Published: Wed, September 06, 2017
Money | By Armando Alvarado

Never backed demonetisation, warned of damage: Raghuram Rajan in his book

Never backed demonetisation, warned of damage: Raghuram Rajan in his book

Amid lot of controversy over why PM chose to go ahead for demonetization of big value currency notes in November a year ago, former Reserve Bank of India (RBI) governor Raghuram Rajan has triggered another debate by revealing that he did not favour the move as he felt the short term economic costs associated with "such a disruptive" decision would outweigh any longer term benefit.

Rajan in the latest interview clarified that GDP suffered about 2-2.5 Lakh Crore due to Demonetization. "Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them", Rajan wrote.

Now, Rajan teaches economics at the University of Chicago and he is the first former RBI governor who has spoken on demonetization since resigning office on September 3 previous year.

The government then set up a committee to consider the issues, Rajan said, adding that "the deputy governor in charge of currency attended these meetings and at no point during my term was the RBI asked to make a decision on demonetisation".

The book, being released by Harper Collins, is an attempt by the former RBI Governor to make Indians know what goes into policy-making at the RBI.

Further, Rajan also mentioned that though he had "disapproved" the demonetisation idea, the government had asked RBI to prepare a note and handed over to the government.

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Rajan who was the governor of RBI from September 2, 2013 to September 4, 2016 said that the government only asked him to give his views and that the central bank was not asked to take a stand on junking of old 500 and 1000 rupee notes during his term.

Rajan opined that demonetisation has hit the country's poor the hardest.

The report cited excerpts from Mr Rajan's book on his stint at the Reserve Bank of India (RBI), I Do What I Do: On Reforms Rhetoric And Resolve.

"I think all said and done, it would be fair to say the intent was good".

According to Rajan, demonetisation has its largest impact on the poor people of India. Rajan, who now teaches economics at University of Chicago, said he chose not to speak on India for a year because he didn't want to "intrude on his successor's initial engagement with the public".

Indians returned most of the estimated Rs 15.4 trillion ($242 billion) in high-currency bills removed from circulation previous year, the RBI said in its annual report on Wednesday. "The estimates I have seen range from 1 to 2 percentage points, and that's a lot of money - over Rs 2 lakh crore and maybe approaching Rs 2.5 lakh crore".

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