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RBI opposed ‘demonetisation’ during Raghuram Rajan’s tenure, claims P Chidambaram

Former Finance Minister P Chidambaram has claimed that the Reserve Bank of India (RBI) was opposed to the idea of recalling Rs 500 and Rs 1,000 notes during Raghuram Rajan’s tenure as RBI Governor
India TV Business Desk New Delhi February 15, 2017 15:39 IST
India TV Business Desk

Former Finance Minister P Chidambaram has claimed that the Reserve Bank of India (RBI) was opposed to the idea of recalling Rs 500 and Rs 1,000 notes during Raghuram Rajan’s tenure as RBI Governor and that the central bank had conveyed its reservations to the Prime Minister's Office (PMO) two months before the decision was announced. 

In an interview to Hindustan Times, Chidambaram claimed that the central bank, then headed by Raghuram Rajan, had sent a five-page note to the PMO, saying that demonetisation was "not a wise move".

"It's fairly reliable that about the time Dr Raghuram Rajan demitted office, on behalf of the RBI, a five-page note was sent to the PMO on demonetisation,” Chidambaram told HT.

“Now whether it's correct or not, it's for the government to confirm or deny. If such a paper exists, the government must make it public so that we could have an informed debate on demonetisation. I don't know what the note contains but the conclusion I believe was that demonetisation is not a wise step," he added.

Responding to a question on whether his opposition to demonetisation could have been a reason for the NDA government refusing to extend Rajan’s term as RBI governor, Chidambaram said, "In retrospect, that could be one of the reasons but I think there were other reasons also".

"Dr Rajan is a man of international stature. He is not going to do the bidding of this government. He will take independent positions. He will speak freely. He will comment on what's happening. I think this government was more afraid of his ability to speak on many issues and therefore, decided to create a situation where he could not continue," he said.

Raghuram Rajan is believed to have enjoyed a good rapport with Chidambaram during UPA-II rule. 

"Even though as RBI Governor through much of last year I was part of the governing establishment, and therefore bear responsibility to some of Mr Chidambaram's concerns, I have no hesitation in saying that we need people of Mr Chidambaram's caliber to point out not just what he believes is going wrong, but what can be done to set it right, " Rajan wrote in his foreword to Chidambaram's recently released book, "Fearless in Opposition: Power and Accountability".