Raghuram Rajan on demonetisation: Hit poor very hard, not an economic success so far

According to former RBI governor Raghuram Rajan, demonetisation has impacted the poor people of India the most.

New Delhi, Sep 4: Almost everyone has spoken about the impact of demonetisation announced by the Narendra Modi government last year. Finally, the former Reserve Bank of India (RBI) governor, Raghuram Rajan, one of the best economists in the world, has spoken eloquently about demonetisation and its impact on the economy in an interview to The Times of India.

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

"It is probably fair to say that demonetisation has had the largest impact on the people who transact informally, of which many might be very poor," he said.

In November last year, Modi in a televised address to the nation announced the demonetisation of high-value currency notes of Rs 500 and Rs 1,000. The immediate impact of the highly controversial move by the National Democratic Alliance (NDA) government at the Centre was the long queues of people outside banks and ATM kiosks as cash went missing from the market.

Recently, when the figures of country's Gross Domestic Product (GDP) for the first quarter of the current fiscal that ended in June were declared, the negative impact of demonetisation was clearly felt.

It showed that India's economic growth has slid to a three-year low, partly due to demonetisation. India's GDP growth has sharply dipped to 5.7 per cent in Q1 Of 2017-18.

Moreover, the RBI data shows that 99 per cent of banned notes were returned to the system that indicated that the whole exercise was indeed a failure.

Rajan, however, stated that the intent of the ruling Bharatiya Janata Party (BJP) regarding demonetisation was good. "I think the view of any monetary economist would be that you first print the money and then do the demonetisation, and I do not know what the rationale for doing it when it was done is," Rajan told the newspaper.

He maintained that he was in no way a party to the BJP's controversial decision.

Rajan's, latest book, I Do What I Do, published by HarperCollins will be launched on Monday. In September last year, Rajan, just a few months before the demonetisation was announced, left the RBI and joined the academia.

In his new book, Rajan revealed that he did not favour demonetisation as he felt the short-term economic costs associated with such a disruptive decision would outweigh any longer term benefits from it.

"I was asked by the government in February 2016 for my view on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them," Rajan wrote.

"I made these views known in no uncertain terms."

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