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Critics will exist, says Jaitley on note ban, GST impact

JT 4

Mumbai : Finance Minister Arun Jaitley appeared to address former Reserve Bank of India governor Raghuram Rajan’s recent comment that the Indian economy was slowing down by saying that India has made some “monumental economic changes” over the last four years and that “you will always have critics who will come up and say it has slowed down India’s growth”. Jaitley, who did not mention Rajan in his address, admitted that steps such as demonetisation and the Goods and Services Tax (GST) slowed down growth for two quarters but described that as a “response to any monumental reform”.

“For two quarters, growth got impacted, and after two quarters, we again resumed 7%, 7.7% and 8.2% growth respectively,” Jaitely said, comparing it with 5%+ and 6%+ which existed between 2012 and 2014.


Jaitley said that India for the fifth year is the fastest-growing major economy in the world. “In a phase where we are passing through high oil prices, where India naturally gets impacted as a net buyer of oil; the strengthening of the dollar impacting almost every other currency in the world; and in a phase where there is periodic slowdown in the world; to retain a pivotal position as the fastest-growing economy is in fact an achievement,” the finance minister said through video conference at an event to celebrate 100 years of the Union Bank of India.

Rajan said last Friday that the November 2016 move to ban high-value currency notes and the rollout of GST the following year dealt “really, really hard blows” to India’s economy at a time when global growth was “peaking up”. His comments came a day after the second anniversary of the demonetisation decision, which has become an issue for the Opposition to renew criticism of the government.

Rajan demitted office on September 3 in 2016, about two months before the government’s currency ban announcement.

Jaitley contended that between 2008 and 2014, there was an attempt to artificially bring up growth by excess lending into projects that were not capable of delivering results. “I have repeatedly said, during 2008 to 2014, indiscriminate lending took place. Particularly post-2008, after the Lehman crisis, globe growth slowed down.

Growth in India also indicated to be slowed down. In that system, one of the principal challenges we have ahead of us was how to restore the health of the public sector banks and how to increase their lending ability.”

He said that India saw a stage where it experimented with various schemes for restructuring. “Post-2012, when NPAs in the banking system started showing up, a number of them were corrupt and concealed. But they couldn’t be indefinitely concealed. None of the schemes was showing results because a number of investments were made in projects that were not viable,” he said, adding that it was a fatal mistake to conceal NPAs.

Jaitley credited the National Democratic Alliance (NDA) government for “cleaning up” the NPA mess.

“After the asset quality review done by the Reserve Bank in consultation with the government of India, the real health of the banks was honestly made public. Then started a series of steps that were taken in order to make sure that the recovery starts. That banks discipline themselves. Therefore, we are able to restore the health of the bank. The most significant step has been the Insolvency and Bankruptcy Code. Coupled with this we have also amended the securitization law in order to remove the rough edges. We have amended the laws relating to DRT [debt recovery tribunals] in order to make sure that the recovery process becomes faster,” Jaitley said, describing banking as the backbone of the economy.

Tirthankar Patnaik, chief strategist and head of research, India, Mizuho Bank, said: “Post-demonetisation and post-GST implementation there was a slowdown in growth. Just to be clear, growth rate had started easing well before the announcement of demonetisation already. Demonetisation was announced in the third quarter of FY17 fiscal. Whereas growth had started slowing down right after the first quarter after the asset quality review announcement by RBI. Bank credit had started slowing down.

In FY18 growth slowed down after implementation, post which growth starting coming back up. A large part of it was base effect.”