Former RBI governor Raghuram Rajan, in his book, ‘I do what I do’ has revealed that he was never in favour of demonetisation and had warned the government about the ramifications of pulling out 86 per cent of cash from the economy.
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.
“I was asked by the government in February 2016 for my views on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them and there were potentially better alternatives to achieve the main goals. I made these views known in uncertain terms,” he wrote.
He also added that the central bank had handed over a note to the government outlining the potential cost and benefits of scrapping the higher denomination currency as well as alternatives that can be taken to achieve similar aims. It also emphasised that preparation would be required to do such an exercise. “The RBI flagged what would happen if preparation was inadequate,” said Rajan.
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”.
Just two months after his departure, the government on November 8, demonetised Rs 500 and Rs 1,000 notes, with an aim to curb black money and corruption. The RBI, in its report released last week stated that 99 per cent of the currency that was invalidated had returned. The monetary cost of printing new currency for the central bank has more than doubled to Rs 7,965 crore while the number of counterfeit notes or fake notes detected during the exercise is only minuscule — just about 7.6 lakh pieces.
Rajan, who had predicted the 2008 global financial crisis, had not commented on demonetisation until now. He is presently the professor of finance at the University of Chicago. He was succeeded by Urjit Patel as the central bank chief.
(With inputs from PTI)