Ex RBI guv opines pain to last longer

Mumbai, Dec. 10: Refusing to hazard a guess on GDP growth in the short-term given the “shocks” like GST, noteban and the mountain of bad loans, former RBI governor Y.V. Reddy has said the economy requires two more years to “consolidate” and claw back to higher growth levels.

It is very difficult to make a forecast on economic growth now or say when the economy will return to the potential growth levels of say 7.5 to 8 per cent, which is unlikely in the next 24 months, he said.

“In a shock, the negative element is frontloaded. There will be some moderation, and there can be some gains. The pain is there now, the gains will come later. How much gains and in what gap are the issues,” Mr Reddy said.

“My guess is it might take a couple years to consolidate. In a couple of years, we should at least aim to go back to 7.5-8 per cent growth,” he said. “The shock element is tapering off but the positive aspect is yet to come; and I hope it will come.”

Mr Reddy said the economy was helped by a positive shock for almost three years following the massive drop in crude price, which he underlined was at a third of what it was during his governorship.

However, the negative shocks such as implementation of GST, noteban and also the high quantum of NPAs of banks have hurt the growth rate, he said.

Reckless lending in the high growth years during the previous government and certain development in the telecom, power and coal sectors following graft charges created a lot of stress and left many over-leveraged. As a result, bad loans have jumped to almost 15 per cent.