Former Reserve Bank of India governor Raghuram Rajan’s book I Do What I Do is a compilation of his speeches from his days at the central bank.(File Photo)
Former Reserve Bank of India governor Raghuram Rajan’s book I Do What I Do is a compilation of his speeches from his days at the central bank.(File Photo)

Raghuram Rajan breaks silence, says neither he nor RBI under him wanted demonetisation

Raghuram Rajan makes the disclosure in his latest book -- I do what I do – which is a compilation of speeches he delivered on a wide range of issues as the RBI governor.
By Rajesh Mahapatra | Hindustan Times, New Delhi
UPDATED ON SEP 05, 2017 01:51 PM IST

Former RBI governor Raghuram Rajan has revealed that he did not favour demonetisation as he felt the short term economic costs associated with such a disruptive decision would outweigh any longer term benefits from it.

Rajan makes the disclosure in his latest book – I do what I do – which is a compilation of speeches he delivered on a wide range of issues as the RBI governor. Although he maintains the book is not a tell-all, the short introductions and postscripts accompanying the pieces offer fascinating insights into his uneasy relationship and differences with the present government.

“At no point during my term was the RBI asked to make a decision on demonetisation,” Rajan has said, putting to rest speculation that preparations for scrapping high-value banknotes got underway many months before Prime Minister Narendra Modi made the surprise announcement on November 8.

This is the first time the former RBI governor has spoken on demonetisation since demitting office on September 3 last year. Rajan, who now teaches economics at University of Chicago, said he chose not to speak on India for a year because he didn’t want to “intrude on his successor’s initial engagement with the public”.

“I was asked by the government in February 2016 for my view on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them,” Rajan wrote.

“I made these views known in no uncertain terms.”

He didn’t elaborate on the short-term costs or the possible long-term benefits, but as the RBI governor he “felt there were alternatives to achieve the main goals.”

Latest government data showed the November 8 decision to scrap Rs 1,000 and Rs 500 notes, sucking out 86% of cash circulating in the system, has had a lingering impact on the economy.

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.

The government, however, maintains that the economic slowdown has not been entirely because of demonetisation. In an interview to Times of India, published Sunday, Rajan described the deceleration in GDP as “the costs of demonetisation upfront.”

“Let us not mince words about it – GDP suffered. 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 in the interview.

“I think the people who mooted this must have thought some of it would be compensated if money didn’t come back into the system,” he said referring to illegal wealth held in cash.

The government’s expectation was that at least Rs 3 lakh crore worth black money held in cash won’t return, significantly reducing the liability of the central bank and boosting its profits, which could be used for new investments and developmental work.

But RBI data, available now, shows 99% of the high-value notes have returned to the banking system, meaning hoarders of black money found a way to legitimise most of their dodgy cash.

“The fact that 99% has been deposited certainly does suggest that aim (of curbing black money) 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 aims. If the government, on weighing the pros and cons, still decided to go ahead with demonetisation, the note outlined the preparation that would be needed, and the time that preparation would take.”

“The RBI flagged what would happen if preparation was inadequate,” he wrote.

The government subsequently set up a committee to consider the issue. The central bank was represented on the committee by its deputy governor in charge of currency, Rajan wrote, possibly implying he did not attend these meetings.

The current leadership of the central bank could not be reached for comments on Rajan’s account. Phone calls to the RBI spokesperson went unanswered.

Rajan did not detail the contents of the note RBI had submitted to the government. Modi’s radical move was slammed by the opposition as ill-conceived and poorly executed. It took banks much longer than the government had expected to tide over the cash crisis. Frequent changes in cash withdrawal rules added to chaos and inconvenience that lasted far longer than the 50 days the PM had sought to restore normalcy.

Still, Modi won popular support for his move, winning a landslide victory in crucial elections in Uttar Pradesh. Most people, especially the poor, backed his decision as a frontal attack on black money.

The author is Chief Content Officer, Hindustan Times.

