Note ban will hurt growth: Patel to panel

Priya sundarajan | | Updated on: Jan 18, 2017
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The RBI chief was, however, mum on many other points

RBI Governor Urjit Patel told the Parliament’s Standing Committee on Finance that the central bank’s decision to lower the growth forecast at least by half a percentage point was due to the possible impact on demonetisation.

Former Prime Minister Manmohan Singh, who is also a member of the panel, had earlier warned that there could be a two-percentage-point decrease in GDP growth due to demonetisation.

“He (Patel) said it may not be 2 per cent, but agreed that at least half a per cent decrease can be expected due to demonetisation. He told us that was the reason why the RBI lowered the growth forecast to 7.1 per cent from 7.6 per cent for the current fiscal,” a panel member told BusinessLine .

Patel, however, did not answer questions from the MPs on the impact of demonetisation on various sectors including banking. He told the members that ₹9.2 lakh crore worth of new currencies have been introduced.

“He said the restrictions will be withdrawn in a phased manner and assured us that banks will face no problem in getting the new notes,” another member said.

Patel, however, did not specify the number and value of notes which were withdrawn from the system. He also did not specify the cost incurred for printing the new notes and withdrawing the demonetised currency. Both Patel and senior officials of Finance Ministry, who appeared before the panel, said that the RBI had implemented the Centre’s decision to demonetise high-value notes. “They told us that the preparations started from January, 2016,” the member said.

The officials also faced questions from the members on the preparedness of the banks and the Centre for implementing the decision. “Though it was a cordial meeting, both the RBI and the Centre were not prepared to answer our queries. They wanted more time and agreed that written answers will be sent to us,” a member said.

Representatives of bankers, however, could not make their presentations before the panel due to paucity of time. Bankers will be summoned before the panel later.

Published on January 12, 2018

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