International ratings agency Fitch on Tuesday lowered India's GDP growth forecast to 6.9% in FY17 from 7.4% over the government's demonetisation drive .
"Economic activity will be hit in 4Q16 by the cash crunch created by withdrawal and replacement of bank notes that account for 86% of the value of currency in circulation," the rating agency said in a report. Fitch expected some ease to come soon.
"The medium-term effect of the currency withdrawal on GDP growth is uncertain, but is unlikely to be large. Most importantly, demonetisation is a one-off event.
People who operate in the informal sector will still be able to use the new high-denomination bills and other options (such as gold) to store their wealth.
There are no new incentives for people to avoid cash transactions. The informal sector could soon go back to business as usual."
Fitch has also slightly revised down GDP growth forecasts for FY17 and FY18 to 7.7% from around 8% in the September GEO, adding that the RBI policy rate cuts by a total 150bp since the beginning of 2015 are likely to feed through to higher GDP growth.