RBI monetary policy: Urjit Patel’s continuing silence on demonetisation deposits is disturbing

The half-hour-long press conference by Reserve Bank of India (RBI) governor Urjit Patel on Thursday didn’t offer any surprises, as expected.

Except a few routine measures announced to manage the banking system liquidity post the demonetisation exercise and the promise of further steps to tackle non-performing assets (NPAs), the policy announcement was largely a non-event. A rate cut wasn’t anyway expected in the first place in the backdrop of rising retail inflation and prevailing global scenario.

The only exception to the otherwise mundane presser was when Patel came down heavily on the idea of farm loan waiver. Replying to a query, Patel said farm loan waivers undermine an honest credit culture and spoils credit discipline. Patel’s comments assume significance as they come shortly after the Uttar Pradesh government under Yogi Adityanath announced a Rs 36,000 crore loan waiver to keep his party’s poll promise. “The general government deficit, which is high by international comparison, poses yet another risk for the path of inflation, which is likely to be exacerbated by farm loan waivers," Patel said.

This is a clear message to the BJP government at the Centre, which gave a go-ahead to the Adityanath government in UP with a waiver that benefits 2.15 crore farmers. UP already has a weak balance sheet and its fiscal deficit is at unhealthy levels. In an earlier piece, this writer had argued how loan waiver can ultimately harm the farmer, the banks and the governments. Patel has passed a subtle message to both the Centre and the state governments that waiver shouldn’t be the way to help out the farmer.

Urjit Patel, Governor, RBI. Reuters

Urjit Patel, Governor, RBI. Reuters

But, the big disappointment in the Urjit Patel presser came when he chose to remain totally silent on the finer details of the demonetisation process, particularly details on how much deposits in old currency have come back to the banking system and his assessment of what the whole process meant to the economy after four months. Nobody asked any questions either.

Demonetisation was announced by Prime Minister Narendra Modi on 8 November and the window to public to deposit old Rs 500, Rs 1,000 currencies expired in December 2016. The window remained open for NRIs to deposits their old notes which expired in March 2016. About Rs 15.4 lakh crore currency, which constitute about 86 percent of total currency in circulation, was scrapped on 8 November. The last disclosed figure on deposits was Rs 12.44 lakh crore as on 10 December 2016.

Revealing this information would have augured well for the RBI to safeguard the central bank’s principles of transparency, particularly so, given that a few former central bankers such as former RBI deputy governor, Usha Thorat, had criticised the bank for lack of information on it during the whole process.

In February, the RBI governor had said that the process of counting was on. “The number that we should now divulge should be a verified number and congruent with the complex accounting,” Patel had then said.

“There are tens of thousands of bank branches and 4,000 currency chests. We need to be careful and try that this is a number which is not a mere estimate but a verified number both physically and in the accounting sense,” Patel added, when asked about the estimated amount of old currency notes that had come back to the central bank.

But, this excuse does not hold water now fading as this is the fifth month of demonetisation and the country deserves to know finer details of one of the biggest-ever disruptive economic exercises undertaken in the country. The central bank, which has so far refused to give a number on this saying that the counting process is still on, could have given some clarity on this aspect in the policy presser. This clarity is missing even now.


Published Date: Apr 06, 2017 04:42 pm | Updated Date: Apr 06, 2017 04:42 pm

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