Note ban impact may linger: RBI’s Acharya

The impact of demonetisation on GDP may be seen in the current quarter in some segments, while the remonetisation exercise should be completed in 2—3 months, RBI Deputy Governor Viral V. Acharya said on Monday.

Asked if the spillover effect of the note ban could extend to the January—March quarter, Mr. Acharya said the impact could be felt in some segments.

“Ultimately, the cash shortage is like a 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 2—wheeler sales, where there is slightly slower rebound,” he said.

When asked about the GDP estimate, he said, “you can see our MPC resolution which is that our estimate was actually reasonably close to that (of the CSO 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 note ban would only be temporary and would help in bringing the informal sector into the mainstream economy.

“I think everyone should keep in mind that the remonetisation is taking place at a very fast pace,” Mr. Acharya said.

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