Dr. Patel, who took over the reins of the RBI just two months before the demonetisation, said everyone agrees that not just the RBI, but the wider banking system has done a ‘Herculean job’

Unfazed by criticism of the way the note ban was handled, RBI Governor Urjit Patel on Friday said the central bank has grown a thick skin fast doing its job and stressed that the economy will make a “sharp V” recovery after a short drop.

Dr. Patel, who took over the reins of the RBI just two months before the note ban, said the remonetisation has been done at a “very quick” pace and the central bank has managed to bring the situation to normal.

“I think that it is important that one grows a thick skin fast in this business and I think we have done that. We have gone about our work, we had undertaken major challenges during these past few months and valid criticism is something that we are open to and we take it in the spirit in which it is given and try to improve ourselves,” he told CNBC–TV18 in an interview.

He said everyone agrees that not just the RBI, but the wider banking system has done a “Herculean job” over the last few months when there were many challenges.

A sharp ‘V’

On the impact of demonetisation on the economy, Dr. Patel said: “Almost everyone agrees that the impact is going to be a sharp ‘V’, that we would have a downgrade of growth for a short period of time.”

The RBI Governor added: “However, the remonetisation has happened at a fast pace and that was part of the plan that subsequent to the withdrawal of the specified bank notes our production plans and supply processes would ensure the remonetisation happened as quickly as possible, which given our capacity in terms of printing currency notes is at a high level.”

RBI last week lowered its economic growth forecast for the current fiscal to 6.9% from the previously projected 7.1%, but saw it bouncing back in a big way to 7.4% in 2017-18.

Demonetisation gains

Dr. Patel said the benefits of junking 86% of currency in circulation, effected on November 9 last year, will take time to fully play out and needs more work to ensure they are lasting.

Asked when India could achieve 9% GDP growth, Dr. Patel said it is difficult to predict sustainable growth rates.

Higher growth rate is possible if very fundamental reforms, especially in factors of production like land and labour, are undertaken, the Governor said.

“Now, how much higher than the 7.5 % that we are achieving so far is difficult to say. But the fact is we did grow at some point, faster than where we are now, but it could very well be that that was unsustainable and this is sustainable.

So, 7.5% growth rate is not something to be disappointed [about],” he said.

The 6-member monetary policy committee (MPC) headed by Dr. Patel had last week kept interest rates unchanged at 6.25% for the second straight meeting and took its policy stance to ‘neutral’ from ‘accommodative’.

More flexibility

The change in stance, he said, gives more flexibility to cut, raise or hold rates as compared with an accommodative one on inflation outlook.

“The best way that a central bank can support growth on a durable basis is to ensure inflation is low, stable, there is financial stability and that is the role that the central bank plays. Very few countries grow at high rate, if inflation is high and volatile. I think, in a way, we are doing our bit to support a higher growth rate, but on a durable basis,” he said.

The RBI Governor also expressed concern over the U.S. moving towards protectionism under U.S. President Donald Trump.

“I think it is a cause for concern for the world. I think it is a cause for concern for emerging markets and in terms of creating financial volatility.

I do not think anyone will be safeguarded from it and we have to manage this as it plays out.

‘Under our control’

“There are some things that are under our control and that is to ensure that we ourselves follow sound macroeconomic stability rules,” he said.

On protectionism under the Trump administration, he felt that India has sustained opening up of its economy since the 1990s.

“I don’t think that we should change our stance in any way because we do benefit from an open trade regime. I think India’s policy that the openness of trade should be carried through a multilateral process is the right one,” the RBI chief maintained.