(TOI)
Former Reserve Bank of India governor Raghuram Rajan has said that he had cautioned the government about the short-term costs of demonetisation outweighing the long-term benefits, and suggested “alternatives” to achieve the goal of stamping out black money.
In his new book, ‘I Do What I Do: On Reforms Rhetoric and Resolve’, due to be released next week, Rajan said that he first gave his opinion orally in February 2016 and, subsequently, RBI submitted a note to the government outlining the steps that would be needed, and the time required, if the Centre went ahead with the move.
“The RBI flagged what would happen if preparation was inadequate,” wrote Rajan, who returned to University of Chicago Booth School of Business as faculty after his term as governor ended. The Prime Minister announced demonetisation of Rs 500 and Rs 1,000 notes on November 8. Data released by RBI earlier this week showed that 99% of these notes were deposited in bank accounts.
The government has defended the move, arguing that several other benefits have accrued, from expanding the tax base to an increase in digital transactions. Rajan said though the intent behind the move was good, it had come at substantial costs. “Certainly at this point, one cannot in anyway say it has been an economic success,” he pointed out.
