When consulted, RBI had warned Centre demonetisation wasn’t a good idea, says Raghuram Rajan
The former central bank governor reiterated that the note ban ‘was not a well-planned, well thought-out, useful exercise’.
Former Reserve Bank of India Governor Raghuram Rajan on Wednesday clarified that he never said the government had not consulted the central bank before demonetising Rs 500 and Rs 1,000 notes on November 8, 2016. Rajan said the RBI had, indeed, been consulted and had made it clear that scrapping 87.5% of the currency in circulation was “not a good idea”, Mint reported.
“I did not ever say that I was not consulted [on demonetisation],” he said at Harvard Kennedy School in Cambridge. “In fact, I have made it quite clear that we were consulted and we did not think it was a good idea.”
Rajan said demonetisation “was not a well-planned, well thought-out, useful exercise” and he had “told the government that when the idea was first mooted”. Any macro-economist would have advised the government to ensure that it was ready to put back into circulation an equal amount of notes before implementing the note ban, he added.
“India went into it without having done that,” Rajan said. “It had a negative economic impact but also the idea was that somehow people who had money stored in their basements without having paid taxes on it would overnight see reason and come to the government and say, ‘Sorry, we were hiding this stuff, let me pay taxes on it.’”
He also spoke about the Goods and Services Tax, which he said was not an “unfixable problem”, PTI reported. “On the Goods and Services Tax, we will figure it out eventually,” he said. “It will be nice if we could implement much better than we do. But it is not an unfixable problem. We can work on it. I would not give up hope at this point on that.”
Currently the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business, Rajan has been a vocal critic of demonetisation since it was implemented.