Of the many things that demonetization has banished, a prominent and worrying one has been the credibility of Reserve Bank of India (RBI). For its management, its execution, its information sharing, its transparency, its rule making or the lack of them, the apex bank as an institution has received flak. The recent news of RBI Governor Urjit Patel not being able to answer pertinent questions regarding demonetization, posed by Parliamentary Standing Committee on finance, has not helped in rescuing the image of a rather very strong institution of the country.
The query that Urjit Patel failed to answer was what amount of demonetized currency had come back into the banking system. RBI by its own admission has said that a total of Rs 15.44 trillion of demonetized money existed as on 8th November, when Prime Minister Narendra Modi made the announcement. As of 10th December, RBI said that Rs 12.44 trillion had returned. But this figure was not acceptable to the finance ministry which wanted rechecking.
Readers must note that every single currency is accounted for and banks are legally bound to maintain the figures of how much and which currency note have come or gone through them. A failure to do so is an offence. Despite all the spin that champions of demonetization try to make a simple logic that one can wrap head around is that the government expected a large sum of money, the ‘black’ money, to not return to the banking system. As it appears from RBI’s initial admission, it is not going to be so.
Given the widespread corruption that has been a mainstay in India, trust on institutions barring a SEBI or an Election Commission is low. In that light, reassessing figures, taking an unusually long time to come out with numbers, create suspicion of data fudging that would suit the narrative in marketing heavy times. There is hope however, for truth to emerge, given the fact that institutions like parliamentary standing committees on finance are expected to be fair and unbiased.
What RBI has been producing as currency notes is not espousing any greater confidence either. Reports of, and with what appears as credible photographic evidence, currency notes with misaligned printing, with missing components, with smudging are abound. This added to the fact that the new currency notes do not carry any additional security features (sorry, no nano chip this time) makes the new currency vulnerable to the same problem that the old ones faced – counterfeiting.
In an issue unrelated to demonetization, the less said about the street-thug type tweet of a member of the powerful Central Board of Directors of RBI, a reputed and senior civil servant, the better. Mr Shaktikanta Das took to Twitter to warn Amazon over the Indian flag on doormat in Canada issue. Asking Amazon, which incidentally did not violate the flag code which applies to the whole of India to ‘behave’, reeked of arrogance of power and certainly did not send a healthy message to investors. Sensing the folly, there was a rejoinder by Das stating that he got touchy since a national icon was involved and was committed to “economic reforms, ease of doing business and open trade”.
This slide can however be arrested. Confidence can be restored in one of India’s finest institutions by firstly addressing the huge information asymmetry that has been created. Coming clean with details, however unpalatable, will be helpful. There are currently more questions than answers that people at large have. That the demonetization debates have educated and created awareness about many aspects of ‘money’ hitherto unknown to masses, coming clean on quality of new currency notes, details of currency flow to states and to banks during demonetization period, spelling plans of adding more security features, will help restore faith in RBI.
It is only in the best interest of the nation that independence of RBI, which in some aspects is intertwined with government, is maintained. In times when high hopes are pinned on the Indian economy, which has the important job to elevate large sections of people to greater economic freedom, it is important the government helps the central bank function as a transparent, responsible and accountable institution.