The post-November 8, 2016 cash shortages and payment disruptions caused by the currency exchange initiative have undermined consumption and business activity, posing a new challenge to sustaining the growth momentum, the IMF said in its annual country report on India.
"Growth is projected to slow to 6.6 percent in FY2016/17, then rebound to 7.2 percent in FY2017/18, due to temporary disruptions, primarily to private consumption, caused by cash shortages," it said.Also Read: No Rs 1000 Notes Now; Govt Asks People Not to Overdraw From ATMs
India's economy grew at 7.6 percent in 2015-16. Tailwinds from a favorable monsoon, low oil prices and continued progress in resolving supply-side bottlenecks, as well as robust consumer confidence, will support near-term growth as cash shortages ease, the IMF said.
"They called for action to quickly restore the availability of cash to avoid further payment disruptions and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth," the report said.
Noting India's strong economic performance of the past few years, the IMF Executive Directors commended New Delhi for its strong policy actions, including continued fiscal consolidation and an anti-inflationary monetary policy, which have underpinned macroeconomic stability.
As such, the IMF recommended continued vigilance to potential domestic and external shocks and urged the authorities to further advance economic and structural reforms to address supply bottlenecks, raise potential output, create jobs, and ensure inclusive growth.Also Read: Post Demonitisation, Small Auto Loan Borrowers Facing Repayment Pressure: Fitch
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