Singapore, February 24: Several international agencies have praised the policy of demonetization led by Modi government and have given positive feedback. Notably, The International rating agency Moody's Investors Service on Thursday predicted that India will be the fastest-growing economy among G-20 countries clocking a 7.1 percent growth in the year 2017.
However, the Indian economy had slowed in the fourth quarter of 2016 due to the withdrawal of 86 percent of the currency in circulation without an immediate replacement. In the report titled 'Modest Acceleration in the Global Economy, Moody said "India is forecast to have the fastest-growing economy among all G-20 countries with growth put at 7.1 per cent for 2017, down from a previous expectation of 7.5 per cent because of the effects of demonetization.
Commenting on Asia, the agency said, China's economy stabilized around the official growth target of 6.7 percent in 2016 but will likely continue to decelerate to 6.3 per cent and 6 per cent in 2017 and 2018.
With regard to global growth, Moody's said continuing cyclical recovery in global economic activity with growth in G-20 countries picking up modestly to 3 percent in 2017 and 2018 from 2.6 percent in 2016, but potential shifts in US policy add uncertainty to this forecast.
The rating agency also said that there is a high risk of a significant protectionist shift in US trade policy and could inflict lasting damage to the global economy. Accordingly, Moody's has revised its real GDP growth forecast to 2.4 percent in 2017 and 2.5 percent in 2018, from 2.2 per cent and 2.1 per cent, respectively.
Moody's forecast also assumes the US Federal Reserve will raise the federal fund's rate by 75-100 basis points in three to four rate hikes in 2017. "We expect the Fed to err on the side of caution and tolerate somewhat above-target inflation in the near term." Also, there could be risks of a sudden and sharp deceleration in China and political and fragmentation risks in the EU and the euro area, Moody's said.
Notably, the International Monetary Fund (IMF) also said demonetisation would have the only short-term impact on the economy and it would bounce back to its expected growth of more than 8 percent in the next few years. The IMF said in its annual country report on India. "Growth is projected to slow to 6.6 percent in FY2016/17, then again it will rebound to 7.2 percent in FY2017/18.
Background: On 8th November 2016, Prime Minister Modi suddenly announced the decision of demonetization. This step was taken primarily for curbing of corruption, black money and terrorism. After that PM Modi, Finance Minister Arun Jaitley, RBI Governor and known economists have said that the demonetization will have a short-term negative impact but a long-term positive impact.