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Demonetisation impact on GDP maybe seen in this quarter, says RBI

black money crackdown Updated: Mar 06, 2017 21:16 IST

A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai.(Reuters file)

The impact of demonetisation on India’s GDP maybe seen in the current quarter in some segments even as the remonetisation exercise should be completed in two-three months, RBI deputy governor Viral V Acharya said on Monday.

Asked if the spillover of the government’s note ban move could extend to the January-March quarter, Acharya said the impact could be felt in some segments.

“Ultimately, the cash shortage is like the liquidity shock and unless it had led to a substantial wealth destruction one would expect its effects to be quite temporary. I’m not saying that the temporary impact is not hard on some parts of the economy, you would expect the effect to be temporary,” he said.

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“There maybe a couple of sectors, like two-wheeler sales, where there is slightly slower rebound,” he said.

The recently released GDP number of 7% for the October-December quarter had prompted analysts to question the growth rate at a time when the nation was reeling due to a cash crunch.

The demonetisation of high value currency notes of Rs 500 and Rs 1,000 announced on November 8 led to scrapping of Rs 15.4 lakh crore from the system.

When asked about the GDP estimate, he said, “You can see our MPC resolution which is that our estimate was actually reasonably close to that (of CSO estimate).”

“Of course, the drivers may have been slightly different, but I think there are a couple of things that people have raised which would be interesting and worth thinking about, which is how much of the informal sector gets fully captured other than through its links to the formal sector,” he said.

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He further said the impact of the note ban would only be temporary and would help in bringing informal sector into the mainstream economy.

“I think everyone should keep in mind that the remonetisation is taking place at a very fast pace. We have some way to go, but I think we expect that within two to three months we will reach full currency in circulation. It will be slightly lower, but it is in that ballpark (number),” he said.

The newly appointed deputy governor also said that asset quality review (AQR) is on the track.

The RBI had set a deadline of March 2017 for completion of AQR exercise for the public sector banks.

It had embarked on the AQR exercise from December 2015 and asked banks to recognise some top defaulting accounts as NPAs. It has had a debilitating impact on banks’ numbers and their stocks.

The move resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.