Note ban impact on GDP may be seen this quarter: RBI

The impact of demonetisation on gross domestic product may be seen in the current quarter in some segments, while the remonetisation exercise should be completed in two-three months, Reserve Bank of India Deputy Governor Viral V Acharya said on Monday.

Asked if a spillover of notes ban could extend to January-March quarter, Acharya said the impact could be felt in some segments.

“Ultimately, the cash shortage is like the liquidity shock and unless it had led to a substantial wealth destruction one would expect its effects to be quite temporary. I’m not saying that the temporary impact is not hard on some parts of the economy, you would expect the effect to be temporary,” he said.

“There may be a couple of sectors, like two-wheeler sales, where there is slightly slower rebound,” he said.

When asked about the GDP estimate, he said, “You can see our marginal propensity to consume resolution which is that our estimate was actually reasonably close to that (of Central Statistics Office estimate).”

“Of course, the drivers may have been slightly different, but I think there are a couple of things that people have raised which would be interesting and worth thinking about, which is how much of the informal sector gets fully captured other than through its links to the formal sector,” he said.

He further said that the impact of the notes ban would only be temporary and would help in bringing informal sector into the mainstream economy.

“I think everyone should keep in mind that the remonetisation is taking place at a very fast pace. We have some way to go, but I think we expect that within two to three months we will reach full currency in circulation. It will be slightly lower, but it is in that ballpark (number),” he said.

The demonetisation of high value currency notes of Rs 500 and Rs 1,000 announced on November 8 led to scrapping of Rs 15.4 lakh crore from the system.

The newly appointed deputy governor also said that asset quality review (AQR) is on the track.

The RBI had set a deadline of March 2017 for completion of AQR exercise for the public sector banks.

It had embarked on the AQR exercise from December 2015 and asked banks to recognise some top defaulting accounts as NPAs. It has had a debilitating impact on banks’ numbers and their stocks.

The move resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.