Former RBI governor Raghuram Rajan admits warning govt about unplanned demonetisation

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Last year, on November 8, Modi had announced the ban on Rs 500 and Rs 1000 notes with immediate effect in order to curb black money floating in the country.

What needs to be noted here is that this is for the first time Rajan has spoken about demonetisation since his exit from the post on September 3 previous year.

It is not certain whether the note ban was a suitable move for the country, Rajan said.

While most Reserve Bank of India (RBI) governors are known to have run-ins with finance ministers, Rajan seems to have had more trouble with bureaucrats.

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.

Rajan is set to release his book "I Do What I Do: On Reforms Rhetoric and Resolve" next week, in which he has written that it was in February 2016 that he first communicated his thoughts to the government, although verbally. 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".

He also said that during his term, the government didn't ask RBI to make a decision on demonetisation.

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Raghuram Rajan had cautioned the government the long-term benefits of demonetisation would be outweighed by the short-term economic costs and that there were potentially better alternatives to achieve the main goals.

He further said that even after the November 8 note ban, fake currency has surfaced, terrorist activity has not abated and black money continues to be generated and used.

The economy lost further steam in the quarter to June as growth slid to 5.7 percent, its lowest level in more than three years and a marked slowdown from a 6.1 percent growth in the January-March period.

Raghuram Rajan, however, had reservations about the decision but despite the fact, he was asked to prepare a note, which RBI did.

Also, on August 31, the RBI said that almost 99% of all the demonetised Rs 1000 notes have come back into the banking system. "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 preparation would take".

Still, Modi won popular support for his move, winning a landslide victory in crucial elections in Uttar Pradesh.

"Only an authoritarian government can calmly cause such misery to the people - with millions of innocent people being deprived of their money and being subjected to suffering, inconvenience and indignity in trying to get their own money back", he had added. But RBI data, available now, shows 99% of the Rs 15.46 lakh crore worth high value notes have returned to the banking system, meaning hoarders of black money found a way to legitimise most of their dodgy cash.

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