New Report Shows Slowing in Indian Economy

Despite still being one of the fastest-growing emerging market economies in the world, India’s growth may be slowing, according to new projections. A new report released regarding economic growth in 2016 showed that Indian GDP growth was only 7.1 percent, compared to nearly 8 during the previous year. Many have attributed this decline to the recent and sudden monetary recall enacted by Prime Minister Narendra Modi.

The recent data support the idea that the lack of liquid capital in India’s economy, a result of the recall of the large-denomination rupee notes that most Indians use to conduct daily financial transactions, hurt overall economic growth. Given the generally sound footing of the global economy at the moment, such a decline in growth is considered unusual for a stable emerging market. More troubling still for India is a set of projections that predict flat growth through the coming year. Though it will still likely top 7 percent growth, the Indian economy’s growth rate is not expected to increase throughout 2017.

When Mr. Modi announced his currency recall in November of 2016, Indian citizens were given until the end of the year to trade in their 500 and 1,000 rupee notes for smaller bills. The announcement, which was made without warning, threw the country into an extreme state of confusion. Indians not only tend to make purchases in cash, but many also still keep substantial cash savings outside of banks. The ban on larger-size notes, therefore, jeopardized both purchasing power and savings for many citizens of the country.

According to Mr. Modi’s government, the recall was intended to target money launderers and criminal enterprises that were using the larger notes to keep and move large amounts of capital without being tracked by banks or government institutions. The unintended consequences and general opposition to the measure, however, have far outweighed the Indian government’s original intentions. Many citizens were outraged with the inconvenience, and many feared that the interruption would result in economic instability.

With the latest data, the latter fear seemed to be proven correct. While the annual growth rate was 7.1 percent, the period between December of 2016 and May of 2017 saw growth of just over 6 percent, showing that growth had slowed significantly during the period immediately after the currency recall.