RBI says it proposed note ban hrs before PM speech
Bank’s board of directors made recommendation at meeting on Nov 8
NEW DELHI: The Reserve Bank of India (RBI) recommended demonetisation of 500- and 1,000rupee banknotes hours before Prime Minister Narendra Modi announced the surprise move in a televised address in the evening of November 8.
The government and the RBI have kept the consultation process that led to the decision to demonetise 86% of India’s cash in circulation a closely-guarded secret. Both, however, have insisted that the demonetisation plan had been under discussion for long and consultations were being held.
Economic affairs secretary Shaktikanta Das told reporters soon after the Prime Minister’s address that there was “no need to go into the process which led to this decision. I think what we should be focusing is the outcome and the decision itself ”.
The government’s shock move has led to a severe cash crunch, forcing millions of people to line up at banks and ATM kiosks. Cash withdrawals have been restricted, but most banks are unable to provide even that. The Opposition’s protests over the notes ban have washed out Parliament’s winter session.
The RBI Act, 1934, empowers the Union government to demonetise any series of banknotes.
The government, however, cannot take a decision on its own, but only on the recommendation of the RBI’s central board.
In response to a right to information request, which Hindustan Times had placed, the RBI said the bank’s central board of directors made the recommendation at its meeting in New Delhi on November 8. Only eight of the 10 board members attended the crucial meet.
Apart from RBI chief Urjit Patel and economic affairs secretary Das, the meeting had RBI deputy governors R Gandhi and SS Mundra, Nachiket M Mor, the country director for the Bill and Melinda Gates Foundation, Bharat Narotam Doshi, former chairman of Mahindra and Mahindra Financial Services Limited, former Gujarat chief secretary Sudhir Mankad, and financial services secretary Anjuly Chib Duggal.
The law provides for a 21-member board, including 14 non-official members, but the bank has been operating with less than half the prescribed strength.
A former RBI official said he was concerned that the board has just four, instead of 14. “According to the RTI reply, only three of them were present (at the meeting). That is the quorum.” Between the RBI meet and Modi’s announcement, the government just had a couple of hours to process the bank’s formal recommendation.
It isn’t that the RBI or the government hadn’t prepared for the mammoth exercise. The bank had printed `4.94 lakh crore in `2,000 notes by November 8.
Former central bank officials said this implies the board’s approval was a formality. One of them said the way the decision was taken was “highly irregular” and implemented without taking “adequate steps” to minimise harassment of people.