Raghuram Rajan reveals he was not in favour of demonetisation, outlined potential costs

Former Reserve Bank of India (RBI) governor Raghuram Rajan in his latest book -- I Do What I Do – revealed that he was not in favor of PM Modi’s demonetisation move.

Rajan in his book wrote, ““I was asked by the government in February 2016 for my view on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them.”

He also said that during his term, the government didn’t ask RBI to make a decision on demonetisation.

“At no point during my term was the RBI asked to make a decision on demonetisation,” Rajan wrote in his new book which is a compilation of the wide-range speeches he delivered as RBI governor.

Rajan’s term as the governor of the central bank was not extended amid speculations and ended in September 2016. Barely two months after his ouster Prime Minister Narendra Modi unexpectedly announced the chaotic decision of demonetisation.

On November 8, PM Modi during his 45-minute long speech made many tall claims that the note ban would curb black money, corruption and flush out fake currency from the Indian market.

Also Read | RBI data suggests Prime Minister Modi’s demonetisation move failed on most fronts

However, the decision failed to serve any of the purposes and according to a recent RBI report, 99 per cent of the banned currency notes came back to the Indian Banking system.

According to the latest government data, the decision to ban Rs. 500 and Rs. 1000 banknotes which were the 86 per cent of country’s total cash had a huge negative impact on country’s economy.

The GDP growth rate slowed down from 7 per cent in October-December to 6.1 per cent in January-March and 5.7 per cent in the last quarter.

Raghuram Rajan, however, had reservations about the decision but despite the fact, he was asked to prepare a note, which RBI did.

The RBI note, he said, “outlined potential costs and benefits of demonetisation, as well as alternatives that could achieve similar aims. If the government, on weighing the pros and cons, still decided to go ahead with demonetisation, the note outlined the preparation that would be needed, and the time that preparation would take.”

Days after the demonetisation, the former RBI governor had said: “My sense is the clever find ways around it.” And his senses proved right, the adroit found ways and the so called demonetization 'mahayagna' failed to "purify the country" from corruption, black money, fake notes, and terrorism.