Reserve Bank of India (RBI)’s embattled governor, Urjit Patel, missed an opportunity to clarify his stand on certain important issues regarding the demonetisation exercise at his meeting with the Parliamentary panel of finance on Wednesday. Of course, the information Patel shared gave us some insights about the course of the note ban, but still left many questions unanswered. Patel should have ideally offered the much needed clarification on certain critical issues to the panel in the larger good of economy and interest of common man, battered by an unprecedented cash crunch in Asia;s third largest economy.
Before discussing these issues, one must take note that the RBI chief indeed informed the panel that discussions between the government and the RBI regarding the demonetisation began on early 2016 although the formal correspondence happened began only closer to the D-day on 8 November.
This puts to rest, to great extent, the debate that whether the RBI was in the know all along, although whether one question still remains on whether the central bank was overruled by the Modi-government in the entire exercise or not.
At least, governor Patel doesn’t seem to have said so, so far. But, this is something that is likely to remain a mystery forever, no matter how many RTIs are dispatched to the Mint Road. Patel also shared that about Rs 9.2 lakh crore new currencies have been infused into the banking system since 10 November.
But, beyond these, the three important questions Patel could have, but didn’t, answer are these:
First, how much old currency deposits did come back to the system since note ban? “The process of arriving at a figure is still on,” said the governor to the panel.
This response is understandable given the massive scale of exercise being undertaken and for taking into account the lag for the final counting after the 30 December window got expired. But, it doesn’t still explain why the RBI couldn’t give an interim-update of the money returned in the exercise.
The last time the central bank gave an update on the money returned to bank counters was on 13 December when it said Rs 12.44 lakh crore currency has returned as deposits till 10 December. Since then, around 40 days have passed. The central bank could have given an update to the public since the amount returned to bank counters is one of the key indicators deciding the outcome of the demonetisation drive.
It is even more critical to be transparent given that there have been reports that almost all of the demonetised money has returned to the banking system, ending room for debates will significant amount of black money would perish outside the formal system.
Besides, former RBI top officials such as Usha Thorat had pointed out the need for this transparency asking the central bank to be more forthcoming in sharing information on the demonetisation exercise.
Second, what is the guidance from the central bank to the public on the eventual full roll back of cash curbs and return of normalcy in the banking system? This guidance was totally missing from Patel’s deposition before the Parliament panel, except some vague comments on things returning to normal as soon as possible.
About Rs 9.2 lakh crore new currency notes have been infused into the banking system till date post the decision of Prime Minister Narendra Modi decided to scrap Rs 500, Rs 1000 notes on 8 November, Patel, told the Parliamentary standing committee. Going by Patel’s explanation, 60 percent of the old notes withdrawn from the system is already been replaced with new notes. Purely looking at numbers, at this pace, the current cash crunch should have come to an end already in the nation hit by severe currency scarcity in the last two and half months.
But, is that the reality on ground? Even after replacing 60 percent of the currency, why does cash crunch continues in many areas even now and despite all ATMs being upgraded to dispense new currency? Many of them remain non-operational, something bankers themselves admit. Even the recent hike in daily withdrawal limits to Rs 10,000 per day from Rs 4,500 wouldn’t help much unless the weekly limit of Rs 24,000 is withdrawn, also due to the fact that cash hoarding will continue with people anticipating continuing shortage. Patel wasn’t specific in offering a timeline to lift the cash curbs.
Third, an important question the panel should have asked the RBI governor is the estimate of central bank with regard to the cost of demonetisation in the economy. All that we see in the last two months is pessimistic growth forecasts, reports of rising unemployment, bank lending coming to 19-year lows and industrial activity, consumer demand coming to a halt. Shouldn’t have the central bank offered an estimate on the extent of impact on the economy and the expected tangible gains from the whole exercise? Wasn’t a detailed explanation even more warranted at a time when the RBI’s ability and professional integrity is being questioned?
In short, Patel left more questions than answers at his meeting with the Parliamentary panel on Wednesday.
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Updated Date: Jan 19, 2017 12:38:13 IST