RBI Governor seeks to delink GDP slowdown from demonetisation

Mumbai, June 7 (IANS) Reserve Bank of India (RBI) Governor Urjit Patel on Wednesday sought to delink the slowdown in GDP growth in 2016-17 from demonetisation, saying that the deceleration was visible from the very first quarter of the financial year.

“The new data released by Central Statistics Office (CSO) needs to be analysed carefully before reaching strong conclusions with certitude. It includes new data series of Index of Industrial Production (IIP) and Wholesale Price Index (WPI).

“In that sense, it presents a much better picture of the economy,” Patel told media persons in a briefing after the Monetary Policy Committee kept the repo rate unchanged.

“That data shows slowdown was there in Q1 well ahead of demonetisation. Agriculture and mining, which are highly cash intensive, were not affected by demonetisation. Rural wage growth remain elevated. Manufacturing, transport, communication has been resilient in second half of 2016-17.”

Patel said that construction sector was impacted by demonetisation, but that was predictable because of the said role of black money in the sector.

“Construction was impacted, but it was predictable since the attack was on black money, given the circumstances in which the sector operates.”

“The private consumption in fact accelerated in Q3 and remained resilient in Q4,” he added.

He said that the slowdown in GDP was majorly because of deceleration in capital formation. “Slowdown in GDP was majorly due to deceleration in capital formation in Q1, Q2, Q3 and contraction in Q4. It is difficult to segregate these factors.”

RBI Deputy Governor B.P. Kanungo said that there was no shortage of cash now, as 82.6 per cent of economy had been remonetised.

“The data of remonetisation is in public domain…82.6 per cent of the economy has been remonetised, which is a large number. So, it’s not true to say that there is a shortage,” Kanungo said at the briefing.

There could be shortage in some pockets for a day or two, “but that is addressed immediately”, he added.