New Delhi: Raghuram Rajan, the former Governor of the Reserve Bank of India who exited in less than ideal circumstances, has said that demonetisation has not been an economic success.
“So, I think all said and done, it would be fair to say the intent was good. But certainly at this point, one still cannot in anyway say it has been an economic success. But again, as I said, only time will tell,” Rajan said in an interview to the Times of India.
Rajan said that the costs of demonetisation were substantial: GDP has suffered between 1 and 2 percentage points, as much as Rs 2.5 lakh crore; people standing in line; the printing cost of the new currency; the cost to the banks of withdrawing the money etc.
“I think the people who mooted this must have thought that some of it would be compensated if money didn't come back into the system. The fact that 99% has been deposited certainly does suggest that aim has not been met,” Rajan said.
At no point during his term as Governor was Rajan asked to make a decision on demonetisation. “I was party to the conversation, as I have already said, on the costs and benefits of the case but not on the date. Separately, we were moving to a new set of notes, not related to the demonetisation exercise necessarily, but as part of a move to a set of newly designed notes. Of course, the accelerated printing of the 2,000-rupee notes did make us better prepared for an eventual demonetisation without a specific date having been fixed,” Rajan said.
He said, however, that the potential benefits of the cash ban could be an investigation of the cash deposits to identify potential black money holders and a rise in electronic transactions.
Raghuram Rajan, who went back to the Booth School of Business at the University of Chichago, maintains that the greatest impact of demonetisation was probably on the informal and cash intensive sectors.
On the Indian economy, Rajan said that the immediate concern was that private investment hadn't picked up and as a result jobs hadn't been created to the extent needed. However, reforms such as the real estate Act (RERA), GST, etc were done to enhance investment.
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