Follow the author @rajeshmahapatra

SHARE THIS ARTICLE ON
Close
India for decades has been subject to such proxy cross-border and relentless state-supported terrorist attacks from its neighbourhood.(PTI)
India for decades has been subject to such proxy cross-border and relentless state-supported terrorist attacks from its neighbourhood.(PTI)

Would be compelled to take pre-emptive strike against imminent attack: India

PTI, United Nations
PUBLISHED ON FEB 25, 2021 03:24 PM IST
Naidu told the meeting that exercising self-defence is a primary right of States to be exercised when the situation is imminent.
Close
Tamil Nadu Chief Minister Edappadi K. Palaniswami made the important announcement in the state assembly on Thursday.
Tamil Nadu Chief Minister Edappadi K. Palaniswami made the important announcement in the state assembly on Thursday.

‘All pass’: Tamil Nadu CM says no final exams for classes 9,10, 11

By Divya Chandrababu | Edited by Abhinav Sahay, Chennai
PUBLISHED ON FEB 25, 2021 03:02 PM IST
  • The state board exams are usually held in March, but had been postponed to April this year, due to the pandemic.
Close
At Ficci’s International Conference on Pharmaceutical & Medical Device Sector, Piyush Goyal also said that developed countries are under pressure. REUTERS/Denis Balibouse(REUTERS)
At Ficci’s International Conference on Pharmaceutical & Medical Device Sector, Piyush Goyal also said that developed countries are under pressure. REUTERS/Denis Balibouse(REUTERS)

57 countries back India's demand for IPR waiver on Covid-19 vaccine: Goyal

By hindustantimes.com | Edited by Ayshee Bhaduri, Hindustan Times, New Delhi
PUBLISHED ON FEB 25, 2021 02:49 PM IST
  • In October of last year, India and South Africa proposed a TRIPS waiver for all WTO members to allow greater access to affordable Covid-19 healthcare facilities
Close
Union minister Ravi Shankar Prasad announcing the social media guidelines on Thursday,(ANI Photo)
Union minister Ravi Shankar Prasad announcing the social media guidelines on Thursday,(ANI Photo)

Self-regulating body, monthly compliance reports: Govt's social media guidelines

By hindustantimes.com | Edited by Amit Chaturvedi
UPDATED ON FEB 25, 2021 02:49 PM IST
So far, online news media has not been unregulated, with the information & broadcasting ministry brining it under its ambit last year, but not yet formalising rules for it.
Close
NSA Ajit Doval led the back-channel negotiations with his Pakistani counterpart that led to joint statement by the Indian defence ministry and the Pak military (PTI)
NSA Ajit Doval led the back-channel negotiations with his Pakistani counterpart that led to joint statement by the Indian defence ministry and the Pak military (PTI)

NSA Doval led secret back-channels talks with Pak for months before DGMO pact

By Shishir Gupta, Hindustan Times, New Delhi
UPDATED ON FEB 25, 2021 03:26 PM IST
  • The first sign that India-Pakistan back-channel conversations were on track came this month when Pak army chief Gen Bajwa said it was time to extend a hand of peace in all directions
Close
The signboard of the Delhi High Court.
The signboard of the Delhi High Court.

Centre opposes same sex marriage in Delhi HC

By hindustantimes.com | Reported by Richa Banka | Edited by Amit Chaturvedi
UPDATED ON FEB 25, 2021 02:56 PM IST
The Centre on Thursday said in the Delhi high court that living together as partners and having sexual relationship by same sex couple not comparable with Indian family unit.
Close
A health worker shows Bharat Biotech’s Covaxin, in Pune earlier in January this year. (HT file photo)
A health worker shows Bharat Biotech’s Covaxin, in Pune earlier in January this year. (HT file photo)

India's healthcare workers balk at taking homegrown Covid-19 vaccine

Reuters, New Delhi
UPDATED ON FEB 25, 2021 02:30 PM IST
  • India has vaccinated more than 10.5 million health and front-line workers since beginning its immunisation campaign on Jan. 16. But only 1.2 million, or about 11%, of them have taken COVAXIN, the locally developed vaccine from Bharat Biotech.
Close
Union minister Ravi Shankar Prasad and Prakash Javadekar.(HT photo)
Union minister Ravi Shankar Prasad and Prakash Javadekar.(HT photo)

