Policy of Raghuram Rajan reasoned the slowdown of the growth: NITI Ayog Vice Chairman

NITI Aayog Vice Chairman Rajiv Kumar, emphasising that there was no direct link between demonetisation and the economic slowdown, pointed a finger today at policies under Raghuram Rajan.

Under Raghuram Rajan as the chief of the Reserve Bank of Inda (RBI), non-performing assets kept rising, Mr Kumar said.

“It is a false narrative and people like the former prime minister (Manmohan Singh) and Chidambaram added to this,” Mr Kumar said to the RBI report that led to the conclusion that the notes ban of 2016 was not just a farce but hit the economy squarely in the jaw.

“If you look at the growth rate statistic, it came down not because of demonetization, but was simply the continuation of a trend. Growth rate had been falling for six quarters,” said the NITI Aayog Vice Chairman.
“I had suggested demonetisation in 2008 and I would do it anyway, to cleanse our economy,” Mr Kumar told media.

“The declining trend for the last six quarters starting 2015-16, when the growth rate was as high as 9.2 per cent, was not a result of demonetisation. The growth was declining because of the rising NPAs in the banking sector. When this (Narendra Modi) government came to office, that figure was about Rs. 4 lakh crore. It rose to Rs. 10.5 lakh crore by the middle of 2017, because under the previous RBI governor Mr (Raghuram) Rajan, they had instituted a new mechanism to identify stressed NPAs. This continuously began to rise, after which the banking sector stalled credit disbursal to the industry. In fact, in some cases like that of the Micro, Small and Medium Enterprises (MSME) industry, credit actually shrank. It was a negative growth in some years,” he said.

“My views on GDP’s decline being unrelated to solely demonetisation & having begun way before with stricter norms of NPA by RBI under Mr Rajan R fact-based & self-explanatory…,” Mr Kumar tweeted.

Following the decline in growth rate, the NITI Aayog official said, ramping up of capital expenditure was necessary to counter the decline in credit disbursal to industry players.

“Even to the large industry, the growth of credit came down to one per cent and two and a half per cent in some months, and even negative in some quarters. Never had we seen such a continuous and persistent year upon year deleveraging of credit. This is the cause of slowdown of growth.”

He said the government is compensating for this by ramping up public capital expenditure. “So it has been because of the government that you have now seen a rise in the quarterly growth rate since the second quarter of 2017-18,” he said.

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