Mundra defends demonetisation, says hopes of money not returning unmet

He said that there was an expectation that good portion of money might not come back, due to demonetisation, which was unmet

Former deputy governor of Reserve Bank of India S S Mundra on Tuesday said the expectation that a good portion of money might not come back into the banking system due to demonetisation did not happen.

"Earlier, there was an expectation that a good portion of the money might not come back into the system owing to demonetisation. But that has not happened," Mundra, who retired from RBI in July 2017, told reporters on the sidelines of Bengal Chamber of Commerce and Industry's annual general meeting here.

The Central bank had said on August 30 that as much as 99 per cent of the junked Rs 500 and Rs 1,000 notes have returned to the banking system, following the demonetisation exercise in November last year.

"But, the good thing is that the money has come back to the financial system and has also generated a lot of data points, which will be of use," Mundra said.

Questioned about the rationale of the note ban, he said, "I think the intent for this exercise is not for the first time, and will not also be for the last time. The question is about the modality."

Asked whether the short-term pains of demonetisation would get outweighed by its long-term benefits, he said, "Only time can tell".

Mundra said that despite the Central bank needing more time and preparedness, the RBI and other banks had put their best put forward in dealing with the situation of the note ban.

The positive offshoots of demonetisation are digitisation, better tax compliance and the availability of more resources.