10 Facts Revealed by RBI to Parliamentary Panel on Demonetization

Introduction

Even after the time sought by the Indian Prime Minister Narendra Modi was over, things did not fall in place, creating more panic reactions among the citizens of the country. Many even tried to question the implementation logic followed by the Central government and the central bank Reserve Bank of India (RBI). Many political parties and their Members of Parliament (MPs) launched a scathing attack on both the implementing parties for their poorer planning. In this context, the MPs from both the houses of parliament decided to take the issue on their hands and asked the Parliament panel to look into the issue to get a larger picture. This forced the RBI to respond to a questionnaire prepared by the panel. In this blog post, we will look at the facts the RBI had revealed to the Parliament panel.

RBI Response to Parliament Panel

After the sought time for normalization of Indian economy post demonetization had lapsed on December 30, 2016, the political parties and their MPs had decided to question the Government and the RBI to know the circumstances in which the said policy was implemented. The panel really wanted to know whether the government and RBI had done enough homework on it. RBI had issued as many as 60 notifications at different points in time to make the corrective measures to ease out the currency crunch in Indian Economic system. After the careful deliberation, RBI had come out with a list of 10 important points for submission to the panel. They are listed below for the readers’ reference.

1.  Joint Decision: High-value currency demonetization was taken jointly by both Indian Government and the central bank RBI.


2.  Demonetization Objective: RBI submitted to the Parliament panel that it was to crack down on counterfeit notes.


3. RBI Suggestion: Few days after Modi came to power at the center, RBI had suggested the introduction of Rs. 5000 and Rs. 10000 notes in the month of October 2014.


4. New Currency: RBI revealed that Rs 2000 note was introduced looking into the currency figures.


5.  Printing Date: RBI submitted that the printing of new currency was started in June 2016.


6. Reasoning:  RBI claimed that it did not introduce the new currency in a phased manner to keep the surprise factor and catch the fancy of the public on its design.


7. Final Push Factor: According to RBI, the final decision on demonetization was taken when the new currency stock in the chest had reached critically low level.


8. Deliberation: When panel questioned about the outcome, RBI revealed that it had weighed in the cash crisis and understood that it might not be possible to replace notes completely.


9. Digital Payment: After it understood the ramification, RBI had initially floated the digital payment option to partially offset the cash crunch load.


10. Impact on Balance Sheet: RBI claimed that its balance sheet was not impacted by the demonetization policy at all.