Unfazed by criticism of the way the cash ban was handled, Reserve Bank of India (RBI) Governor Urjit Patel on Friday said the central bank has grown a thick skin fast doing its job and stressed the economy will make a “sharp V” recovery after a short drop.
Patel, who took over the reins of RBI just two months before the currency purge, said remonetisation has been done at a “very quick” pace and the central bank has managed to bring the situation to normal.
“I think it is important one grows a thick skin fast in this business and, I think, we have done that. We have gone about our work, we had undertaken major challenges during these past few months and valid criticism is something we are open to and take it in the spirit in which it is given and try to improve ourselves,” he told CNBC-TV18 in an interview.
He said everyone agrees that not just RBI but the wider banking system has done a “Herculean job” over the past few months when there were many challenges.
On the impact of demonetisation on the economy, Patel said: “Almost everyone agrees the impact is going to be a sharp ‘V’, that we would have a downgrade of growth for a short period of time.”
He added: “However, remonetisation has happened at a fast pace and that was part of the plan that subsequent to the withdrawal of the specified banknotes, our production plans and supply processes would ensure remonetisation happened as quickly as possible, which, given our capacity in terms of printing currency notes, is at a high level.”
RBI last week lowered its economic growth forecast for the current financial year to 6.9 per cent from the previously projected 7.1 per cent, but saw it bouncing back in a big way to 7.4 per cent in 2017-18.
Patel said the benefits of junking 86 per cent of currency in circulation, effected on November 8 last year, will take time to fully play out and needs more work to ensure they are lasting. Asked when India could achieve nine per cent gross domestic product growth, Patel said it is difficult to predict sustainable growth rates. Higher growth rate is possible, if very fundamental reforms, especially in factors of production like land and labour, are undertaken, he said.
“Now, how much higher than the 7.5 per cent we are achieving so far is difficult to say. But, fact is, we did grow at some point, faster than where we are now, but it could very well be that that was unsustainable and this is sustainable. So, 7.5 percent growth rate is not something to be disappointed (about),” he said.
The six-member monetary policy committee headed by Patel had last week kept interest rates unchanged at 6.25 per cent for the second straight meeting and took its policy stance to ‘neutral’ from ‘accommodative’.
The change in stance, he said, gives more flexibility to cut, raise or hold rates, compared with an accommodative one on inflation outlook.
Very few countries grow at a high rate, if inflation is high and volatile. I think, in a way, we are doing our bit to support a higher growth rate, but on a durable basis,” he said.
Patel also expressed concern over the US moving towards protectionism under US President Donald Trump. “I think it is a cause for concern for the world. I think it is a cause for concern for emerging markets and in terms of creating financial volatility. I do not think anyone will be safeguarded from it and we have to manage this as it plays out. There are some things that are under our control and that is to ensure we ourselves follow sound macroeconomic stability rules,” he said.
On protectionism under the Trump Administration, he felt India has sustained opening up of its economy since the 1990s. “I don’t think we should change our stance in any way because we do benefit from an open-trade regime. I think India’s policy that the openness of trade should be carried through a multilateral process is the right one,” the RBI chief maintained.