India's economy would have collapsed had there not been demonetization: RBI board member S Gurumurthy

Ahead of the much talked about board meeting of the central bank, RBI board member S Gurumurthy Thursday said the stand-off between the government and the Reserve Bank was not a happy situation.

The comment comes amid the ongoing rift between the Finance Ministry and the RBI over several issues, including capital framework of the central bank and easing of lending norms for the NBFC sector.

Delivering a lecture on 'State of the Economy: India and the World' at the Vivekananda International Foundation (VIF) here, Gurumurthy also said imposition of tight provisioning norms for bad loans in one go created problems for the banking system.

He also defended the note ban, stating that the Indian economy would have collapsed had demonetization not happened.

The stand-off between the government and the RBI is not a happy thing at all, he said.

Gurumurthy further said India should not go beyond what has been prescribed in the Basel capital adequacy norms and made a case for enhancing credit for the MSME sector.

Tensions between the RBI and the government have escalated recently, with the Finance Ministry initiating discussion under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor.

The RBI's board is meeting on November 19.