Raghuram Rajan, former Governor of the Reserve Bank of India, tells NDTV that if unprepared, the notes ban can have a chilling impact on the economy. Speaking to NDTV’s Sreenivasan Jain, Mr Rajan says an unprepared notes ban can see dramatic slowdown and also put companies out of business. “I conveyed my notes ban concerns to those that mattered,” he says. On his tenure at the RBI, Mr Rajan says he was open to staying on as Governor but the “government did not grant me contract.”
Following are the highlights of Raghuram Rajan’s interview:
NDTV: You were offered a two-year extension as RBI governor but were denied leave by Chicago University. True or false?
Raghuram Rajan: False. Chicago (University) never put any restriction on me. It was happy to give me leaves. So that was never a constraint. They just had to plan it, that’s all.
NDTV: Then what was the reason (for not continuing as RBI governor)?
Raghuram Rajan: I had a three-year term and the term came to an end. If there had to be an extension, there had to be an agreement with the government but there wasn’t. The government did not offer me a new contract and that’s where it ended.
NDTV: So you were happy to stay on?
Raghuram Rajan: I was open. We were trying to discuss what that (new contract) might look like and were trying to work on something new. But there was no sense of what it might look like – that’s where it ended.
NDTV: Why do you think they were not keen to have you back?
Raghuram Rajan: I am the wrong guy to ask (this). I cannot go into the details of our discussion but there was no agreement in the end.
NDTV: Do you think your not being wildly enthused by demonetisation could have been a factor?
Raghuram Rajan: It’s incorrect and improper for me to speculate. I don’t know what the specific issues were.
NDTV: You said notes ban would result in a short term economic cost. What sort of a cost?
Raghuram Rajan: If you’re not prepared on Day 1 with all the currency that’s being replaced – currency is important for economic activity – you will have a chilling of economic activity. You would see a dramatic slowdown of economic activity.
A second factor that you to worry about is putting some companies that operate on thin margins out of business. Sales plummet, they can’t ride out the storm, they go out of business.
Third element is effects on investor sentiment. If there is a concern it is long-drawn out process, there can be concerns of how it will affect consumption.
NDTV: We have looked at all the claims that went in favour of demonetistion. But none of the claims really gave a clear idea.
Raghuram Rajan: When you think about what kind of measures we need to implement to bring tax compliance, we have to keep various things in mind. There needs to be a process.
NDTV: You also had concerns whether notes ban would achieve what it set out to?
Raghuram Rajan: There is the question of whether you can catch the guys that you want to catch and do they find ways around it. I think the worst possible combination of circumstances will be where you don’t catch the guys but you still have the effects on economy.
‘Indians are good at Jugaad’
“In India working people have coined the word jugaad. We’re pretty good at jugaad. So if you know India well you should recognise that a lot of Jugaad happened – people will find ways around it. Its economic arbitrage with a touch of illegality about it.”
On the notes ban process
Raghuram Rajan: What we have said in the book that after we gave our note, a committee was set up and started the process of discussion. In my view, it never came back to us that here is a decision that you’ve to make or here’s the timing we want to do this scheme.
On new notes
Raghuram Rajan: We had started the process of designing the new notes. The new notes – 2000, 500 and a new 1,000 – had been approved in May. To say none (of notes ban prep) was done would be incorrect. But a monetary economist would’ve liked for all the notes to replaced at one go.
NDTV: So should we have gone ahead with notes ban?
Raghuram Rajan: We don’t yet know the full effects of demonetisation. Based on information that we have now, ignoring future dividends, the answer is fairly obvious. (no)
On Aadhaar Cards
“I like the process of getting everybody to sign on to their accounts with the Aadhaar number.”
On Gauri Lankesh murder
Raghuram Rajan: It’s very unfortunate that a journalist – or anybody – be killed. But it’s too early to draw conclusions. We have to be vigilant that we don’t narrow the space for discussion but let us not worry that the country is going towards only one direction.
Raghuram Rajan on trolls
“We should not let our dialogue be governed by the idiocracy”.
On Indian economy
Raghuram Rajan: Efficiency of economic system breaks down with protectionism.
“One of the reason for the rise of populist nationalism is because of a sense of victimisation among the majority community. This leads to long term problems for the economy.”
NDTV: Any regrets?
Raghuram Rajan: Well, most of what we set out to do, we managed to do.