Demonetisation led to a substantial slowdown in growth, says Raghuram Rajan

In an exclusive interview to NDTV, former Reserve Bank of India (RBI) Governor Raghuram Rajan stated that demonetisation led to a substantial slowdown in the economic growth of the country.

New Delhi, Jan 27: The two most controversial yet radical economic policies undertaken by the Narendra Modi government are the demonetisation and the Goods and Services Tax (GST).

Every time experts talk about the Indian economy these days, it invariably veers towards the all-important demonetisation and GST.

In an exclusive interview to NDTV, former Reserve Bank of India (RBI) Governor Raghuram Rajan stated that demonetisation led to a substantial slowdown in the economic growth of the country.

"Well we had two big headwinds right? We had first the lingering effects of the demonetisation which pushed into 2017 and then we had GST," Rajan said.

However, Rajan expressed hope that 8 per cent Gross Domestic Product (GDP) growth rate is achievable in the future.

When asked about demonetisation, Rajan said he suspect that a substantial part of the growth slowdown was because of the effects of demonetisation.

"...I would suspect that a substantial part of the growth slowdown was because of, was because of the effects (of demonetisation). Some of it was in the informal economy which weren't immediately captured, which we are seeing now, business' that have shut down because they could not survive that episode.

"Now, are there any positives? We have to wait and see. I think it did give some fillip to the payment system but that's small," Rajan told NDTV.

Rajan said the GST will have very positive effects in the coming days.

"Now, I think long-term GST will have very positive effects and I mean, there are people who say we should have prepared better, we should have delayed it. My sense is that many of the problems just come from doing it.

So if we solve those problems and go forward, that would be very beneficial. I think when people look at the growth effects, those were big effects and you know, we've been held back relative to the world economy. Most of the countries have had their growth figures updated, we have had them downgraded; and that's partly because of these headwinds," he added.

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