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Demonetisation was ‘not a good idea’: Raghuram Rajan

Friday, April 13, 2018

RBI's former governor Raghuram Rajan has said that he had made it quite clear to the government that the demonetisation was "not a good idea" and   that its implementation was "not well-planned" since 87.5 per cent of the currency was being demonetised.

On November 8, 2016, the Centre banned Rs 500 and Rs 1,000 currency notes to curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activities and terrorism.

Speaking at the prestigious Harvard Kennedy School in Cambridge yesterday, 55-year-old Rajan rejected the claim that the Reserve Bank of India had not been consulted by the government before it went ahead with the demonetisation.

He, however, reiterated that the move to cancel 87.5 per cent of the currency value was "not a good idea".

"I didn't ever say that I wasn't consulted (on demonetisation). In fact, I have made it quite clear that we were consulted and we didn't think it was a good idea," said Rajan who is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at The University of Chicago's Booth School of Business.

He said demonetisation "was not a well-planned, well thought-out, useful exercise and I told the government that when the idea was first mooted."

He added that any macro-economist would say that if 87.5 per cent of the currency is being demonetised, then it better be made sure that a similar amount of currency is printed and ready to be put back in circulation.

"India went into it without having done that. 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'," Rajan said, calling it a "naive view".
 

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