If there was one voice that was missing in the cracked orchestra of demonetisation disaster - including its critics and cheerleaders, and that could have stalled the disaster from happening in the first place if it was heard, it was Raghuram Rajan’s. One year since the former RBI governor stepped down from his post, the man has opened up somewhat about how, during his tenure, the Reserve Bank of India had red-flagged the large-scale economic chaos that would be unleashed in case the government implemented demonetisation.

In the introduction and afterword of his new book – I Do What I Do: On Reforms, Rhetoric and Resolve – Rajan has indicated that Centre had sought his opinion on demonetisation as far back as in February 2016, though it never asked him to implement the decision. In an interview to the Times of India, Rajan has explained that although the RBI had prepared a note laying out how the short-term costs of note-bandi would far outweigh any long-term benefits in a cash-dependent country like India, the Centre nevertheless went ahead with its plans.

Rajan’s self-imposed silence on demonetisation and his exit from RBI – he said he wasn’t offered a second term – has been now broken, and the results are for all of us to see. The former RBI governor has also said that the RBI had also advised the Centre on the massive scale preparations that would be needed in case note-bandi were to be carried out, and that certainly that required much more time.

Photo: Press Trust of India

On the black money issue, Rajan echoed what the critics of demonetisation have long warned of, and what the RBI annual report 2016-17 firmly underlined. “The fact that 99 per cent has been deposited certainly does suggest that aim has not been met… more harassment for the general public that has honestly deposited money that was lying for one reason or the other in various accounts…”

Rajan also mentioned how the RBI was left picking up the pieces of the demonetisation diktat, the impact on the GDP with almost 2 per cent slump, the mixing of the black and white money with 99 per cent of currency coming back into the banks.

“Let us not mince words about it - GDP has suffered. The estimates I have seen range from 1 to 2 percentage points, and that's a lot of money - over Rs 2 lakh crore and maybe approaching Rs 2.5 lakh crore. Then there are the other costs - the hassle cost of people standing in line, the printing cost that the RBI says is close to Rs 8,000 crore, the cost to the banks of withdrawing the money, and the time spent by their clerks, by their managers and by their senior officers doing all this, and the interest being paid on all those deposits, which earlier were effectively an interest-free loan to the RBI.”

Effectively, this is the former RBI governor, the former chief economist at the International Monetary Fund and the former chief economic adviser to the (UPA) government, underscoring what the critics of demonetisation have always held – in his trademark politeness and understatement. This is exactly in line with what his then Prime Minister Manmohan Singh had said with more embellish: that demonetisation was “organised loot and legalised plunder”.

However, what does it say of the Centre that refused to pay heed to its then central banker, and went ahead with the notebandi diktat regardless? What does it say of a government, (in)famous for keeping all its cards tightly close to its chest, and not believing in public consultation and debates as it unleashed economic decisions that uprooted millions of poor people’s lives?

Rajan’s firm resolve against demonetisation can also be read as the reason why the impeccable former governor wasn’t given an extension as the RBI chief, even though that has been quite the unspoken rule at the central bank. Rajan had steered RBI with firm and iron hands, keeping a critical distance from the government, and occasionally holding up the mirror to the Centre in his ever-so-gentle manner, especially when he batted for the “economics of tolerance”, the profits of pluralism.

Rajan’s speech at IIT Delhi in October 2015 is one such bravura display for intellectual inclusivity and sensitivity married to fiscal prudence and emphasis on growth. He said:

“Actions that physically harm anyone, or show verbal contempt for a particular group so that they damage the group’s participation in the marketplace for ideas, should certainly not be allowed. For example, sexual harassment, whether physical or verbal, has no place in society.

At the same time, groups should not be looking for slights any and everywhere, so that too much is seen as offensive; the theory of confirmation bias in psychology suggests that once one starts looking for insults, one can find them everywhere, even in the most innocuous statements. Excessive political correctness stifles progress as much as excessive license and disrespect.”

Rajan’s gentle outspokenness had made him a darling of the liberals, but anathema to the moral, culture and economic police of the present times, who want to curb the civil liberties and as a result the economic participations of groups, such as meat product entrepreneurs, cow-related industries and other areas impacted by a slew of direct and indirect diktats, narratives that have been peddled for a while.

On demonetisation, Rajan’s warnings were strong, and perfectly sensible. The former RBI governor in his interviews has clearly mentioned that India wasn’t ready for such a large-scale assault on its fiscal autonomy, sucking out 86 per cent of the liquid currency was a direct attack on the poor. Not only the cash crunch that ensued robbed the poor of their meager savings, the frequent alterations in the rules of currency deposit and withdrawals in the first few months following demonetisation led to anxiety attacks, fatal in over 140 cases.

Why wasn’t Rajan paid heed to by the government? Is it because winning Uttar Pradesh general elections, premised on the pseudo-moral narrative of demonetisation and “surgical strike on black money”, was more important than the two per cent setback to the GDP amounting to almost Rs 3 lakh crore?

Is it because the electoral Darwinism of the Modi-led Centre sees nothing beyond their thumb-rule of permanent electioneering, turning government into an “election-winning machine” abusing its powers through illegal, unconstitutional diktats, instead of delivering actual governance on any front?

4/ But who all supported this insanity called #demonetisation? Who were those who sold their souls to Modi for power or coin? — Chirag (@chirag) September 1, 2017

Of course, demonetisation had its cheerleaders. From a number of economists, to industrialists and business heads, to authors and other experts – there was no dearth of those who were ready to stake their reputation to reiterate that demonetisation would in fact yield long-term benefits. While a newspaper like Mint published an editorial regretting its support of note-bandi, admitting it had erred, there are those who still have the pugnacious arrogance to see in note-bandi some obscure benefits.

It’s said Prime Minister Narendra Modi hardly consulted anyone before announcing note-bandi on November 8, 2016 at 8pm. The Sunday has been etched in memory of every Indian. Rajan, now a professor of economics at University of Chicago’s Booth School, however, had tried doing the right thing throughout. Unfortunately, the same cannot be said of his successor in Urjit Patel, whose stint has already been one of the most tainted in the history of RBI, all thanks to demonetisation.

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