Former governor of RBI Raghuram Rajan had cautioned the government against cost of demonetisation and suggested that there were better alternatives to achieve the main goals of note ban.
In his book titled ‘I Do What I Do: On Reforms Rhetoric and Resolve’, Mr. Rajan, who was the governor between 2013 and 2016, had also warned of what would happen if the preparations for demonetisation were inadequate.
“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 no uncertain terms,” Mr. Rajan wrote.
He added that he had handed over a note to the government outlining the potential cost and benefits of demonetisation as well as alternatives available.
‘Flagged consequences’
“If the government, on weighing the pros and cons, still decided to go ahead with demonetisation, the note outlined the preparation... needed and the time that the preparation would take. The RBI flagged what would happen if preparation was inadequate.”
The government then set up a committee to consider the issues, Mr. Rajan said, “The deputy governor in charge of currency attended these meetings and at no point during my term was the RBI asked to make a decision on demonetisation.”
