No deposits above Rs 5,000 more than once before 30 Dec; one more broken promise

On the 41st day of Prime Minister Narendra Modi’s 50-day promise to get back normalcy in common man’s life post 8 November demonetisation announcement, yet another promise is broken.  The Reserve Bank of India (RBI), in a press release said in the remaining days of this month, one can make a deposits in Rs 500 and Rs 1,000 notes in excess of Rs 5,000 only once per account. If you want to deposit cash in banned currency in excess of that amount, you’ll have to explain in the presence of at least two officers on why you could not do it earlier. Even if the deposits are made in small amounts multiple times, if they add up to the magic number of Rs 5,000, again you stand exposed to questions. One wonders what happened to PM Modi’s promise (read the full text of PM Modi’s 8 November speech here) to the nation that, “Persons holding old notes of 500 or 1,000 rupees can deposit these notes in their bank or post office accounts from 10th November till close of banking hours on 30th December 2016 without any limit. Thus you will have 50 days to deposit your notes and there is no need for panic. Your money will remain yours. You need have no worry on this point.” The RBI circular is also silent on why should an honest citizen need to answer a banker on the timing of his deposit and the amount? A banker, after all, is not an investigator. Or is the assumption here that anyone who hasn’t deposited invalidated currencies in their bank accounts are hoarders of black money? Repeated flip-flops in withdrawal/exchange rules since 8 November makes one wonder what is the nature of the plan both the RBI and the government claims to have for the ‘well-thought out’ rollout of currency ban. It reminds one the statement of former Prime Minister Manmohan Singh’s caution to the RBI, an institution he headed once, about the trust deficit the central bank is facing with the way it dealt with the demonetisation from the very beginning. “It is no good that everyday the banking system comes with modification of the rules, the conditions under which the people can withdraw money. That reflects very poorly on the Prime Minister’s office, on the finance minister’s office and on the Reserve Bank of India. I am very sorry that the Reserve Bank of India has been exposed to this sort of criticism which I think is fully justified.” The ardent fans of frequent rule flip-flops in government and the RBI would do well reading history and find the story of a former Delhi sultan, Muhammad bin Tughluq. What do the government and the RBI achieve by breaking their promise by restricting deposits before the 30 December deadline? One possibility is that the government doesn’t want a likelihood of all money demonetised returning to the bank counters. At the last count, almost Rs 13 lakh crore of the Rs 15.4 lakh crore demonetised currency notes had found their way back to the bank counters. If all the Rs 15.4 lakh crore returns, it will be an egg on the face of the government, which probably expected a good part of the unaccounted wealth to get destroyed. This would have helped it to say that much illegal cash is destroyed in the exercise. Earlier, the government was expecting only around Rs 10 lakh crore to return, but the public surprised the government by depositing money diligently. If the action is to target hoarders, it is unlikely that the government finds any luck with this latest flip-flop. The tax evaders would have deposited their money much earlier in small doses either by creating fake accounts (like in the Axis Bank episode), donating to one of the 1866 political parties that enjoy no tax, no scrutiny under the current laws, by splitting the amount to several small bundles or depositing it multiple benami accounts. Thus, the likely victims of this latest U-turn will be the common man, some of whom would have waited for the queues in banks to get short to deposit their old currency savings. If they have a large amount to deposit, they should get ready to face questions at bank counter to establish that this is their own money. Last month, the government had abruptly stopped the currency exchange facility at bank counters after initially promising until 30 December. Remember, a number of time rules have changed for the common citizens on cash withdrawals and deposits. Bankers, at one point, even inked customers to ensure people don’t withdraw cash beyond certain specific limits, reminding one of war-time rationing. Demonetisation story is taking new turns rapidly with changing goal posts and theories of as yet uncertain gains in the long term. But, no matter what the final gains of the demonetisation are, both the RBI and the government will have to answer the common man on the repeated breach of promises while executing a ‘well planned operation’ and fight a growing trust deficit that’ll also have likely political implications.