New Delhi: While Prime Minister Narendra Modi urged 125 crore Indians to bear currency crunch for 50 days, Niti Aayog Vice-Chairman Arvind Panagariya highlighted that cash crunch would hit for at least three months.
Panagariya acknowledged that demonetisation of Rs 500 and Rs 1000 currency denomination notes has hampered the economic activity and growth primarily because of liquidity crunch in the system.
“In the short run, you have a liquidity crunch. It is going to impact economic activity and it is also happening, ” said Niti Aayog Vice-Chairman.
Speaking at an event of Asia Society, Panagariya also commented on the sluggish pace of money supply post the currency ban. He said: The problem is being gradually solved, liquidity is being put into the system back and at the pace at which we’re going, I imagine that might be maximum a quarter during which this shortage will stay.
Stating that the liquidity situation is better now than it was a fortnight ago after Prime Minister Narendra Modi announced the surprise move to scrap Rs 500 and Rs 1,000 notes, Panagariya said the last month within the quarter will see a small shortage of liquidity.
When enquired about former Prime Minister Manmohan Singh’s statement about 2 percentage decline in GDP growth, Panagariya said, “I think it’s a matter of a quarter and how much impact on the growth rate that happens in this quarter is anybody’s estimate.”
Covering up government’s move, he said the demonetisation drive has positives too, the foremost being getting a lot of money into the formal financial system. He also said increase in deposits will improve financial intermediation in the economy so it will be an exciting quarter.
He further hailed the smooth flow of vehicles due to a limited period toll waive off. However he ignored the question that IDFC Bank chief Rajiv Lal had flagged off about bank NPAs building from toll companies. He only said: What is more important, economic growth or asset quality?