RBI's admirable role saved rupee from becoming unstable: NITI

New York (USA): The RBI played an “admirable role” in bringing “incredible” stability to the rupee in the face of demonetisation and global upheavals like Brexit and the US elections, NITI Aayog Vice Chairman Arvind Panagariya has said.

“Those who have been critical of demonetisation don’t understand what a gigantic task it was to remonetise the economy,” Panagariya said at a lecture on ‘Economic Policy and Performance in India Under Prime Minister (Narendra) Modi’ hosted by the Deepak and Neera Raj Center on Indian Economic Policies at Columbia University.

Noting that the rupee had witnessed a massive devaluation in 2013, Panagariya said that a “much bigger shock” was administered in November last year both due to demonetisation and “more importantly” due to the events in the US which led to capital leaving virtually all emerging markets.

He credited the Reserve Bank of India (RBI) for playing a significant role in ensuring that the rupee remained stable in the wake of not just demonetisation but also global phenomena like Brexit and the US Presidential elections.

“But the rupee remained incredibly stable and the credit for it goes to the Reserve Bank of India (RBI). You only heard about the demonetisation story during this period but nobody noticed this fact that the RBI played an admirable role in ensuring that the rupee did not become incredibly unstable. The RBI had a great role to play in that,” he said.

He said exchange rate stability has been “achieved” despite the “massive pressures” in the wake of Brexit as well as US president Donald Trump’s election victory.

Panagariya said the country’s current rate of growth is at about 7 per cent plus which is “going to shift up” in the years to come.

On the Goods and Services Tax, he said it was a major accomplishment of the government and will be put in place “very soon very likely July 1.”

“After a decade-long pause, the government is now back to reforms,” he said, adding that no serious policy mistakes such as retrospective taxation have been made by the present government.

He said that while “occasional mistakes” have been made, the Modi government is “very responsive” and if mistakes are pointed out, it does work to reverse what it did.

“So no mistake actually ultimately happens. There is a lag between policy measures and response but with reforms accumulating, growth will accelerate and sustained in the forthcoming years,” he added.

Panagariya said that demonetisation is being followed up by measures like digitisation of the transactions. He further said that few people criticising the demonetisation policy had said that only six per cent of the money was black money.

“I don’t think six per cent could have generated so much of the transactions that went on in the major cities of India where old currency was being traded on a massive scale at a huge discount.

“I do think that a much larger part of the currency was actually black money. If it was all white then what was the need for the massive transactions that happened where old currency was exchanged at a discount,” he said.

He said Modi had sent the signal very strongly “that don’t take this for granted. Demonetisation sends a very very strong signal that the days when the Central Government was complacent are over. If you misbehave, it will be seen that you pay for it,” he said here yesterday.

He stressed that the government’s policy was to combat black money and demonetisation “had to be the part of the overall strategy.”

“This was not a decision taken in isolation,” he said at the lecture at the varsity’s School of International and Public Affairs, adding that “fighting corruption was a major commitment of the Prime Minister.”