Former prime minister Manmohan Singh, a distinguished economist and former RBI governor, has raised one more pertinent question: Was the Reserve Bank of India given enough time to discuss the demonetisation before the announcement was made?
According to a report in The Indian Express, he has raised the question at a meeting of the parliamentary committee on finance, which is studying the government’s decision to demonetise Rs 500 and Rs 1,000 currency notes from 8 November.
The committee met on Thursday under the chairmanship of Congress leader M Veerappa Moily. Singh is a member of the panel.
The report quoting a panel member said Singh citing a note from the central bank said the government took the decision on 7 November and the RBI board on 8 November. Singh was of the opinion that the panel should be first listening to the government and then the RBI governor.
Governor Urjit Patel was to brief before the panel on 21 December. This was postponed and, according to a PTI report, the briefing will now happen on 19 January. The decision to postpone is probably in keeping with Singh’s advise.
Singh had earlier criticised the demonetisation in the Lok Sabha saying that demonetisation is “organised loot”, “legalised plunder” and “monumental failure”.
“It is no good that every day, the banking system modifies rules and conditions. This reflects poorly on the office of the PM, finance ministry and the Reserve Bank of India. I am very sorry that the RBI has been exposed to this criticism,” Singh had said then.
His views assume significance in the backdrop of criticism that the RBI has failed in anticipating the problems that is likely to crop up after the note ban and also handling the situation effectively. Many experts are of the view that this has affected the credibility of a key democratic institution that has remained autonomous and largely escaped arm-twisting by the political class of the country.
The RBI and the finance ministry together have put out more than 60 notifications and orders in about 45 days of demonetisation. This in itself is a proof that the central bank was unprepared for a move with such large scale ramifications. The frequent rule change has not only put the banks in difficulty but has aggravated the pain of the common man.
However, even more shocking is Singh’s revelation at the panel meeting that the RBI was given just one day to take the decision on demonetisation. This claim raises many questions.
Does this mean the government took a hasty decision and forced the RBI to do so ? If that is so, it means the government or the RBI had not done any ground work before announcing the decision. Or was it just a last-minute hurry after taking most of the decisions earlier? When was the RBI first informed about the impending note ban? Was it kept in dark too about the decision until the end?
If it is so, it flies in the face of the government’s claim that it has been preparing for demonetisation for many months. In fact, prime minister Narendra Modi had in a speech (watch here) claimed that it started 10 months back and had to be kept a secret fearing the tax cheats would have found ways to whiten their ill-gotten wealth.
The public has been going through unprecedented difficulties due to the cash crunch, a direct consequence of the demonetisation. While the ban sucked out Rs 15.44 lakh crore worth of currency notes in circulation, the government and the RBI have been able to pump only about one-third of the money back into the system. The public has a right to know why there is still a cash shortage. It is to be noted that the central bank or the government has not yet given a status report of the printing of notes, especially that of Rs 500.
If the RBI was given only a day to take a decision, as Singh has said before the panel, that probably explains why the authorities were not prepared for the move. The note from the RBI has to be made public at the earliest.
In fact, the government and the RBI should make public all documents and files related to the decision. It is all about transparency of governance