My Comments on the statement made by Raghuram Rajan?

 Ex-Governor, RBI, India at the Harvard Kennedy School in Cambridge on 11 Apr 18 on Demonetization

Dear Friends on LinkedIn portal and Economists World over, most humbly I would like to submit that I shall take on each point he made against Demonetisation in India –a step that was initiated by the Hon’ble Prime Minister of India, a visionary leader and then I shall offer my comments against each one of them to make it for an Analysis to be carried out by all of you globally though DeMo has already attracted a huge rounds of discussions world over at media & conference and many Business Schools are having a case study on the same in their curriculum:

1. He (Mr. Raghuram Rajan-Ex Governor of Reserve Bank of India) said, “Demonetisation I think was not a well-planned, well thought-out useful exercise”:-

My comments: (i)It was a well thought, planned and an unavoidable Financial Prudence exercise but a bold decision in the given circumstances prevailed in India in order to get back the bank’s liquidity at top most priority which was under tremendous amount of stress due to huge NPAs & as lending to the MSMEs had reduced to nearly nil. There was no lending to the new small entrepreneurs or in credit regime. So, it was done with an aim to shape up a Structural Design for the Formal Economy & to move it on a Stability Ladder upwards and keeping micro & macroeconomic parameters under surveillance & tight controls (ii) Counterfeit currency circulation in the country was on increase at an alarming rate and that was used for terror & nexalite funding, hence posing a serious challenge to the internal security of India. So, it was also done to achieve an objective to bring a halt to this increasing threat against the nation (iii)In order to contain cash flow in daily transactions & to use reduced cash use in the system and to arrest Corruption & Black Money Use to some extent was an another pursuit so that people deposit such hoarded cash in to the system so that it could be digitally tracked in order to initiate further steps to catch unaccounted deposits as such big data was created so that Direct & Indirect Tax Envelope could be enlarged with use of Robo-Analytics and people gets oriented towards paying applicable income tax & other taxes honestly. So, it was targeted to inflict & ensure a Behavioral Change among the non-tax payers.(iv) It was also with an attempt to move more closer towards Digital Economy to have a control on corruption to a great extent and also the possibilities for generation of Black Money further gets reduced to a large extent and a stability takes place in real estate market as well and also a check on food-inflation so to get to the state of normalcy rather having a inflated economy and sky rocketing prices of pulses & vegetables .

2. He (Mr. Raghuram Rajan) further said, “At the time of DeMo, it was 87.6% of the currency value in the denomination of 500 & 1000 rupees notes (Legal tender).Any macro-economist would say that when you are demonetizing such huge %tage of currency, better make sure that you print the same amount of new currency or pretty-much close to that. India went in to it without having done that”. “So it had a negative economic impact. But also the idea was that some-how people who had money stored in the basements, without having paid taxes on it, would sort of overnight see religion, come to the government and say sorry we were hiding this stuff, let me pay taxes on it. That was to some extent naive of you. Anybody who knows India knows that very quickly we find ways around the system.” He added. He also said that essentially the money that was demonetized came back to the system,” but it did not have the direct effect that was sought---that a lot of people will pay taxes”.

My comments: It is very casual rather an unfortunate statement by you Mr.Raghuram Rajan and it could have been avoided by you (a person of the attainment of the present status in economics & financial prudence). The pace of printing notes was definitely a little slow but it created a desired impact for which DeMo was put in place with an extreme element of surprise so that people move towards Digital Transactions and also able to create their Digital Tracks under compulsion so that to trace how the people with Black Money finds various routes designed by the existing corrupt systems that was created during the previous regimes over a long span of bad governance so that it could be tracked later to initiate suitable actions against those found at at fault as per the Law of the Land or with new regulations to be put in place for the same. Infact a huge amount was declared under the Amnesty Schemes of the Government of India by a particular date and the direct tax base payees increased by about 10 million as first time payees. It was never assumed that entire money will not come back, it has come back and about 0.6 million people & about 21 million shell companies have been caught. The actions against the Black Money that was deposited in the form of White Money are being initiated at a very fast pace in desired numbers so it very easy to arrive at a conclusion that DeMo was a Stupendous Success & indeed a Game Changer or I shall call it a revolutionary & boldest decision by any leader on this planet. It is one initiative of Shri Narendra Modi that was lauded & supported by the entire nation in unison with huge mass support nearly in 100% except the corrupts & the opposition politicians & political parties in spite difficulties encountered by the poor, middle man, small businesses and farmers & daily wage workers being in long queues  for hours together for about 02 months at the time of withdrawals & deposits as they were sure that it has been done for the good of nation and for them in long run. So, DeMO is huge success. Dear Rajan-people could circumvent the system earlier, now the system is strengthened during & after DeMo to catch who have found or finds the ways around the system. So, please don’t defame India any more as it has moved towards an Honest India-A New India-a fastest emerging economy for sure which has been certainly enriched with the rich dividends of DeMo.   

