Cash squeeze: ADB slashes India's 2016 growth estimate to 7%

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

But India's growth forecast for 2017 was kept at 7.8%. "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%, below its previous projection of 5.7%. For 2017, growth remains unchanged at 5.7%.

"India's tempered growth projection to 7% from the previously forecast 7.4% 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 500 and 1,000 rupee notes will likely affect 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% in 2017," it said.

ADB said South Asia is the most dynamic part of the region, with growth expected at 6.6% this year, down from the previous forecast of 6.9%. South Asia's growth is estimated at 7.3% in 2017. China, it said, is on course to grow 6.6% this year and 6.4% in 2017.