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Last Updated : Jan 11, 2017 08:06 AM IST | Source: CNBC-TV18

RBI's autonomy a fundamental fact & we have to maintain it:Jalan

Speaking to CNBC-TV18 Former RBI Governor Bimal Jalan said that while everybody concedes that the growth rate will go down, the magnitude of the fall varies.


Speaking to CNBC-TV18 Former RBI Governor Bimal Jalan said that while everybody concedes that the growth rate will go down, the magnitude of the fall varies. He said that the GDP estimate of 7.1 percent against 7.6 percent was expected. "This wasn’t too difficult to guess, he said, referring to the impact of demonetiastion.


Investments are low and consumer demand is down now. Over a period of time 2 or 3 months, the rate of growth will pick up, he said, but stressed that it will be lower than last year’s figure.


He also spoke about black money saying the drive to wipe it out of the system will will lead to gains and ultimately also to administrative benefits.

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Exports will receive a boost now, he said. He referred to Brexit and the new US president-elect as having an impact on global inter-relations. “We are looking at a global economy which is not as buoyant or balanced as it was a few months ago.”


In an interview to the channel Former RBI governor YV Reddy had said that the institutional identity of the RBI has been damaged. Commenting on it, Jalan said he has great respect for Dr Reddy. “What he has said has to be taken into account.” The RBI is part of the economic system. There is a consultative process. The autonomy of the RBI is a fundamental fact and the government will give attention to that part also, he said.

Below is the verbatim transcript of Bimal Jalan's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Latha: Let me start with the growth issue, the CSO says growth has slowed down by half a percentage point from last year's 7.6 percent this year even without it counting the impact of demonetisation. Does the growth picture worry you?

A: The 7.6 to 7.1 -- you are right. That is the RBI estimate also and that is based on six months and there is last year's base and this was expected. This wasn’t too difficult to guess in terms of the total investment activity in the economy and so on that you have also talked about. So that is not a surprise. This is before demonetisation. So after demonetisation, everybody accepts that the growth rate would go down further but the magnitude of that fall varies and varies substantially from about 0.5 percent to as high as 2 percent. So that we cannot -- at the moment -- forecast and it is good that CSO take it into account later on, after seeing what the movement is for the next three months or four months then we would know. So for the time being, I would say that 16-17 rate of growth is a presumption as it were and let us wait and see how it develops.

Sonia: You are a veteran watcher of the economy and you are privy to a lot of key people's thoughts, what is your best guess? Do you expect demonetisation will make a big dent on this year's growth and even next year's perhaps?

A: I don’t want to forecast. It is very difficult to go through the percentage points or something that is 0.4 or 0.7 or 0.8 but everybody agrees that there would be a decline in the rate of growth, how far it is due to demonetisation and how far it is the trend from 7.6 to 7.1, you have seen last year itself. This is the forecast based on the estimates at that time. Let us wait and see that is the best thing rather than forecasting at the moment.

Anuj: What is your view on that demonetisation itself, how much is the short-term pain and is there any long-term gain at all?

A: So far as longer-term gain is concerned, there is no doubt. In the sense that given what is happening in our economy at the moment, the investment is low, consumer demand is low and so on and so forth. So over a period of time -- give it two-three months -- I expect that the rate of growth would certainly pick up but by how much, I cannot say just now. It will be probably lower than last year but how substantive it would be, I am not in a position to guess just now.

Latha: If you had been asked about this step, would you have advised the government to take such a big demonetisation step?

A: I cannot say that. I don’t want to make a hypothetical point about whether I should have or I would not have, let me leave it at that. It is a decision and whether a decision is right or wrong that can only be proved over a period of time. If the black money reduces, if the corruption reduces, certainly it is a worthwhile step although it has pained -- what you might say -- the not so well-of classes more.

But let us hope that it works and the desire to hold black money, by rich people and so on, reduces. If that reduces, that would be a major gain. If that leads to further administrative reforms, that will be a major gain. So let us wait and watch. The demonetisation period is over and let us see what the impact will be in the next two-three months in terms of supply of investments and demand for consumption and so on by the normal middle classes, lower middle classes and in terms of transfer of resources from the public sector for infrastructure, subsidies and so on for the poor and let us see how it goes.

Sonia: You were quoted as saying that demonetisation has dealt a big blow to the status of the rupee in global markets. Hence my question on what you think of this step?

A: At the moment, it is difficult to say because exports would receive a boost and if you look at the global economy, the main issue at the moment is the global economy. If there is Brexit, there is impact of that. Then you have a new President in the US, that has an impact on the global inter-relationships among different states. Then you have the European Union, there also the growth rate has fallen. So, we are looking at a situation in Japan, China, so we are looking at a global economy, which is not as buoyant or as balanced as it was a few months ago. So I think the best thing you can do is to wait and watch and as far as India is concerned, the fact that you now have better export opportunities, you also need demand on the other side. So let us see how it goes.

Latha: Over the weekend, I spoke with Dr YV Reddy after he published is autobiography and he said he is terribly worried that the institutional identity of the RBI has been damaged and he says that is caused by many things, elevating monetary policy over other functions of the Central Bank, treating the Central Bank as just another regulator, the manner of selection of deputy governors, so would you share Dr Reddy's concern about the status of the RBI?

A: I don’t want to comment on the RBI per se at the moment. I have great respect for Dr Reddy. Now let us wait and see how the relationship between the government and the RBI develops and ultimately it is a matter of coordination, it is a matter of consultative approach and it is too early to be able to say how it will grow in the trumps of autonomy of the RBI and autonomy is not what you call independence. RBI is a part of the economic system and there is always consultative process in between the RBI and the government, but it is a process and when you talk about monetary policy -- the autonomy of the RBI is that you can take very hard decisions.

In the crisis time, we are able to take very hard decisions but it was with the concurrence of the government as it were because everybody had to tackle the problem. So there maybe differences but when there is an economy in trouble or if something requires to be done, I am absolutely sure that there will be no differences between the government side and the RBI side. The other issue which is about the autonomy of the RBI -- that is a very fundamental fact and we have to maintain it and I hope the government would give attention to that part also.



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First Published on Jan 10, 2017 10:45 am
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