Former economic affairs secretary Shaktikanta Das , who played a key role during the demonetisation drive, four months after retiring from service in May.
He says he does not agree with the criticism that implementation of demonetisation had serious shortcomings. Excerpts:
What is your assessment on the state of the economy?
The macroeconomic parameters, except the growth figures which are down in the last quarter at 5.7%, all the other numbers are within the range. Yes inflation has gone up from 2% to 3.6% and now RBI says it could go to 4.2% or perhaps 4.6% in the last quarter. Your inflation target is 4% plus minus 2%, 4.6% is very much within the range. The economy is strong and stable and there is no need for any undue alarm. However, there are certain challenges. The government is addressing those challenges.The economy is going through a churn or manthan, it is going through a process of adjustment with the new paradigm. The long term impact of all this churning is definitely positive.
How much impact did demonetisation have on growth?
The impact of demonetisation was transient. It is very difficult to estimate the impact without a deeper study. The quarter in which demonetisation happened, growth was 7%. The first quarter of this year was impacted by GST related de-stocking, therefore it is very difficult to determine how much of it is due to demonetisation and how much of the current dip in GDP is due to GST. Let us not forget these are not the only factors which are impacting GDP. There are several other factors. For instance, export incomes are under pressure because of the appreciating rupee and shrinkage of global demand. There is a complexity of factors and among those factors GST and demonetisation are two of the factors, albeit temporary.
Did demonetisation factor in the impact on growth?
It was known that it will have a temporary impact on growth and the spillover effects will not linger for too long. That was a factor which was known and the expectation was that things will gradually stabilise once the process of remonetisation is complete. The process of remonetisation got completed fairly fast, infact by end December remonetisation was near complete. The medium-term and long-term gains of demonetisation together with GST were found to outweigh the short-term pain.
There has been criticism about the implementation of demonetisation.
The secrecy aspect was very important for demonetsation The luxury of advance preparation was not available to the banks. But to the credit of the banks they rose to the occasion and remonetisation went on smoothly, except in the first three weeks when Rs 2,000 notes were mostly supplied. The moment Rs 500 notes started coming in around the first week December, the situation stabilised. I would not agree that implementation had any shortfall.
Critics say that more Rs 2,000 notes should have been printed before going ahead with demonetisation.