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Fitch lowers India's GDP outlook to 6.9% for 2016-17
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SME Times News Bureau | 29 Nov, 2016
Fitch Ratings has lowered India's GDP outlook for the current year to 6.9 per cent from the 7.4 per cent estimated earlier.
According
to its Global Economic Outlook (GEO) report, released here on Tuesday,
this was due to the cash crunch created in the economy following the
demonetisation move.
"Economic activity will be hit in the
fourth quarter of 2016 by the cash crunch created by withdrawal and
replacement of bank notes that account for 86 per cent of the value of
currency in circulation," Fitch Ratings said in its latest GEO report.
"Fitch
has revised its real GDP growth forecast down to 6.9 per cent in the
financial year ending March 2017 (FY17), from 7.4 per cent in the
September Global Economic Outlook," the report said.
The impact on GDP growth would increase the longer the disruption continues, it added.
Due
to the demonetisation, Indian consumers have not had the cash needed to
complete purchases, and there were reports of supply chains being
disrupted and farmers unable to buy seeds and fertilisers for the sowing
season, it said.
"Time spent queuing in banks is also likely to have affected general productivity," the report noted.
In
October, Fitch had forecast 7.4 per cent growth for the current fiscal
for India. Fitch had also added that the growth would accelerate to
eight per cent only by 2018-2019, on account of a lagged impact of
monetary easing.
However, the rating agency said that in the
medium-term the effect of the currency withdrawal on GDP growth was
uncertain, but was unlikely to be large.
"Demonetisation is a
one-off event. People who operate in the informal sector will still be
able to use the new high-denomination bills and other options (such as
gold) to store their wealth," it said.
The Reserve Bank of
India's (RBI) policy rate cuts by a total 150bp since the beginning of
2015 are likely to feed through to higher GDP growth, even though
monetary transmission has been impaired by relatively weak banking
sector health, it added.
A surge in low-cost funding due to the
demonetisation may remove a constraint on banks that prevented lending
rates from keeping pace with the RBI's policy rate cuts in recent years,
although this will depend on deposits remaining in banks beyond the
next few months, the report added.
While there were many facets
to India's demonetisation measure making it difficult to predict the
impact on real gross domestic product (GDP) growth, it would still be
higher than China's in the medium term, Fitch Ratings had said earlier.
"In
China, we forecast real GDP growth of 6.4 per cent in 2017, due to the
impact of macro-prudential tightening measures targeting the housing
market," it said.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
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78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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