RBI’s independent director S Gurumurthy, who was delivering a lecture on ‘State of the Economy: India and the World’ at the Vivekananda International Foundation (VIF), said that demonetisation was a corrective measure and the GST was a reformative one.
Gurumurthy who was appointed to the board of RBI governors few month ago, said that 18 months prior to demonetisation, 500 rupees, 1,000 rupees (notes) rose to 4.8 lakh crore that is what funded the real estate and gold prices and we would have gone the same way, (as what happened in) 2008 in the US due to sub-prime lending. The economy would have collapsed but for demonetisation.
He said that people of this nation should be congratulated because they stood in the queues to collect the new notes. They put faith in the government while the media and the economists were finding faults. He said that fault-finding is the job of opposition and experts and media should not do that. He expressed disappointment that there is no economic discourse in the country and not political discourse is there.
Gurumurthy also said that India is not a market-driven economy like the US where the stock market is the prime mover, while the banking industry is a subordinate player. He said that in the US, 75% of the money comes from the stock market while in India only 3% of the savings go into the stock market. But our policymaking is based on the US model. “So in a bank-driven economy, if you restrict the banks, you are restricting the economy. You are restricting the flow of funds into the economy,” he said.
He criticised the government’s decision of giving up the right to print money in 2002. The only way in which Indian Rupee gets generated is when the RBI acquires dollar coming into India, it prints the Indian rupee in exchange for the dollar and gives it to banks.
He said that demonetisation and the GST hit the small and the medium enterprises the most. “We need proper discourse in Delhi because that’s where the action is”. Gurumurthy said the country has been following an “utterly wrong import policy” of having capital goods import exceeding oil imports. “We need to go in for heavy import restrictions. We have got to cut down the current account deficit and trade deficit in the next one year,” he said.
Commenting on the stand-off between the RBI and the government, Gurumurthy said that it is not a happy thing at all. He indicated that differences could be a result of considering only the American system as the perfect ecosystem.
“But I think an alternative is necessary and exists also. That is part of an overall correction of the Indian mind,” he said.