3. Mr. Raghuram Rajan further said “There may be some long term impact that people think that if this sort of thing happens that the government is serious of collecting taxes, there may be a greater tax payments, but we still have to see strong evidence that is true,”. “ So, the negative economic impact that people not having currency, not being able to pay, economic activity plummeting, especially in the informal sector, which happened. A lot of people probably lost their jobs; we do not count that well because it is the informal sector”. He also said,”The positive impacts are out there in the future, we don’t know whether they will be important and to my mind, it was not a policy that was useful at that time. He also said we were consulted and we did not think it was a good idea on DeMo. The cost of DeMo varies between 1.5 -2.0 % of GDP. He further clarified I don’t think even the government necessarily challenges that and it would be a really die-hard government advocate who would say that growth benefits of DeMo were immediate”.

My comments: Dear Mr. Rajan-again I donot understand why you are in delusion as numbers are available in media now for easy reference of anyone that how much new Direct Tax base has swollen and how much deposits received with that along with an exponential increase in Digital Transactions . All these are certainly the short terms gains along with others those are appended by me at my comments offered above at Sl.01.The cost is only <0.5 % of GDP and it was compensated as it has brought a desired real structured framework with needed reforms in an economy to put it on a Stability Ladder upwards so that long terms gains are destined to be there as growth rate has already bounced back with necessary correction factor arresting the effects of shadow economy. DeMo was a most befitting and a timely action and also most appropriate before the implementation of GST.

4. He (Mr. Raghuram Rajan) further stated that when talking about NPAs and multi-crore PNB Scandal, that worry is some of the banks still follow antiquated system. Further worry is systems are not adequate to prevent rogue dealers, rogue employees colluding and making off with stuff.”

My comments: Dear Mr. Rajan –could you please state what specific efforts going out of way as an expert you made during your tenure to address or arrest both the problems as these were there very much in your tenure at your plate. Donot you feel that you were not able even bring out what was going on in Punjab National Banks though the RBI is a regulator & you were the Governor of RBI that was carrying out the audits of the banks periodically so that to catch such scandals in time.

5. Mr.Rajan in reference to GST stated that,”GST implementation, we will figure it out eventually. It would be nice if we can implement it much better than we do. But it is not unfixable problems, we can work on it. I won’t give up hope on that at this point of time.”

My comments: I totally agree with you on this point that GST could have been implemented certainly in a better way by bringing all the corrections handled initially itself those were done later as they were predictable and we could have also had done a pilot to test GST Backbone on Digital Platform to so that initial hiccup those were experienced by the users to use GST network Pan India could have been sorted out with more aggressive training framework for them. Any way it is an evolutionary process so it is shaping very well though tax slabs on certain items still will go a change and finally it shall be only 02 tax slabs system only even taking diesel & petrol under its ambit. The E—Way bills are making further improvements in order to save transit times in supply chain system of the country.

My question? to you Mr.Raghuram Rajan is that could you please tell that why you promulgated Gold 80:20 scheme with a RBI circular certainly in haste knowing well to whom it is going to benefit as you knew that this scheme was pushed by the Finance Minister,GoI, Mr.P Chidambram on 16 May 2014 though the GoI led by UPA got defeated in Parliamentary Elections?So, you knew that it is a wrong decision but you did not offer any objection to it and you also implemented it is haste through RBI Circular before NDA government could took oath so with out the permission of the new democratically elected majority government.Why such a haste please?