Niti Aayog Vice-Chairman Rajiv Kumar has delivered an almost unprecedented defence of demonetisation and has put forth an alternate line of argument about India's growth story under Modi government, rubbishing tion that te-ban caused a slowdown and inste ascribing it to manner in which NPAs have 'grown' in last few years.

Answering questions concerning two big reveals regarding India's ecomy from last week -- that 99.3% of total value of invalidated Rs 500 and Rs 1000 tes at time of demonetisation (vember 8, 2016) have me ir way back to RBI, and that India's GDP is estimated to have grown at 8.2% in Q1 2018-19 -- Rajiv Kumar challenged views of a number of opposition parties, particularly those of Congress party which has called Demonetisation a failure, and via former Finance Minister P Chidambaram, delivered a lower projection for GDP growth in coming quarters crediting recent high number to a low-base effect.

ON DEMONETISATION BEING A 'FAILURE' BECAUSE OF 99.3% FIGURE

In response to 99.3% demonetised cash making its way back to Central Bank, Kumar said that "RBI's report doesn't say demonetisation didn't have an effect on black ecomy and cash transactions. It only says that Rs 13,000 crore didn't come back." 

In consonance with what Finance Minister Arun Jaitley h said earlier about cash deposited in banks leing to anymity of depositor disappearing, Kumar went on to make a strong statement regarding demonetisation's efficacy in terms of a black money crackdown:

"Ar important statistic is that till w, Rs. 23,942 crore have been seized by tax authorities. ding two, it's nearly Rs. 40,000 crore. Apart from se, over 18 lakh accounts have been me suspicious accounts and Rs 3.5-4 lakh accounts are being probed using data analytics. As per this, Rs. 9.4 lakh crores are such that if probe is held, more money will come. At least re are Rs 1.5 lakh crores that will return because of Demonetisation."

chief of body that succeeded India's Planning Commission also elaborated on or benefits of demonetisation:

"Because of Demonetisation, culture of cheating and being flagrant has come to and end. Probity, integrity and honesty have been given a fillip and that's why common public has supported -- that those who earn money legitimately will be able to brea easy and those who don't will face difficulty."

He remarked on increase in tax compliance that demonetisation h effected, something that Jaitley h called larger goal of move, while writing about it in his blog post:

"This (demonetisation's effect) is why our Income Tax returns have increased so much from 3.5 crore to almost 7 crore. People attributing growth to Pay Commission are wrong. Tax returns hn't grown with Sixth Pay Commission. Demonetisation has caused a positive effect and in our ecomy, a morality has returned, and also, those who don't abide by this won't be able to rest easy as y'd always be scared that ir money would be caught."

'THOSE WHO TALK AGAINST DEMONETISATION HAVE BEEN DIRECTLY HIT'

Rajiv Kumar also took on specific claim me by P Chidambaram that cash in ecomy h actually increased by 1.4%, and went on to make a charge against demonetisation's critics:

"As about cash, I heard that Chidambaram said cash in ecomy has increased by 1.4%. This was obviously going to happen. But what he didn't say is that our ecomy, in those two years, has grown by more 14-15% in minal terms. So when ecomy grows, cash will grow. What must be seen is Cash-GDP ratio, which has decreased by 1.5%. It's w around 10.8%, and it'll continue to decrease because of digital transactions. This is demonetisation's effect. I believe those who talk against demonetisation are those who have been directly hit because of it and who don't want that honesty comes to our ecomic systems."

'SLOWDOWN BECAUSE OF NPA-RELATED TREND, T DEMONETISATION'

Coming to charge that demonetisation caused a slowdown in India's GDP growth, something that hn't been challenged up till this time -- merely called 'transient' -- Rajiv Kumar said that growth was slowing down anyway, because of NPAs increasing and resulting crackdown:

"If you look at six quarters before demonetisation, growth was slowing. It was a trend. This trend happened because at that time, NPAs increased from Rs 4.5 lakh crore to Rs 10 lakh crore -- se were brought before us -- and a crackdown was initiated, and banks' ability to give credit came down. Credit being given to Large and Medium industries came down fast. Hence, growth came down t because of demonetisation, but because of b situation of banks. To say that it was because of demonetisation is completely wrong."

