Raghuram Rajan says demonetisation not an economic success, poor sections hit hard

Former RBI governor Raghuram Rajan has said that demonetisation at this point is not an economic success as the costs associated with the exercise has been substantial while GDP has taken a hit. Even the progress in the digitisation of the economy “has come back to broadly the trend growth line”, he said in an interview with The Times of India. [caption id=“attachment_3965723” align=“alignleft” width=“380”]  File image of Raghuram Rajan. Reuters.[/caption] “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 any way say it has been an economic success. But again, as I said, only time will tell,” he told the newspaper. He also said that the move, which sucked out 86 percent of the currency in circulation, impacted the “people who transact informally, of which many might be very poor”. According to him, the stress on these people can be measured only indirectly. “Unfortunately, given the way we measure GDP, these are people who are probably not going to be counted that much. The GDP measurement will overlook the stress on these people, and we will only indirectly see this, for example, through the kind of stresses that micro-finance institutions are experiencing because they deal with many of these people,” the former RBI governor said. Rajan stepped down from the RBI on 4 September 2016. This is the first time Rajan, who is now Distinguished Service Professor of Finance at University of Chicago Booth School of Business, is airing his views on demonetisation in the public after the note ban. Rajan’s comments assume significance in the backdrop of the RBI’s data released last week which showed 99 percent of the banned notes, which amounted to Rs 15.44 lakh crore, returned to the system. There were expectations that unaccounted money worth about Rs 3-4 lakh crore would not return. Rajan’s book, I Do What I Do: On Reforms, Rhetoric and Resolve, on his stint at the RBI will be released on Monday.