'Needed level playing field': Govt announces new online media rules

By hindustantimes.com | Edited by Shivani, Hindustan Times, New Delhi
UPDATED ON FEB 25, 2021 03:14 PM IST
  • As per the new guidelines, social media platforms are required to disclose the first originator of mischievous tweet or message, the information and technology minister announced.
Close
A deserted street in Amravati during its seven-day lockdown.(PTI)
A deserted street in Amravati during its seven-day lockdown.(PTI)

Janata curfew, weekend lockdown: Maha districts impose curbs amid Covid spike

By hindustantimes.com | Edited by Poulomi Ghosh
UPDATED ON FEB 25, 2021 02:11 PM IST
The district administration in Latur has decided to implement 'Janata curfew' on February 27 and 28 in view of the rising cases of coronavirus in the state.
Close
Children learn to ski on a slope at Gulmarg, a ski resort and one of the main tourist attractions in the Kashmir region. It will host winter games beginning Friday.(REUTERS)
Children learn to ski on a slope at Gulmarg, a ski resort and one of the main tourist attractions in the Kashmir region. It will host winter games beginning Friday.(REUTERS)

2nd edition of Khelo India Winter Games begins in Gulmarg from Friday

By Mir Ehsan | Edited by Abhinav Sahay, Srinagar
PUBLISHED ON FEB 25, 2021 02:02 PM IST
  • The games in Gulmarg will see participation of 1200 athletes from 27 states and Union Territories (UTs) besides the armed forces personnel.
Close
Dantewada is currently encouraging Maoists to surrender under Lon Varatu campaign.(AP)
Dantewada is currently encouraging Maoists to surrender under Lon Varatu campaign.(AP)

Chhattisgarh: Allegations cloud alleged suicide of surrendered woman ‘Maoist’

By Ritesh Mishra | Edited by Abhinav Sahay, Raipur
PUBLISHED ON FEB 25, 2021 01:42 PM IST
  • Dantewada SP rubbished the allegations saying the deceased surrendered in front of the media and her interrogation report and statements of other Maoists showed clearly that she was working as a CNM member.
Close
Scientists at multiple laboratories across the country are also working to find out if any indigenous variant of the virus is behind the spike.(HT_PRINT)
Scientists at multiple laboratories across the country are also working to find out if any indigenous variant of the virus is behind the spike.(HT_PRINT)

Covid-19 samples from 8 Maharashtra districts sent for testing of new mutations

ANI, Mumbai
PUBLISHED ON FEB 25, 2021 01:24 PM IST
The transmission of cases has increased rapidly in some districts of the Vidarbha region. Districts such as Amravati have been reporting over 20 per cent positivity rate in the last few days.
Close
The sector has been rendered vulnerable by the pandemic necessitating concerted effected effects to combat the stress. (ANI)
The sector has been rendered vulnerable by the pandemic necessitating concerted effected effects to combat the stress. (ANI)

MSME sector emerges as growth engine of economy, says RBI Governor

ANI, New Delhi
PUBLISHED ON FEB 25, 2021 01:19 PM IST
Das called for increasing digital payment and digital penetration across the country.
Close
Representational image. (PTI)
Representational image. (PTI)

Armies of India, Pakistan agree to ceasefire along LoC from Feb 24 midnight

By Rezaul H Laskar and Rahul Singh
UPDATED ON FEB 25, 2021 02:59 PM IST
The move comes at a time when the Indian military is largely focused on the standoff with China in Ladakh sector of the Line of Actual Control (LAC), which emerged in the open in May last year
Close
Indian army soldiers stand guarding at Chakan-da-Bagh outpost at Poonch. (HT Archive)
Indian army soldiers stand guarding at Chakan-da-Bagh outpost at Poonch. (HT Archive)

India, Pakistan agree to ceasefire along LoC at DGMO meet

By hindustantimes.com, Hindustan Times, New Delhi
UPDATED ON FEB 25, 2021 01:15 PM IST
  • The meeting which was held between the Director Generals of Military Operations of India and Pakistan also reviewed the current situation across the Line of Control (LoC) and other sectors ‘in a free, frank and cordial atmosphere’, the statement said.
Close
SHARE
Story Saved
OPEN APP