financial year as well due to global political developments leading to some large economies planning to turn protectionist. In addition, increasing commodity prices will also harm growth potential of the Indian economy.

    "High corporate debt, declining profitability, weak bank balance sheets and thin policy buffers imply that these economies are still exposed to tighter global financial conditions, capital flow reversals, and the balance sheet implications of sharp depreciations," said the IMF for the emerging market.

    ​Indian opposition parties have criticized Modi's demonetization.

    "All major indicators show that economic activity has been totally disrupted. While GDP growth and employment plummets, inflation shoots up," says Communist Party of India (Marxist) general secretary Sitaram Yechuri who has termed the decision a man-made disaster.

    The All India Manufacturer's Organization (AIMO), representing over 300,000 micro, small-scale and medium-scale industries submitted a report to the Modi government pointing out that in the first 34 days after demonetization, their work force had to be reduced by 35%. Apart from regular contractual workers, demonetization has compelled thousands of daily earners to leave cities because of the cash crunch and low level of demand in the economy.

    Now, millions of Indians have their eye on upcoming budget where they can hope some reprieve from impact of demonetization.

    Tags:
    demonetization, currency, International Monetary Fund, India
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