Despite former RBI Governor Raghuram Rajan's warning, Govt. demonetized currency overnight

Warned Government About Cost of Demonetisation Raghuram Rajan			 0					By		mainlogin

After the RBI took 10 months to count the Rs 500 and Rs 1,000 notes that were returned to the banks, and to realise that nearly all the banned currency has come back into the system, with very little that can now be called black money, both the government and the RBI have lost credibility.

Rajan, however, stated that the intent of the ruling Bharatiya Janata Party (BJP) regarding demonetisation was good.

In his new book titled "I Do What I Do: On Reforms Rhetoric and Resolve", Former RBI Governor Raghuram Rajan said that he did not favour demonetisation as he felt the decision would outweigh any longer term benefits.

"Rajan included this opinion in his latest book - "I do what I do", Rajan writes", At no point in my term was the RBI asked to make a decision on demonetization".

The latest government data showed that the GDP growth sharply slowed from 7 percent in October-December (2016) quarter to 6.1 percent in January-March and 5.7 in Aril-June 2017. In his new book, Rajan has pointedly said that the RBI governor can not be a "cheerleader for the government". "Unfortunately, given the way we measure GDP, these are people who are probably not going to be counted that much", he said.

"Although there may be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goals", he wrote in the book.

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Prime Minister Narendra Modi on November 8 previous year had announced demonetisation of Rs 1,000 and Rs 500 notes in a major assault on black money, fake currency and corruption.

This wasn't the first time that Rajan had warned against demonetization. "The estimates I have seen range from 1 to 2 percentage points, and that's a lot of money - over Rs 2 lakh crore and may be approaching Rs 2.5 lakh crore", he said in the interview. And his senses proved right, the adroit found ways and the so called demonetization "mahayagna" failed to "purify the country" from corruption, black money, fake notes, and terrorism. In September past year, Rajan, just a few months before the demonetisation was announced, left the RBI and joined the academia.

Rajan opined that demonetisation has hit the country's poor the hardest.

According to Rajan, demonetisation has its largest impact on the poor people of India.

While deliberating on his initial response to the government's proposal for demonetization, Rajan writes, "I was asked by the government in February 2016 for my view on demonetization, which I gave orally". He is presently the professor of finance at the University of Chicago.

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