The ‘by-products’ of demonetisation could turn out to be more ‘valuable’ than the main purpose behind the move, former RBI Deputy Governor SS Mundra said.

The key ‘by-products’ of demonetisation include digitisation, better tax compliance and bringing in more resources into the formal economy, Mundra told newspersons on the sidelines of the annual general meeting of The Bengal Chamber of Commerce and Industry here on Tuesday.

Drawing a comparison between demonetisation and the manufacturing sector, Mundra said, “In case of certain manufacturing industry we see that the by-products are more valuable than the main products. This can be compared to demonetisation.” Elaborating his point further, he said, while it was expected that a good portion of money might not come back into the banking system post demonetisation, that did not happen.

“But what is more significant is that the money has come back into the formal system,” he said.

The RBI had, in its annual report 2016-17, released on August 30, said that nearly 99 per cent of the currency scrapped during demonetisation in November last year have returned to the banking system.

Asset quality

According to Mundra, the Indian economy is currently growing below its potential and closing the negative gap should be a priority.

Talking about a model for growth, he said, “We would do well to aspire for a growth model which predominantly focuses on domestic manufacturing and global service delivery, which would be much more sustainable.”

The asset quality problems can be ascribed primarily to four factors including environmental factors, corporate imprudence, corporate misdemeanors and banks’ failings, he said.

Nearly 50 per cent of the restructured advances have slipped into the NPA category signifying that such restructuring had not been realistic or underlying causes of stress have either persisted or aggravated, he pointed out.

Agricultural credit, like overall bank credit, has been largely concentrated in the southern and northern regions. In 2012, the two regions together accounted for about 62 per cent, with southern region alone accounting for 41 per cent of total agri credit. “A major share of the agri credit is incremental in nature. They are not game changers. Indian agriculture is at a stage where incremental growth in credit will not help,” he said.

The share of long-term credit in total agricultural credit has experienced a secular decline reaching 32 per cent in 2013-14 from 74 per cent in 1990-91 suggesting a neglect of capital formation in agriculture, he added.

Speaking at the AGM, Amit Mitra, State Finance, Commerce and Industry Minister, said, exports from West Bengal grew to ₹63,000 crore in 2014-15, from ₹30,000 crore in 2010-11.

On agri lending in the State, he said nearly 16.34 lakh kisan credit cards were issued in 2016-17. “The target is to increase this to 45 lakh KCCs this year,” he said. The average lending against the card will also be increased to ₹1 lakh from the current ₹36,000, he added.