Never favoured demonetisation, suggested alternatives: Raghuram Rajan

Never favoured demonetisation, suggested alternatives: Raghuram Rajan

Never favoured demonetisation, suggested alternatives: Raghuram Rajan

In his book, Rajan said, that he had warned the government about this decision as early as February 2016, months before the November 8, 2016 announcement that shocked the country and overnight turned 86 per cent of the currency in use worthless.

Governor had recommended the government that he did not support the demonetization.

Indian economist and former Governor of the Reserve Bank of India (RBI), Raghuram Rajan has recently made a shocking revelation about the Central government's demonetisation drive.

The book which is all set to release on next week contains a compilation of the speeches he delivered on wide ranges of issues as the RBI governor.

The man who predicted the 2008 global financial crisis also presaged the damage Prime Minister Narendra Modi's unprecedented cash ban would cause to India's economy.

Rajan, however, stated that the intent of the ruling Bharatiya Janata Party (BJP) regarding demonetisation was good.

"Let us not mince words about it - GDP suffered".

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In the interview with TOI, Rajan said that the underprivileged sections of society were the worst hit by demonetisation.

"Although there may be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goals", he wrote in the book.

The GDP's (Gross domestic product) growth was slowed from 7% in October-December quarter to 6.1% in January-March and 5.7 % in April-June; due to the cash squash that enfeebled clients disbursing and demoralized the businesses from making new investments. "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 may be approaching Rs 2.5 lakh crore", he said.

What followed, starting on the night of November 8, was sheer pain for the people of this country, some of whom were intoxicated with an anti-corruption, anti-black money narrative and with even a spurious "poor versus rich" debate that was clearly created to give a political dividend to the BJP in subsequent state elections.

Moreover, the RBI data shows that 99 per cent of banned notes were returned to the system that indicated that the whole exercise was indeed a failure. "It is probably fair to say that demonetisation has had the largest impact on the people who transact informally, of which many might be very poor".

Raghuram Rajan returned to academia after his term as governor which ended on September 3 a year ago. Rajan now teaches economics at University of Chicago.

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