India's economy defies banknote chaos to grow by seven per cent

 
Jasper Jolly
TOPSHOT-INDIA-ECONOMY-CURRENCY
Demonetisation caused chaos in India at the end of the year (Source: Getty)

The Indian economy defied economists’ expectations at the end of the year by avoiding a big slowdown after demonetisation.

India’s GDP grew by an annual rate of seven per cent in the last quarter of 2016, according to the government’s statistics authority.

That represented a slowdown in the previous quarter, when the growth rate hit 7.4 per cent, but the measure was significantly higher than the six per cent rate or lower that had been predicted.

Read more: India and France to rise above UK in GDP rankings

The informal economy in India was thrown into chaos at the start of November after Prime Minister Narendra Modi announced all 500 and 1,000 rupee notes would become worthless immediately, and could only be swapped up until the end of the year.

In a heavily cash dependent economy this led to millions of Indians being forced to queue to exchange their now notes.

Modi’s move had been aimed at tackling crime by forcing stockpiles of ill-gotten money into the formal economy. Economists are also watching for signs of whether the move will improve India’s tax take and spur the take-up of mobile payments technology.

The move seems not to have affected some sectors of the economy, with agricultural industries growing by 4.4 per cent in the value they added to the economy compared to the previous year, the statistics authority said.

Read more: UK boosts position as largest investor in India

India's economy is expected to surpass the UK's in GDP terms within the next two years, according to the Centre for Economics and Business Research (Cebr).

India’s annual growth rate remains higher than China’s, which should see it rise to be the third largest economy by 2024 – below only China and the US.

India has also become a vital target for increased trade for the UK after Brexit. The UK is the largest G20 investor in India, with only Singapore and Mauritius nominally investing more.

Related articles