Modi Set Aside Rajan’s ‘Reservations’ on Demonetisation Plan

Modi govt set aside the then RBI Governor Raghuram Rajan’s reservations on demonetisation, reports Chandan Nandy.

Modi govt set aside the then RBI Governor Raghuram Rajan’s reservations on demonetisation. (Photo: The Quint)

Prime Minister Narendra Modi and two or three very senior bureaucrats brushed aside the then Reserve Bank of India (RBI) Governor Raghuram Rajan’s “reservations” over the demonetisation of Rs 500 and Rs 1,000 denomination currency notes, top sources in India’s central bank told The Quint today.

RBI Governor Urjit Patel addresses a press conference to announce demonetisation of Rs 1000 and Rs 500 notes in New Delhi on 8 November, 2016. (Photo: IANS)

Rajan Versus Govt

The sources said that the “process to withdraw the two large denominations” began “a few months ago” when Rajan was firmly in position and when the Modi government had not made its intentions clear on “paving the way” for his exit which took place in the form of his formal resignation on 4 September this year. Rajan had announced in June 2016 that he would not serve a second term as RBI governor.

Rajan’s reservation over Modi’s move could have been a reason for the government’s unwillingness to grant him an extension as RBI governor. Rajan had not responded to The Quint’s emailed question at the time of writing this story.

Printing Began 5-6 Months Ago

“Rajan certainly had reservations about this move but the government was bent on going ahead anyway,” the sources said, but they refused to disclose details of the then RBI governor’s disinclination to support Modi’s proposal. The entire process went on fast track once Rajan was succeeded by Urjit Patel whose signature appears on the new currency notes which will be issued from 11 November.

Consequently, the PM and the senior bureaucrats went ahead with issuing instructions for printing the new Rs 500 and Rs 2,000 denomination notes, which began “five to six months ago”. Rajan, however, did not come in the way of the government to proceed with printing the new currency notes.

The printing of the currency notes with new security features went underway at the Salboni (West Midnapore), Nashik and Mysore mints, sources said, adding that the RBI and the country’s banking network is “fully geared and prepared” for the “conversion” from the old to the new currency notes.

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