Exclusive Interview With Urjit Patel On Indian Economy After Trump And Demonetisation
RBI Governor Urjit Patel speaks to BloombergQuint’s Sanjay Pugalia on the impact of demonetisation and the Trump victory.
The 18th floor office of the governor of the Reserve Bank of India (RBI) in Mumbai has changed in the last two months. It’s much quieter. There are no armed security guards outside the governor’s office and the office staff is not allowed to hold open the door for the governor when he walks in. Urjit Patel does it himself.
Since he took over as governor of RBI, Patel has had to manage two unprecedented events. One global. The election of Donald Trump as U.S. President. The second local. The demonetisation of Rs 500 and Rs 1,000 currency notes in India. With the monetary policy announcement a few days away (December 7) Patel preferred to
share the analysis of the economic impact of demonetisation then. In an interview to Quintillion Media’s editorial director Sanjay Pugalia, he spoke about the election of Donald Trump, which he believes will have a far reaching impact on the global economy and he listed steps the RBI is taking to aid citizens short of currency.
While the demonetisation debate is on, one issue that hasn’t been discussed much is the election of Donald Trump as the President of the United States. What is your view on the economic impact of this?
The outcome of the U.S. presidential poll is significant in several ways given the pronouncement during the poll campaign. Two things are clear – the U.S. will be less open to trade in goods, services and outsourcing. Indeed, Mr. Trump has indicated that he is against the TPP (Trans-Pacific Partnership treaty).
Second, the U.S. federal government is likely to expand its fiscal deficit to fund infrastructure etc. Both these things will play out in the backdrop of monetary policy tightening currently going on. The yield on the U.S. 10-year bond has increased by about 50 basis points since November 8. The overall impact of this is that the U.S. dollar is at its strongest level in the last 13 years and it has appreciated against the currencies of both emerging markets and most developed economies. Emerging markets have also witnessed a global risk off as portfolios get balanced in favour of the U.S., their home country.
How is this going to impact India?
India is relatively well positioned to handle the global shock. Our current account deficit continues to be modest. India continues to be a good long-term growth story, and therefore an attractive FDI (foreign direct investment) destination. While the rupee is market determined, we have the means to mitigate any undue volatility.
But now India faces another unexpected scenario post demonetisation. Many stakeholders and economists have said India’s GDP (gross domestic product) will take a significant hit. What according to you is the impact on our economy?
This is a pertinent question. We are analysing the impact internally and we will comment on this in next week’s monetary policy – on both the short-term and long-term implications.
This has caused huge disruption as people are still facing a lot of hardship in accessing their own cash. When do you think we will get back to a more normal situation?
When RBI interacts with banks, they indicate that at least the situation in metros and other big cities is stabilising and we are all working on reducing the inconvenience to everyone in other parts of the country.
Many see the RBI’s action of a cash reserve ratio (CRR) hike (to suck out liquidity) as punishing banks for no fault of theirs. Why such hasty actions?
This is a very temporary measure. We have already indicated to banks that the RBI is going to be lenient with banks. In the initial days of the incremental CRR hike; banks will not be penalised if they fall short in complying for a couple of days. Once the government is ready with market stabilisation scheme bonds, the RBI will immediately review the situation.
How is the effort to make India a predominantly cashless society playing out?
In such a transitional stage in a country like India, there are opportunities also to speed up digitalisation, use of debit cards, E-wallets etc quickly. Otherwise things take time. RBI and banks have played their role to catalyse this process by fee waivers and other steps.