Gov­ern­ment was un­der­pre­pared to re­place banned notes: RTI re­ply

Financial Chronicle - - FRONT PAGE - FC BUREAU

It now seems that the gov­ern­ment was not en­tirely pre­pared to re­place scrapped Rs 500 and Rs 1,000 notes, 86 per cent bills in value terms, af­ter it an­nounced de­mon­eti­sa­tion on Novem­ber 8, 2016.

RBI started print­ing new Rs 2,000 notes only two-and-a-half months be­fore the note ban. “The first stage of print­ing process of Rs 2,000 notes com­menced at BRBNMPL or Bharatiya Re­serve Bank Note Mu­dran on Au­gust 22, 2016,” an RBI sub­sidiary said in re­sponse to an RTI query.

IT now seems that the gov­ern­ment was not fully pre­pared to re­place scrapped Rs 500 and Rs 1,000 notes, 86 per cent bills in value terms, af­ter it an­nounced de­mon­eti­sa­tion on Novem­ber 8, 2016.

The cen­tral bank started print­ing new Rs 2,000 notes only two-and-half months be­fore the note ban.

“The first stage of print­ing process of Rs 2,000 bank-notes started at BRBNMPL on Au­gust 22, 2016.” an RBI sub­sidiary has said in re­sponse to an RTI query.

The Bharatiya Re­serve Bank Note Mu­dran (BRBNMPL) is one of the sub­sidiaries of RBI that prints ban­knotes for the cen­tral bank.

In­ter­est­ingly, Raghu­ram Ra­jan was still the RBI gov­er­nor when the new Rs 2,000 notes bore the sig­na­ture of his suc­ces­sor Ur­jit Pa­tel. Pa­tel had in­deed been named for next gov­er­nor­ship but took charge al­most two weeks later.

It fur­ther said the first stage of print­ing of new Rs 500 ban­knotes started on Novem­ber 23, 2016.

In a sud­den move, prime min­is­ter Naren­dra Modi had de­clared all Rs 500 and Rs 1,000 notes il­le­gal in a tele­vised ad­dress to the na­tion last Novem­ber.

Speak­ing at a po­lit­i­cal rally days af­ter de­mon­eti­sa­tion Modi had said re­place­ment of these notes would hap­pen in 50 days. But re-mon­eti­sa­tion took more time than promised with re­ports of ATMs be­ing dry com­ing from across the coun­try.

Peo­ple queued up for long hours at bank branches to ex­change old notes or with­draw­ing it from ATMs. Even if they man­aged to get the new Rs 2,000 notes, ex­chang­ing them for lower de­nom­i­na­tion notes be­came a prob­lem. It has con­tin­ued even now af­ter one year of de­mon­eti­sa­tion.

But it is now ev­i­dent why the prob­lem of cash lin­gered for so long. The print­ing of Rs 500 notes started only af­ter 15 days of de­mon­eti­sa­tion. Be­sides, lo­gis­tics also took time and it took few weeks for the new notes to reach the gen­eral pub­lic.

The de­ci­sion to ban old notes is one of the most con­tro­ver­sial de­ci­sions of the Modi gov­ern­ment. While the gov­ern­ment has de­fended it claim­ing that the move has hit the back­bone of black money, the op­po­si­tion par­ties have termed it as a dis­as­ter. The mas­sive job losses and clo­sure of a large num­ber of small busi­ness units have been blamed to de­mon­eti­sa­tion.

Some of the econ­o­mists have main­tained that de­mon­eti­sa­tion would even­tu­ally stave off 2 per cent of the coun­try’s gross do­mes­tic prod­uct (GDP). As GDP de­clined to three-year low of 5.7 per cent in the first quar­ter of 2017, the econ­o­mists to great ex­tent seem vin­di­cated.

Not only that, the gov­ern­ment had ex­pected that Rs 3-4 lakh crore of to­tal Rs 15.44 lakh crore of de­mon­e­tised notes would not re­turn to bank­ing chan­nels as they were black money in its es­ti­mates. But RBI has now con­firmed that only 1 per cent of the old notes did not come back to banks. This has proved that gov­ern­ment cal­cu­la­tions were com­pletely off the mark.

Ra­jan was still the RBI gov­er­nor when the new Rs 2,000 notes bore the sig­na­ture of his suc­ces­sor Pa­tel

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