RBI had observed govt's arguments in favour of demonetisation did not hold: Cong

The Congress on Monday claimed that the RBI, at a high-level meeting hours before the announcement of demonetisation, had observed that the Modi government's key arguments that the step would curb black money and destroy counterfeit currency did not hold.

At a press conference here, Congress spokesperson Jairam Ramesh released the minutes of the 561st meeting of the Central Board of Directors of the Reserve Bank of India (RBI), held at 5.30 pm on November 8, 2016, hours before Prime Minister Narendra Modi announced that old Rs 500 and Rs 1,000 currency would cease to be legal tenders from midnight.

Ramesh said the minutes of the RBI meeting were obtained through an Right to Information (RTI) application filed by an activist, who got the reply 26 months after he had sought it.

The Congress leader alleged that the Cental Board of Directors of the RBI had rejected the government's main arguments in favour of the move -- curbing black money, ending counterfeit currency and excessive currency in circulation -- put forward by the prime minister three hours later, when he announced demonetisation.

"Most of the black money is not held in the form of cash, but in the form of real sector assets such as gold or real estate and that this move would not have a material impact on those assets," an observation by the RBI board of directors was quoted by Ramesh.

In another observation, the board had said the "growth rate of economy is the real rate while the growth in currency in circulation is normal. Adjusted for inflation, the difference may not be so stark. Hence, the argument does not support the recommendation", the Congress leader said.

"While any incidence of counterfeiting is a concern, Rs 400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant," the board had said, according to Ramesh.

However, the minutes of the meeting show that the RBI board of directors had also said demonetisation was a "commendable measure", but would have a short-term negative effect on the GDP for the current year.

"Arriving domestic long distance travellers, who may only be carrying high denomination notes, will be taken by surprise at railway stations/airports for payment to taxi drivers and porter charges and hence, put to hardship. It would also have an adverse effect on tourists," Ramesh quoted from another observation made by the RBI directors.

The former Union minister alleged that despite the observations, the Central Board of Directors had backed the move as the RBI was "pressured" by the government.

He also alleged that demonetisation, issued through a "Tughlaqi farmaan" (autocratic and arbitrary decision), had destroyed the Indian economy.

Ramesh said all abnormal flows from legitimate tax havens and abnormal deposits in cooperative banks would be probed if the Congress came to power in the upcoming general election.

"The first thing that we will do when we come to power is restore the autonomy and independence of the RBI," the Congress leader said.