News Frontliner Web Desk, 11 March 2019: In a recent sensational disclosure, an RTI reply has revealed that the Reserve Bank of India had strongly opposed Prime Minister Narendra Modi’s demonetisation announcement of 8 November 2016. However, without caring to pay any heed to the federal bank’s objection, and not even caring to wait for the RBI Board’s mandatory approval, PM Modi announced the wiping off of 86 percent of currency in circulation with a notice of just a few hours.
The RBI board had warned about the short-term negative effect of demonetization on growth and had specifically opined that it would not have any material impact on the campaign against black money. The central bank had listed four objections to the overnight notes ban announced by the Prime Minister before agreeing to it “in larger public interest”, the RTI reply has further revealed.
The central bank board had met just about two and a hours before Narendra Modi’s sudden announcement through a televised address to the nation on November 8, 2016 even before the RBI board’s approval.
The RBI Board’s approval was sent to the government five weeks later, on December 16, and the RBI had officially recorded its objections to most of the arguments put down by the government for banning high value notes.
The then RBI Governor Urjit Patel, and the man who succeeded him as central bank chief — Economic Affairs Secretary Shaktikanta Das, were present in the meeting that approved the government’s unilateral decision of demonetisation.
The government argument, that the circulation of Rs. 500 notes was up by 76 per cent and Rs. 1,000 up by 109 per cent, was put down by the RBI saying that argument did not adequately support cash ban recommendation.
RBI directors also felt that while counterfeit notes were a concern, “Rs. 400 crore as a percentage of the total quantum of currency in circulation in the country is quite insignificant”. Also, most of the black money was held not in the form of cash but in the form of assets like gold or real estate and demonetization would not have a material impact on those assets, the RBI board put down in its note.
The fact that, more than 99 per cent of the banned cash returned to the system, raised questions over the government’s the then declaration that the drastic move of demonetization is to check black money. Former Finance Minister P Chidambaram in a series of tweet launched virulent attack on the BJP government’s decision of demonetization. The senior Congress leader accused the ruling BJP government of overlooking RBI’s warning of short-term negative impacts, and thereby “destroying the livelihood of millions of people”.