Updated: Sep 03, 2017 | 18:36 IST | Source - Times Now
“Have cautioned the Narendra Modi-led government about the short-term cost of demonetisation outweighing the long-term benefits”, former Reserve Bank of India (RBI) governor Raghuram Rajan told Times of India.
In his new book, 'I Do What I Do’: On Reforms Rhetoric and Resolve', which is slated to be released next week, the economist wrote, ““I was asked by the government in February 2016 for my view on demonetisation, which I gave orally. I made these views known in no uncertain terms.” He also offered ‘better alternatives’ to help the government achieve its main goals.
In an exclusive interview to TOI, Rajan also clarified that although RBI was consulted, at no point during his term, was it asked to make a decision on demonetisation.
Demonetisation has hit the nation’s poor the hardest, Rajan told TOI on Sunday. Demonetisation cannot be described as an economic success at this point; Rajan said adding that valuation at a later stage would give a clearer picture of the situation.
The cost of Prime Minister Narendra Modi’s crackdown on black money and corruption or what we called as ‘demonetisation’, has caused the GDP to suffer.
In an exclusive interaction, Rajan was quoted as saying, “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.”
Speaking of the pressure from the government, Rajan said, “The duty of the central bank and other regulatory bodies is to work together under the overall direction of the elected representatives of the people. You cannot go off in a separate direction.”
“I didn't leave when my leave expired; there was absolutely no issue about extending my leave, if necessary. I left when the government and I could not agree on terms for me to stay on,” he further added.
The accelerated printing of the 2,000-rupee notes did make us better prepared for an eventual demonetisation without a specific date having been fixed, he added.
The Aadhaar-based system will give far better compliance on the flows, he said while speaking on the effective way for the government to dig out black money without hobbling the system.
“One way to do that is the broader use of Aadhaar in any financial investments because it gives the authorities a sense of what your entire wealth holdings might be,” Rajan was quoted.
The revelations come at a time when the government is facing intense outrage after the apex bank revealed that 99 percent of all demonetised notes have come back into the banking system.
“The fact that 99% has been deposited certainly does suggest that aim has not been met,” Rajan said in the interview.
Despite his reservations, Rajan wrote in his book, the RBI was asked to prepare a note, which it did and handed to the government.
The RBI note, he said, “outlined potential costs and benefits of demonetisation, as well as alternatives that could achieve similar objectives.” However, Rajan did not detail the contents of the note RBI had submitted to the government.
Giving his views on bank consolidation, he feels the quality of management in public sector banks needs to be raised.
Rajan also believes Goods and Services Tax (GST) will also help in curbing tax evasion in addition to uniting the country as a single market and reducing transactions.
Demitting his office on September 23, this is the first time the former governor has spoken on demonetisation.
On November 8 last year, the government announced the scrapping of old demonetised notes of Rs 500 and Rs 1000 in a bid to curb counterfeiting, black money, and corruption.
However, according to a data released by the Reserve Bank of India (RBI) under the chairmanship of Governor Urjit Patel earlier this week, 99% of these notes were deposited in bank accounts.
Currently, distinguished service professor of finance at University of Chicago Booth School of Business, Rajan is an alumnus of IIT-D, IIM-A, and MIT.
Rajan’s book ‘I Do What I Do: On Reform, Rhetoric & Resolve’, will be available at bookstores from September 4.
