Not asked on demonetisation during my tenure: Rajan

New Delhi: Making disclosure on demonetisation decision taken by the government during his Governership of the Reserve Bank of India (RBI) in his latest book - I do what I do – Raghuram Rajan said that he was not in favour of note ban as short term economic costs associated with such a disruptive decision would exceed long term benefits.

The former Governor of the RBI writes that the Central Bank wasn't asked to take such a decision at any point during his tenure at the Reserve Bank.

Rajan's book gives a wonderful insight in form of various accounts reflecting his very unstable relationship with the present government.

He also wrote that he was asked by the government in February 2016 for his view on demonetisation, which he gave orally. Although there might be long-term benefits, he felt the likely short-term economic costs would outweigh them.

He didn’t elaborate on the short-term costs or the possible long-term benefits, but as the RBI governor he “felt there were alternatives to achieve the main goals.”

"The RBI flagged what would happen if preparation was inadequate," the paper cited Rajan as saying in the book that will be released next week.

Rajan also told the newspaper in an interview that the demonetization had a disruptive impact on the economy.

"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 was quoted as saying.

Indians returned most of the estimated 15.4 trillion rupees ($242 billion) in high-currency bills removed from circulation last year, the RBI said in its annual report on Wednesday. 

Modi had been intending to make it difficult for hoarders of undeclared wealth to exchange their undeclared cash for legal tender, but it seems most of it was returned by individuals, implying there was a very small amount of unaccounted money held in cash or evaders had managed to legalise their unaccounted money.

While Modi`s drive to unearth unaccounted wealth did not deliver the desired result, it hurt consumer demand in a country where most people are paid in, and buy what they need with, cash.

India`s economy lost further steam in the quarter to June as growth slid to 5.7 percent, its lowest level in more than three years and a marked slowdown from a 6.1 percent growth in the January-March period.

With Inputs from Reuters