Raghuram Rajan’s ‘I Do What I Do’ Reveals Secrets of Indian Policy Making

‘I Do What I Do’ brings out some important facets of how government institutions function and policies are made. While he never denied the long term benefits of demonetization, he pointed out the short term economic cost overriding the benefits. He, in fact, suggested better alternatives to achieve the principal goals.

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Raghuram Rajan’s View on Demonitisation
RBI Governor Raghuram Rajan during bi-monthly monetary policy announcement at RBI building, Fort Mumbai. Express photo by Nirmal Harindran, 9th August, 2016, Mumbai.

Raghuram G Rajan in his book, I Do What I Do’ has pondered upon his personal experiences as well as the policy issues of the incumbent government. It can be construed from his writing that his preference lies on the previous government compared to the present one, at least when it comes to economic policies.

Right after demonetization, the speculations were ripe that Rajan opposed this decision. Rajan when asked about his opinion was largely ambiguous, although his connotations were against the demonetization drive. For example, his speech in Lalit Doshi Memorial Lecture on August 2014 has been published by Hindustan Times, where he stated, ‘I am not quite sure if what you meant is demonetise the old notes and introduce new notes instead. In the past, demonetisation has been thought of as a way of getting black money out of circulation. People then have to explain the 10 crores in cash sitting in their safe and where they got the money from. It is often cited as a solution. Unfortunately, my sense is, there are clever ways around it.’

Although, his statements have undertones of negating the concept of demonetization, he never crassly opposed it. In his book however, for the first time, he clarified his stand. There is a general view among the middle class Indians that demonetization has been a right step and only a leader like Modi could have taken it. They also think that Modi can flush out the black money hoarded in India and abroad.  They also comprehend that the criticism of demonetization flowing from western media houses is actually a conspiracy to weaken India. However, one cannot possibly blame Rajan to weaken our country just because he endorsed the very things that international economists are saying and have repeatedly published in foreign media. Rajan never denied the long term benefits of demonetization, however, he pointed out the short term economic cost overrides such benefits. His views are endorsable as he said that there are better alternatives to achieve the principal goals.  

The logic behind his claims is explained, “A fair amount of unaccounted cash is typically in the form of gold and therefore even harder to catch,” said Rajan, adding further that he would focus more on incentives that lead to generation and the retention of black money. There were a lot of incentives on taxes and the current tax rate in the country was for the most part reasonable.

This vindicates what ‘The Policy Times’ has been vocal about all along, millions of rupees are lost to achieve something which is not achievable with the process pursued by the incumbent government. The silver lining is the perception of the brilliant deed by a large section of India’s population.