ADB slashes India's growth estimate to 7% due to cash crunch

India's growth forecast for 2017 was, however, kept at 7.8%

The Asian Development Bank (ADB) on Tuesday trimmed its 2016 growth estimate for India to 7 per cent from the previous 7.4 per cent on account of demonetisation, weak investment and agricultural slowdown.

But India's growth forecast for 2017 was kept at 7.8 per cent.

"Economic growth in developing Asia remains broadly stable, but a slight slowdown in India has trimmed the region's growth outlook for 2016," said the new ADB report.

In a supplement to its Asian Development Outlook 2016 Update report, ADB has downgraded 2016 growth for Asia to 5.6 per cent, below its previous projection of 5.7 per cent. For 2017, growth remains unchanged at 5.7 per cent.

"India's tempered growth projection to 7 per cent from the previously forecast 7.4 per cent in 2016 is due to weak investments, a slowdown in the country's agriculture sector, and lack of available cash due to the government's decision to ban high-denomination banknotes," ADB said.

The junking of old Rs 500 and Rs 1,000 rupee notes will likely affect the largely cash-based sectors in the country, including small- and medium-scale businesses.

"The effects of the transition are expected to be short- lived and the Indian economy is expected to grow at 7.8 per cent in 2017," it said.

ADB said South Asia is the most dynamic part of the region, with growth expected at 6.6 per cent this year, down from the previous forecast of 6.9 per cent. South Asia's growth is estimated at 7.3 per cent in 2017.

China, it said, is on course to grow 6.6 per cent this year and 6.4 per cent in 2017.