As RBI Governor, I was never asked to decide on demonetisation, says Raghuram Rajan

The former RBI governor cautions that “efforts to belittle the position by bringing it into the bureaucratic hierarchy are misguided and do not serve the national interest”.

By: ENS Economic Bureau | New Delhi | Updated: September 4, 2017 9:41 am
Raghuram Rajan, former RBI governor, RBI, Governor, Commerce, Economy, GSt, Indian Express Former RBI Governor Raghuram Rajan. (File Photo)

Former Reserve Bank of India (RBI) Governor Raghuram Rajan had cautioned the government that the long-term benefits of demonetisation would be outweighed by the short-term economic costs and that there were potentially better alternatives to achieve the main goals. In the introduction of his new book —”I do what I do” — Rajan writes, “At no point in my term was the RBI asked to make a decision on demonetisation,” adding that the central bank had prepared a note outlining the potential costs and benefits. He said he offered his views to the government orally in February 2016.

While most Reserve Bank of India (RBI) governors are known to have run-ins with finance ministers, Rajan seems to have had more trouble with bureaucrats. “The least pleasant aspect of my job was dealing with bureaucrats who were trying to undercut the Reserve Bank so as to expand their turf,” Rajan writes, adding he left the government a few tips on how this unproductive friction could be reduced.

The former RBI governor cautions that “efforts to belittle the position by bringing it into the bureaucratic hierarchy are misguided and do not serve the national interest”. Rajan observes there is a danger in keeping the position (of RBI governor) ill-defined, because the constant effort of the bureaucracy is to whittle down its power. “The RBI risks becoming dangerously weakened as successive governments and finance ministers misunderstand its role,” he says.

Rajan, who was criticised by many for speaking his mind on subjects that were thought to be beyond the limits of a central bank governor, says on the controversial “Hitler” speech that had he known the connections that would be made on social media, he would not have used it.

“The speech was about the need to remedy the weakness of government capacity in general in India — with no specific administration in mind. Instead it was construed as a warning against strong government, specifically the current administration,” he writes.

Rajan writes that the area where the central bank made least progress was in getting banks to recognise financial stress and deal with it. With the exception of a few hard-changing and conscientious bankers, he notes, the others were by and large willing to “continue to extend and pretend”. “As we found bankers reluctant to recognise problems, we decided not just to end forbearance but also to force them to clean up,” he says. FE

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  1. T
    Sep 4, 2017 at 2:00 pm
    Why would they ask you ? It was a well planned political move . Since corruption has become such a big political issue it is very difficult for bjp to get involved in scams unlike what has been happening for last 70 years . Corruption is very hush hush in post Anna hazare era . So demonitization was smart well thought political move to make money in a legalised manner so that no one can point fingers at bjp for being corrupt because everything was done within legal framework and on top of that it used it to fool people of this nation to believe that it was done to eradicate black money ! I am sure it took many months of planning by some crooks . So why would they ask you ? Are you a crook ?
    1. J
      Sep 4, 2017 at 1:43 pm
      If RBI was asked for their openion , 200 people would have not died standing in queues.
      1. R
        Sep 4, 2017 at 7:45 am
        I think the new RBI Governor is managing the Inflation and other RBI business much better than this foul mouthed Congress Mole. Both Congress and Raghuram Rajan had FAILED Indian on account of inflation which was whopping high at double digits level quite contrary to 3 which is the norm of the day.
        1. K
          Sep 4, 2017 at 2:26 am
          Wo the this guy is? He was inefective as a governer. He never understood what India is and very uncooperative to GOI. . He had a big mouth with little accomplishment.