Raghuram Rajan says had cautioned government on demonetization

Former RBI governor Raghuram Rajan

Former RBI governor Raghuram Rajan

"Rajan included this opinion in his latest book - "I do what I do", Rajan writes", At no point in my term was the RBI asked to make a decision on demonetization". "I think the view of any monetary economist would be that you first print the money and then do the demonetisation, and I do not know what the rationale for doing it when it was done is", Rajan told the newspaper. "Although there might be long-term benefits, I felt the likely shot-term economic costs would outweigh them", Rajan wrote.

Though Rajan didn't elaborate on the economic costs, he wrote that "there were alternatives to achieve the main goals".

On November 8, PM Modi during his 45-minute long speech made many tall claims that the note ban would curb black money, corruption and flush out fake currency from the Indian market.

The growth of GDP slowed sharply from 7% in October-December quarter to 6.1% in January-March and 5.7% in April-June, primarily because of the cash squeeze that weakened consumer spending and discouraged businesses from making new investments.

Rajan, demitted office on September 3 a year ago, precisely 35 days before PM announced for demonetization of rupees 1000 and 500 bank notes.

Raghuram Rajan, however, had reservations about the decision but despite the fact, he was asked to prepare a note, which RBI did. He also alleged that RBI had even published a note calculating the costs and benefits.

In his book titled "I Do What I Do: On Reforms Rhetoric and Resolve", Rajan, who was the governor between 2013 and 2016, had also warned of what would happen if the preparations for demonetisation were inadequate.

He further said: "If the government, on weighing the pros and cons, still made a decision to go ahead with demonetisation, the note outlined the preparation that would be needed and the time that the preparation would take". He was succeeded by Urjit Patel as the central bank chief. Modi's radical move was slammed by the opposition as ill-conceived and poorly executed.

Still, Modi won popular support for his move, winning a landslide victory in crucial elections in Uttar Pradesh. However, the recent data released by RBI shows that 99 per cent of demonetised notes came back to the banks.

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.

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