POLITICS

Why Demonetisation Was Rolled Out After Raghuram Rajan Left The RBI

"Obviously, Rajan wouldn’t have supported it."

13/12/2016 9:12 AM IST | Updated 13/12/2016 11:44 AM IST
Danish Siddiqui / Reuters

It was two months after Raghuram Rajan left the Reserve Bank of India that the Modi government announced its demonetisation drive, which effectively put 86 percent of cash out of circulation in one fell swoop.

Rajan may not have been removed because the Modi government wanted to roll out demonetisation, but it could only have been rolled out after he left, according to RSS ideologue S. Gurumurthy, who pointed out that the former RBI chief would have never agreed to the scheme.

"Obviously, Rajan wouldn't have supported it," Gurumurthy told News18 on Monday,

Gurumurthy, a prominent chartered accountant, whose opinion on economic issues carries some weight in the policy-making circles, was opposed to Rajan's appointment by the Congress Party-led United Progressive Alliance government. After the Bharatiya Janata Party came to power in 2014, Gurumurthy stepped up his attacks on Rajan's policies including his handling of the Public Sector Banks.

To News18, Gurumurthy said that Rajan did not understand India, and he could not recognized how necessary it was to demonetise ₹500 and ₹1000 notes in order to flush out black money.

READ: Here's What Raghuram Rajan Thinks Of Currency Demonetisation

While the Modi government and its supporters have told the public that demonetisation will help in curbing black money, corruption and tax evasion, Rajan has previously said that "clever" people would find their way around it.

"They find ways to divide up their hoard in to many smaller pieces. You do find that people who haven't thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization," Rajan said in a lecture on whether demonetisation worked.

"It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money. A lot of the incentives are on taxes," he said.

READ: Nilekani Says India Has The Tech To Go Cashless, But Then Why Aren't People Switching?

The Modi government has said that demonetisation was carried out on the advice from the RBI, which is presently headed by Urjit Patel. The Yale economist, who is known to keep a low profile compared to his media savvy predecessor, has spoken just once since Prime Minister Narendra Modi announced demonetization on 8 November.

On 27 November, Patel said that the central bank is monitoring the situation on a daily basis and taking all steps to "ease the genuine pain of citizens."

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