Consider this: On 8 November 2016, Prime Minister Narendra Modi demonetised old Rs 500, Rs 1,000 notes worth Rs 15.44 lakh crore that constituted 86 percent of the total currency in circulation at that point. Just after a month of the demonetisation announcement, in the second week of December, the RBI made an announcement saying banking system has received Rs 12.44 lakh crore in invalidated high value notes until 10 December. In other words, it took 32 days for the RBI to compute the figure of Rs 12.44 lakh crore or about 81 percent of the total amount of currency demonetised.
Since then, over 200 days have passed. And, the RBI is still unable to finish counting of the remaining Rs 3 lakh crore. In a meeting with a Parliamentary panel on Thursday, RBI Governor Urjit Patel repeated what he has been saying for the last seven months. The RBI is still counting notes and has even ordered new machines to speed up the process.
It is not a convincing explanation - not just for the parliamentary panel but also to a billion people who were subjected to a highly disruptive economic experiment purpotedly aimed at tackling black money, corruption and terror finance, which are yet to manifest in hard numbers. If one goes a step further, it is nothing but a cruel joke, considering the number of jobs lost and businesses hit due to the exercise. How can a central bank governor keep saying for several months that it is counting the currency accepted at the bank counters with proper acknowledgment, preliminary checks for fake notes, rules restricting the amount of deposits and strict verification of source for high value deposits?
That leaves us with only one possibility - the amount of money returned to the banking system is more than what was demonetised. This would mean despite the strict rules that were put in place, the RBI couldn't stop fake currency from entering into the banking system through formal channels during the demonetisation period and it is still finding ways to make its accounts. There were reports (read here and here) early this year that said 97 percent of the banned currency have returned to the banking system.
Remember, though the deadline for public to deposit/exchange old notes ended on 30 December, the window for NRIs and certain categories were open until March-end. Also, about Rs 6,000-Rs 8,000 crores of deposits in old currency would have come from cooperative banks which were earlier asked not to deposit this money in commercial banks or in RBI chests. With this money also coming in, the RBI’s work will be even more time-taking going by what the governor says.
The second possibility is that the central bank is painfully inefficient in getting the work done within deadlines. Anyone looking at RBI’s past record would find it difficult to buy this argument.
Another surprising factor is that Patel didn’t even commit a timeframe to the panel to disclose the figure of old currency deposits. But, the RBI will have to show this in its annual report that will be released in August. The central bank follows a financial year of July to June, not April to March. What will be the central bank’s excuse if it is still counting the notes even then? Or will the figure remain a mystery even then? Former RBI top brass, including former deputy governor Usha Thorat, had come down heavily on the current leadership of the RBI on the lack of transparency with which the central bank has carried out the whole process.
The continuing silence on demonetised notes and RBI’s objective assessment on the gains of the exercise doesn’t augur well for India’s central bank. Its response to Parliament panel — such as lack of counting machines — on the amount of money returned to the banking system post one of the biggest economic exercises India has ever undertaken increasingly sounds like a cruel joke, rather than a measured response from a reputed central bank.
Updated Date: Jul 13, 2017 11:11 AM