Demonetisation: This ‘surgical strike’ has cost the RBI its credibility
The very identity, autonomy and future of the premier regulator of India with an unequalled global stature (the RBI) has been irreparably prejudiced and irreversibly jeopardised. The very concept of a statutory central bank is that of an independent regulator of monetary policy notwithstanding pressures from the executive
Despite shorter bank queues, the demons of demonetisation will continue to haunt India for a very long time. This decision by Prime Minister Narendra Modi on an otherwise calm November evening is without parallel — legally, as well as in implementation and impact.
Section 26 of the Reserve Bank of India Act, 1934, lays down the fundamental principle that every bank note shall be legal tender guaranteed by the central government. The only exception is sub-section (2) that empowers the central board of the RBI (not the Centre) to recommend that certain notes shall cease to be legal tender.
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Information in the public domain, especially the RBI governor’s deposition before the parliamentary committee of finance, shows that the reverse transpired. The Centre “advised” the RBI on November 7 that it consider withdrawal of Rs 500/1000 currency notes (the governor now admits that the government initiated the move). Within 24 hours, the RBI board acted as per its perceived “boss’s” direction: It “recommended” to the government the withdrawal of 86% of India’s currency.
On the same day the Cabinet “accepted” and notified the withdrawal of currency. No one received a Cabinet agenda and attendees learnt of the subject they were approving on the spot.
The RBI admits that prior to November 7 there was no discussion or consideration. The RBI governor accepts that no minutes were kept of the board meeting. The reason given defies logic and adds insult to injury by citing secrecy. Why could minutes not be kept to be seen after November 8? Does keeping of minutes affect secrecy? Obviously not. What it achieves is that it obviates post-facto accountability. This political and bureaucratic wizardry of 24 hours is no less than legal subterfuge and a breach of a statutory legal promise to the people of India.
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The very identity, autonomy and future of the premier regulator of India with an unequalled global stature (the RBI) has been irreparably prejudiced and irreversibly jeopardised. The very concept of a statutory central bank is that of an independent regulator of monetary policy notwithstanding pressures from the executive. Even though, unlike the Election Commission of India and the CAG, the RBI is a non-constitutional body, Section 3 of the RBI Act mandates that it shall “be constituted for the purposes of taking over the management of the currency from the central government”.
Former governors, including YV Reddy and Bimal Jalan, have used the language of studied moderation in warning against this loss of RBI autonomy. All economists of note globally, not associated with any political party, have severely criticised it. There is the visible absence of a steady guiding hand of the current RBI governor from the steering wheel. If such a mammoth operation with such enormous consequences can spring from such uncertain premises, reckless decision-making and the most unprecedentedly wayward post- November 8 implementation, then India has much to worry about.
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Not one of the stated objectives — black money depletion, corruption reduction and instant digitisation — are remotely near realisation. The governor is unable to tell the nation the amount of old currency received. Hence the goalposts have been changed to say that a non-existent army of IT officials will adjudicate on crores of returned currency to give quasi-judicial findings of how much is illegal/tainted or not.
All such orders will be appealed under a minimum three-rung statutory procedure for decades. So much for destroying black money. One time destruction of a huge stock of money has no effect on its flow, in future, since it does not plug the mechanism that produces black income. Demands for illegal cash payments, whether as black money or bribe money, will start yet again, as money flows back into the system.
Singing paeans to a Digitising India are facetious. No one — not the poor farmer or the daily wager — was warned that he needs to get a smartphone to upload an app to pay for seeds or receive his daily wages. Any logical and well-governed system would have done a blitzkrieg of digitisation for two years before the big bang demonetisation. The NDA, instead, chose to put the cart before the horse. The image of an urban elite with multiple credit/debit cards and smartphones mocks the spirit of the common Indian. A call to resoluteness in a bleak economy is only political glibness, not responsible leadership.
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Empirical reports confirm the worst. Micro-small scale industries suffered 35% job losses and 50% dip in revenue in the first month after November 8; the All India Manufacturers’ Organisation predicts a 60% drop in employment and 55% loss in revenue over the next quarter; automobile sales in December fell the most in 16 years; GDP growth in the first quarter slowed to 7.1% from 7.5% from that a year ago; the IMF downgraded India to about 6.5% (while increasing China’s ratings). Crisil lowered its GDP forecast for 2016-17 to 6.8% from 7.8% earlier, suggesting an erosion of Rs 1.5 trillion this fiscal. Less money in hand has reduced sales in the informal sector by 30%-40% as also in FMCG segment.
More than 100 deaths in a month are themselves enough to rest the case against this firman.
Abhishek Singhvi is MP , national spokesperson, Congress, and former additional solicitor general of India
The views expressed are personal