CHALLENGING CHIDAMBARAM'S 'LOW BASE' EXPLANATION

While he would speak about this in greater detail later, naming former RBI Goverr Raghuram Rajan, Kumar first returned to Chidambaram's 'low base' explanation:

"I disagree with Chidambaram's base effect. Chidambaram kws that 5.7% isn't a low base. When one talks about low base, one rmally says negative growth or a very low base. 5.7% was culmination of a downward trend. To say that it's a low base is being illogical. Within 8.2% GDP growth, agriculture has grown by 5.3% on a base of 3.2% which is a very high base because aver long-term growth of agriculture is around 2.5%."

He turned tables on senior Congress leer, stating that Chidambaram should inste have ticed that this latest GDP figure came against backdrop of a decline in growth rate of public expenditure:

"What Chidambaram should have ticed is that this growth has been despite decline in growth rate of public expenditure. If you look at public infrastructure, that growth rate has declined."

FORECASTING EVEN HIGHER GROWTH BECAUSE OF PUBLIC EXPENDITURE

Proceeding from re, Rajiv Kumar stated that subsequent quarters could have an even higher growth rate because public expenditure will rise:

"Hence, I feel assured that this growth rate will be even better in coming quarters rar than lower. And also, from April-June 2017, every quarter's growth rate has been higher than previous quarter. re's a momentum w in growth rate and this will continue because I'm sure that govt will ensure that public expenditure continues to be on a rising trajectory because our fiscal position is very sound."

Coming back to NPAs and MSMEs defaulting, he explained what scenario was like, but gave a very positive romap:

"re h been a 20% growth in ir NPAs in 2017-18. But we kw this... if all commercial banks start pulling back ir credit and y fall short on ir working capital, n ir growth will slow. But w, MSME's are picking up and statistics about se are yet to come. Hence, in coming quarters, certain smaller cities and towns will show a quickening in growth and capacity will also increase."

8.3-8.4% Q2 GDP GROWTH FORECAST

Upon being asked about a snap poll of top CEOs and leers affiliated to CII (Confederation of Indian Industry) in which Modi government h been given a major endorsement, and participants h given positive hiring outlooks, Rajiv Kumar spoke about 13.5% growth rate recorded by manufacturing sector:

"Our second engine, which was stopped for two years, has been ignited. So those who say 8.2% will slow in coming quarters, y're wrong. confidence and forecast of CEOs that hiring and employment will rise is a big deal and critics should keep this in mind."

To this he ded a stunning GDP growth rate prediction for coming quarter:

"I don't think any weakness will come in our ecomic growth and I feel in coming quarter our growth rate will be between 8.3-8.4%."

QUESTIONING RAGHURAM RAJAN'S NPA POLICY

Finally, he was asked once again about recent narrative on India's ecomy, i.e. that demonetisation h led to a slowdown, and he elaborated on role of NPA detection mechanism that h been instituted by central bank under former Goverr Rajan:

"This is a false narrative and leing ecomists like Chidambaram and our former PM (Manmohan Singh) ded to this, because if you look at growth rate statistics you'll find that in post-demonetisation period, growth rate came down t because of demonetisation but because re was a declining trend for last six quarters. It was simply continuation of a trend and t because of a shock given to it by demonetisation as has been claimed."

"body's brought evidence to show re's been a direct link between demonetisation and slow growth rate. And that slowdown was because of rising NPAs in banking sector. When this government came, that figure was about Rs 4 lakh crore. It rose to Rs 10.5 lakh crore by mid-2017, because under previous goverr, Mr Raghuram Rajan, y h instituted new mechanisms to identify stressed and n-performing assets and se continued to grow, and because of this banking sector stopped giving credit to industry."

"In fact, in MSMEs ir credit actually shrank, it was a negative growth in some years, and even in large industries, it came down to a measly 1% and 2.5% and sometimes even negative. This has been instance of historically highest deleveraging of commercial credit to industry in India's ecomic history. Never have we seen such a continuous and persistent year-after-year deleveraging of credit. That's cause for slowdown of growth. And this is what's been compensated for by ramping up of public expenditure."

ON HIGH FUEL PRICES

Finally, he also integrated an aspect regarding criticism government has come under over all-time-high prevailing fuel prices, while delivering a positive outlook for India's ecomy:

"People ask how government used its oil revenue bonanza. It used it precisely in ramping up capital expenditure and yet at same time maintaining fiscal prudence. So it has been because of government that you've w seen a rise in quarterly growth rate quarter-after-quarter since Q2 2017-18 and w you've come to 8.2 and since it's a momentum that's carrying, I think it'll carry forward and we'll achieve higher growth rates as we go ahe."

Here are Niti Aayog Vice Chairman Rajiv Kumar's full remarks: