Never backed note ban, warned of damage, says former RBI governor

NEW DELHI — Former RBI governor Raghuram Rajan has stated that he was never in favour of demonetisation and had warned the government of the damage that pulling out 86 per cent of cash would cause to the economy.

Rajan was RBI governor in February 2016 when he was asked by the government for his views on junking of old 500 and 1,000 rupee notes, he revealed in his book ‘I do what I do’.

“At no point during my term was the RBI asked to make a decision on demonetisation,” says Rajan, a statement that flies in the face of claims that the planning for the surprise move had started months before it was actually announced on November 8, 2016.

Rajan, who had predicted the 2008 global financial crisis, was governor of the central bank from September 4, 2013 to September 4, 2016.

“I was asked by the government in February 2016 for my views on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them and there were potentially better alternatives to achieve the main goals. I made these views known in uncertain terms,” he wrote.

RBI, he said, handed over a note to the government outlining

At no point during my term was the RBI asked to make a decision on demonetisation

Raghuram Rajan, former RBI governor

the potential cost and benefits of demonetisation as well as alternatives to achieve similar aims. It also detailed the preparation that would be needed and the time it would require.

“The RBI flagged what would happen if preparation was inadequate,” said Rajan, who had so far not commented on the move.

Just over two months after his departure on September 4, 2016, the government invalidated Rs 15.44 lakh crore, expecting onethird may not come back, with an aim to check blackmoney and corruption.