Canceling nearly 90% of cash in circulation cost India the mantle of world’s fastest-growing large economy in 2016, the International Monetary Fund said, though it categorized the slowdown as temporary.
India’s growth slowed to 6.6% last year from 7.6% in 2015, according to the fund’s latest World Economic Outlook, which estimates that China’s economy grew by 6.7% in 2016. The fund expects India’s expansion to bounce back to 7.2% this year and accelerate to 7.7% in 2018. China, meanwhile, is projected to continue decelerating, to 6.5% in 2017 and 6.0% the year after.
The IMF said it trimmed its 2016 forecast for India by one percentage point “primarily” because consumers tightened their purse-strings after November’s currency invalidation.
The fund’s sister institution, the World Bank, doesn’t think that was enough for India to lose the global growth crown, however. In the latest update to its global forecasts, released last week, the bank lowered its estimate of India’s 2016 growth to 7.0%—down from its earlier prediction of 7.6% but still ahead of China’s 6.7% growth.
None of these comparisons is exact. The IMF and World Bank both follow India’s practice of presenting output growth for the fiscal year, which ends March 31. China’s numbers—as with those of nearly every other large economy—are for the calendar year.
Still, the downgrades reflect deep uncertainty about India’s economic health since Nov. 8, when Prime Minister Narendra Modi stunned the country—and the world—by declaring all of the country’s high-denomination bank notes null and void for transactions. The move, aimed at flushing out stacks of cash amassed by businessmen and crooked bureaucrats, has driven families to cut back on spending, companies to let go of workers and investors to put projects on hold.
Earlier this month, India’s Central Statistics Office said it expected growth for the financial year to come in at 7.1%. But that projection was calculated using economic data only through last October, before the currency move was announced. More-recent data weren’t—and in some cases, still aren’t—available to statisticians.
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