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Last Updated : Apr 12, 2018 12:41 PM IST | Source: Moneycontrol.com

Need new economic theory to explain how demonetisation helped India: Raghuram Rajan

Rajan said that the negative effects of demonetisation have already been seen, whereas the positives stemming from it, if any, will only be visible in the future.

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Former Reserve Bank of India Governor Raghuram Rajan on Thursday said that the government’s decision to demonetise currency notes of Rs 500 and Rs 1,000 in late 2016 was not a good policy for the time.

“I had told the government that demonetisation was not well-planned, well thought-out and a useful exercise,” Rajan said in a speech at the Harvard Kennedy School on Wednesday.

Rajan also clarified that he never said the RBI was not consulted before the government decided to go through with demonetisation. “In fact, I have made it quite clear that we were consulted and we didn’t think it was a good idea,” he said.

The former RBI governor stressed that the negative effects of demonetisation were certainly felt by the Indian economy, whereas the positives stemming from it, if any, will only be visible in the future.

“Anybody who knows India knows that very quickly, we find ways around the system… Essentially, all the money that was demonetised came back into the system and it didn't have the direct effect that a lot of people would fess up and pay taxes,” he said.

Rajan added that it would take a die-hard advocate of the government to say that the benefits of demonetisation were immediate. “I think you'd have to find some new economic theory to explain how it helped,” he said.
First Published on Apr 12, 2018 12:15 pm
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