Former RBI governor Raghuram Rajan provided fodder to the opposition by linking India’s economic slowdown substantially to the ill effects of demonetization.
In an interview to NDTV at the ongoing World Economic Forum in Davos, Rajan claimed that the government’s objectives behind demonetization made sense but it has not been able to achieve desired results and has actually ended up reversing economic growth.
Rajan said that the central bank had opposed note ban when the government had sought its views before implementing it in November 2016. RBI had argued that the move, without printing enough notes beforehand, will have drastic consequences and will not meet desired results.
According to Rajan, demonetization was the nail in the coffin for several businesses in the informal sector. The substantial increase in use of digital modes of transacting following note ban is noteworthy, but that is a relatively small matter compared to the negative effects it had.
On the question of goods and service tax, however, the ex-central bank chief expressed a positive opinion. He claimed that GST will have a very good impact in the longer run. There are some problems with its implementation right now, but addressing them will be immensely beneficial to the economy.