Former Reserve Bank of India (RBI) Governor Raghuram Rajan has revealed that the institution had warned the government about the ramifications of the latter’s decision to demonetise the high-value currency notes overnight. In an interview to The Times of India, Rajan said that though the central bank’s advice was solicited in the matter, it was not asked to take a stand on the note ban.
The former RBI chief said that he had warned the Centre about the immediate consequences of unplanned demonetisation, and that he had proposed substitute moves for rooting out a suspected shadow economy. “The RBI flagged what would happen if preparation was inadequate,” the newspaper cited Rajan as saying.
Rajan is set to release his book “I Do What I Do: On Reforms Rhetoric and Resolve” next week, in which he has written that it was in February 2016 that he first communicated his thoughts to the government, although verbally. Following this, he writes, the central bank had written to the Centre defining the requisite time to prepare for such a move in case the government decided to run with it.
It is not certain whether the note ban was a suitable move for the country, Rajan said. “Certainly at this point, one cannot in anyway say it has been an economic success.”
After ending his term on September 5, 2016, Rajan returned to his role of faculty member at the School of Business at University of Chicago. He had said, at the time, that he had not wished to apply for a second term as RBI chief.
In an unprecedented move, Prime Minister Narendra Modi had, on November 8, 2016, demonetised Rs 500 and Rs 1,000 notes and put in place fresh guidelines for cash withdrawals, which adversely affected financial dealings in the country to a considerable extent.
A higher currency denomination of Rs 2,000 was introduced after a few months into the note ban. A new note for Rs 500 was released by the RBI much later. This has recently been followed with reports of new Rs 50 notes. A fresh denomination of Rs 200 is also reportedly on the cards.