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Demonetisation Decision Mystery Deepens As RBI Governor Urjit Patel Dodges Most Questions From Parliamentary Panel

Exactly who took the decision -- the government or RBI -- and when is still a matter of different versions.

19/01/2017 10:18 AM IST | Updated 19/01/2017 12:47 PM IST
Shailesh Andrade / Reuters

The most crucial details of how demonetisation decision to scrap 86 per cent of India's currency was reached are still shrouded in mystery.

On Wednesday, RBI governor Urjit Patel again declined to answer most of the questions posed by the Parliamentary panel, headed by Congress leader M Veerappa Moily.

The only new information he revealed was that India has replaced only ₹9.2 lakh crores worth of scrapped currency so far, Mint reported. That figure makes up only about 60 per cent of the scrapped currency estimated at about 15.44 lakh crores, showing how slow the central bank has been in reprinting new notes that partly explains the ongoing cash crunch.

The question about who took the demonetisation decision -– RBI or the government -- is still a matter of different versions of what RBI has thus far told the Parliamentary panel.

RBI had previously said in a seven-page submission to the panel that it wasn't RBI but the government that had advised the demonetisation decision on 7th November 2016, only a day before PM Modi announced the scrapping of the legal tender of ₹500 and ₹1,000 notes. Certain government officials had said before the recommendation to demonetise came from RBI.

On Wednesday, however, Patel reportedly said the decision to remonetise notes was taken early in May 2016 and talks between RBI and government had been taking place since January 2016, but there were no minutes of the meetings maintained to ensure total secrecy, reported The Times of India. RBI, on its own, had been working to introduce a new series of higher denomination notes including ₹2,000 for nearly two years, it had told the panel previously.

According to Reuters, the government notified the RBI it wanted specifically to scrap ₹500- and ₹1,000-rupee notes on Nov. 7, a day before the RBI board formally approved the recommendation, Modi then announced the decision later on Nov. 8.

One big question that RBI has been mum on is disclosing how much scrapped currency has returned to banks. On Wednesday Patel again declined to divulge those details and no one quite knows exactly how much money has come back to banks. In December, RBI had said that ₹12.44 lakh crore of scrapped currency had been returned to banks as of 10 December, but that figure has since been called into question by the government and RBI citing the possibility of double counting of notes. Media reports have suggested that anywhere from 94 per cent to 97 per cent of scrapped currency has been returned to banks, showing that little black money had existed in cash holdings as the government had claimed.

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Many prominent economists experts and former RBI governors have raised concerns about the autonomy of the Reserve Bank in the wake of the poor execution of demonetisation drive that has hurt the reputation of the central bank.

The International Monetary Fund (IMF) on Monday cut a full percentage point off India's GDP growth forecast, to 6.6 percent, in the fiscal year that ends in March 2017, citing the blow to the cash-reliant economy. The IMF also trimmed the growth outlook for the fiscal year 2017/18 to 7.2 percent from 7.6 percent estimated earlier.

On Wednesday, two top finance ministry officials also appeared before the panel to present the government's position.

The member said the panel would summon Patel again after the upcoming parliament session.

With Reuters inputs

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