Dr Bimal Jalan is a renowned economist who served as Governor of the Reserve Bank of India between 1997 and 2003. He previously held several positions in government, including those of Finance Secretary and Chairman of the Economic Advisory Council to the Prime Minister. Mr Jalan was a nominated Member of Parliament from 2003 to 2009. During his tenure as RBI Governor, he successfully managed the impact of the East Asian crisis and strengthened the country's balance of payments position. Dr Jalan has written several books, including India's Economic Crisis ~ the way ahead, and India Politics ~ A view from the Backbench, among others. He is associated with a number of prestigious institutions like Indian Statistical Institute, Kolkata. He also has a penchant for Indian classical music and loves vocal music in particular. In an interview to Prashant Mukherjee, Dr Jalan shared his insights on the economy and the way ahead. Excerpts:

Q. Is there any change in your viewpoint on demonetisation after the Narendra Modi-led BJP government achieved a landslide victory in the recent elections?

A: When demonetisation was introduced in November last year, it caused significant inconvenience, particularly to sections of the people who did not have credit cards or other means to make monetary transactions. After the initial period of two months, the impact of demonetisation has been much more favourable and the economic situation has become more or less normal. During the initial period of demonetisation, various estimates about GDP growth varied between 1 to 2 per cent of reduction. Now, the projected estimate of GDP is close to 7 per cent, which is consistent with pre-demonetisation estimates. The huge ‘stock’ of black money has been substantially reduced. As far as the ‘flow’ of black money is concerned, at present there are no clear signs that it will effectively become much lower than was the case earlier.

Q. Do you think, once the next quarter numbers come in, the CSO numbers will be changed and the actual impact of demonetisation can be witnessed?

A: Over time, as you know, the CSO estimates change when more data becomes available. At present, it is difficult to say what the actual change in CSO numbers will be, say, after three months.

Q. A lot of criticism has been faced by a reputed institution like the RBI. Its credibility and autonomy were under the scanner. And with the recent development of several banks imposing arbitrary charges on transactions it has been alleged that the RBI is working against the interest of people and has become the mouthpiece of government and banks. Your take?

A: I do not think so. An important point to remember is that all central banks across the globe have to take into account two factors when they make monetary decisions. One is the overall economic situation, and the second important issue is that monetary decisions over time need to be taken in consultation with government which is in charge of fiscal, as well as overall economic policies. As far as charges imposed by banks are concerned, the RBI has already initiated action to ensure that citizens of the country do not face significant inconvenience. Banks are working out a feasible model on the basis of cost of funds and their cash requirement to meet credit demand as well as reduce the size of their NPAs.

Q. How do you see the crisis of huge non-performing assets of banks being tackled? Is the 'bad bank' suggested by the chief economic advisor a solution or does ARC continue to be the preferred route?

A: A host of measures have already been initiated to reduce the size of NPAs. Banks have become more strict in their lending norms. Overall, a positive situation is that inflation at present is low. However, aggregate demand for credit has also been affected because investment has been relatively low, and global conditions are unfavourable. A positive development is the result of the UP elections, which has generated confidence that the present government will be in office for its full term. The investors, as well as banks, can now take a long-term view and hopefully credit growth would pick up with decline in NPAs.

Q. We haven't seen much of a reduction in interest rate by RBI being passed on to existing home loan consumers by banks. How do you view this situation?

A: One has to wait and see. The handling of overall financial system, with stability, is a difficult issue. In the present case, for example, with high NPAs, it has not been feasible to reduce the base rate by banks, but over time this situation should certainly improve.

Q. Only 1.5 lakh jobs have been created in 2016, whereas two crore labour force is added every year. Are we heading towards jobless growth?

A: No, not at all. The government is putting a lot of emphasis on creation of jobs and skill development. It is also trying to provide access to banking and finance through use of technology. Over time, hopefully manufacturing sector growth would also pick up. This will help in creating higher employment.

Q. At a time when the country is not prepared for digital or cashless economy, do you think this concept is feasible?

A: The process of a relatively less cash and higher digital economy will take some time. Over time, it will be of great benefit to the people in general. We can already notice some improvement in the size of the digital economy.

Q: Despite the Supreme Court order, the government has almost made Aadhaar mandatory for every purpose. How do you view this move?

A: The number of Aadhaar cards already covers a vast percentage of our total population. Over time, the expansion of Aadhaar cards is likely to be just as large as the availability of mobile phones all over the country. To increase better access to all public services and programmes, use of Aadhaar cards is likely to become as extensive as is the case with mobile phones today.

Q. What are your projections of growth rate?

A: There is not much doubt that the economy is likely to grow close to 7 per cent or more during the next fiscal. Most of the factors which contribute to growth, including availability of investments and credit, should not be a problem for achieving this rate of growth next year and an even higher rate over time.