Defending the Centre’s decision to demonetise Rs 500 and Rs 1,000 currency notes in November 2016, NITI Aayog Vice Chairman Rajiv Kumar on Monday said former Reserve Bank of India Governor Raghuram Rajan’s policies not the note ban caused the subsequent economic slowdown, ANI reported.

His comment came days after the Centre announced that India’s Gross Domestic Product rose to a two-year high of 8.2% during the April-June quarter. This is the highest economic growth for a quarter recorded since the 9.3% growth in January-March 2016.

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“The declining trend for the last six quarters starting 2015-’16, when the growth rate was as high as 9.2%, was not a result of demonetisation,” Kumar told ANI in an interview. “The growth was declining because of the rising NPAs [non-performing assets] in the banking sector. When this government [the Narendra Modi government] came to office [in 2014], that figure was about Rs 4 lakh crore. It rose to Rs 10.5 lakh crore by the middle of 2017, because under the previous RBI governor Mr [Raghuram] Rajan, they had instituted a new mechanism to identify stressed NPAs.”

Kumar added: “This continuously began to rise, after which the banking sector stalled credit disbursal to the industry. In fact, in some cases like that of the Micro, Small and Medium Enterprises industry, credit actually shrank. It was a negative growth in some years.”

The NITI Aayog official said that even to the large industry, growth of credit dropped to 1.5% to 2%, and even negative in some quarters, representing the highest deleveraging of India’s commercial sector, he added. “This has been the primary reason for falling growth. The current government ramped up the public capital expenditure for the very reason,” said Kumar.

Kumar said the decline in growth then was just in continuation of a trend and not because of the “shock of demonetisation”. “I think there is no evidence to prove that there was a direct link between demonetisation and slowdown in the growth rate,” he added.