After Rift, Urjit Patel Defends Modi Govt on Demonetisation in Front of Parliamentary Panel

New Delhi: RBI Governor Urjit Patel on Tuesday defended the Narendra Modi government’s demonetisation exercise before a parliamentary panel and argued that its effects were transient.

Patel was quizzed by the panel led by senior Congress leader Veerappa Moily and which includes former Prime Minister and economist Manmohan Singh.

Expressing cheer on low crude oil prices he said, “Low prices will be better for the economy.” The RBI chief on most other questions will be providing written answers within ten days.

The panel had sought his response on the central bank’s recent rift with the government over mainly two topics, that is, if governance reforms are long due at RBI and if the central bank is so over-capitalised that it needs to part reserves with the government.

If so, it wanted to ask how to decide on the quantum of this surplus, and if a new and less stringent method of calculation is required.

Manmohan Singh had recently said that the relations between the finance ministry and the RBI had hit a low. He has also been a strong and vocal critic of demonetisation.

The RBI had, in its annual report, said that demonetised currency amounting to Rs 15.3 lakh crore had returned to banks, which was over 99 per cent of the notes junked by the move.

The 31-member Parliamentary Standing Committee on Finance will also take up various other issues apart from the stand-off with the government on issues like NPA status of the banks, if the surge of NPAs could be arrested following IBC resolutions and PCA restrictions aimed at checking the bad asset quality, and the state of the Indian economy in general.

The RBI governor is expected to brief the panel on the state of the economy vis-à-vis growth numbers, inflation forecast and its current range.

He will also talk about reforms in the central bank governance that have given government and external and independent directors a greater voice on the board, PCA banks corrective measures and the results thereof, the global norms on central bank reserves sharing and, of course demonetisation, one of the panel members said.

The committee has been deliberating on the demonetisation issue for almost two years after its announcement on November 8, 2016.