India says its economy will bounce back from cash crisis

India's cash replacement hits middle class
India's cash replacement hits middle class

India expects its economy will recover rapidly from a slowdown caused by last year's self-inflicted cash crisis.

The Reserve Bank of India said Wednesday it expects growth to rise to 7.4% in the fiscal year to March, 2018, bouncing back from the shock of Prime Minister Narendra Modi's November ban on 500 and 1,000 rupee notes.

That ban, which rendered 86% of the country's cash worthless and slammed several sectors of the economy, prompted the International Monetary Fund to cut its estimate for growth in the last calendar year to 6.6%.

Related: IMF says India is no longer the world's fastest-growing economy

The RBI is also cautious about current levels of activity in the economy. It cut its growth forecast for the year to March, 2017, to 6.9% from the 7.1% it had predicted in December.

But the central bank is confident of a rebound.

"Growth is expected to recover sharply," the bank said in a statement, adding that activity will be "rapidly restored" in sectors such as retail, transportation and hotels that rely heavily on cash transactions.

"Discretionary consumer demand held back by [the cash ban] is expected to bounce back," the RBI added.

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