NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, April 24, 2017

IMF Managing Director Christine Lagarde on Thursday said India growth forecast has been revised down to 7.2 percent for 2017 due to the impact of demonetisation, which had affected the credit lines and repayments situation in rural areas.

Addressing a press conference, Ms. Lagarde said, “We had slightly revised down our projection as a result of the demonetization process that had been announced a little bit unexpectedly, actually.”

The demonetisation, announced overnight on Novemeber 8, 2016 by Prime Minister Narendra Modi had created unprecedented liquidity crunch all over India for over two months with people standing in long queues spending their otherwise productive hours elsewhere. However, IMF remained neutral and the director said: “Our understanding is that that demonetization has now been remedied at about 75 percent, which is the latest March figure that we have and which shows clearly that the situation is now being mended. We believe that India is going to continue to grow at a really fast path. I think we have a 7.2 percent forecast for 2017.”

To another question on Goods and services Tax, to be implemented in the middle of this year, Lagarde said, “The GST reform is really an act of courage, because it really means reforming in depth each of the Indian states in order to substitute the existing state taxes with that overall federal tax, the reallocation of it, and then the digital platform that will support it.”

later offering her personal opinion, Lagarde said, “I am personally extremely impressed by the work that is being done in that regard and we expect some positive outcome.”