‘Demonetisation was planned; the decision was not taken in a day’
MUMBAI: Normalcy has returned to the currency system post demonetisation and the pace of cash withdrawls has come down, said R Gandhi who retired as deputy governor of Reserve Bank of India (RBI) on Monday and was in charge of the currency management division. Calling the note ban a well-thought-out decision, he said the only thing he would do differently was print more ₹500 notes. Edited excerpts from an interview:
What gave you the confidence to go ahead with the note ban?
That decision was not taken on a single day. Initially, it was only a thought. A lot of discussions happened: Is it good or bad? If we have to do it, what (are the) ramifications? So it was not as if somebody decided and went about doing it overnight. Secondly, even if it were to be done, we were very clear that the final call will have to be taken by the government because it is a policy decision and not in RBI’s purview. If such a decision is taken, then how do we implement it? (What are the) backward linkages, forward linkages? All such debating and preparation gave us the confidence to go ahead.
Which decision came first? Introduction of ₹2,000 notes or the withdrawal of ₹500 and ₹1,000 notes?
These two decisions were in parallel. The normal practice in currency management is to periodically have a plan. In 2014, we had come to a conclusion that we need higher denomination notes. So, on that basis, we had recommended ₹5,000 and ₹10,000 notes given the pace of inflation which we had and which we had projected. Currency is an area where nothing can be done overnight. Any decision that you take, to implement it, it will be about 8 months to a year. Then the government had its own policy ideas about demonetisation as a control on black money. So talks were happening in parallel.
Would you say that you did not anticipate the complexities? There were 50 notifications in the first 30 days. Would you have done things differently?
I don’t think we didn’t plan well. We planned everything. Every reaction was fully foreseen. There was no nasty surprise for us. Everything had been well identified, and debated. Several instructions were given by us. About 20 (notifications) were relaxing rules. These were also pre-planned. If at all, there were one or two without planning. The rest were planned. The remaining 30 were instructions to banks. That we could not have given upfront, it would have let the cat out of the bag. In hindsight, if there’s anything I would have done differently… may be the quantum of ₹500 notes production. We may have decided differently.
When did the consultations on the note ban begin?
The consultations started in January. The introduction of ₹2,000 was a decision irrespective of demonetisation.
› As of now, 7374% actual cash (that was before the note ban) has come. The pace of remonetisation has fallen because there is no demand