Raghuram Rajan, not demonetisation, caused economic slowdown: NITI Aayog VC

Raghuram Rajan | PTI

Days after the country's GDP growth rate pegged a 3-year high of 8.2 per cent in the April-June quarter of 2018-19, NITI Aayog vice-chairman Rajiv Kumar has blamed former RBI governor Raghuram Rajan for the declining growth rate over the last three years.

In an interview to ANI news agency, Kumar said Rajan's policies to identify stressed NPAs led to the slowdown in the economy and not the government's decision to ban Rs 500 and Rs 1000 currency notes.

“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," Kumar told ANI.

Kumar added that there is no conclusive proof to establish a link between the economic slowdown and demonetisation.

"This (decline in growth) was just simply in continuation of a trend and not because of the shock of demonetisation as has been claimed. I think there is no evidence to prove that there was a direct link between demonetisation and slowdown in the growth rate," he added.

Speaking on the RBI's recent report on demonetisation, Kumar reiterated that demonetisation had intensified the crackdown on black money and benami transactions in the economy.

"The RBI in its report stated that Rs 13,000 had not returned to the economy. Apart from this, Rs 23,942 crore has been seized by tax authorities, which adds up to Rs 36,000 crores. Around 18 lakh suspicious accounts are being scrutinised. In total, we expect another Rs 1.5 lakh crore to return to the economy. Demonetisation has helped keep corruption in check," he noted.

Raghuram Rajan had ruffled the industry during his tenure as RBI governor for his strident bid to get the NPAs cleaned up in the bank balance sheets. However, he had recently admitted that RBI should have carried out this exercise earlier. 

—With inputs from ANI