In the line of fire

With reference to the report, “India pressed ahead with bank note ban despite RBI concerns” (January 21), it’s intriguing that the government “overruled” some well-meaning concerns of the Reserve Bank of India’s central board over quick replacement of the demonetised high-value bank notes, “possible inconvenience to the public for some time”, and the potential consequences of this massive exercise. 

Obviously, Prime Minister Narendra Modi had other ideas. So, he announced the immediate scrapping of Rs 500 and Rs 1,000 notes on November 8 last year. 

But facts speak for themselves. Modi’s shock move exposed a huge mismatch between the demand and supply of new currency notes. Of course, the government had excuses ready. It even started promoting a cashless economy after realising the gravity of the cash crunch situation in the wake of the note ban.  

This unplanned move was like going to war without providing arms and ammunition to forces on the ground — here, the RBI and banks. It was the RBI and the banks, which bore the brunt of the public ire.

The situation would likely have been different had Raghuram Rajan been at the helm of the RBI on November 7 when it was sent an advisory by the central government seeking the recommendation of its central board under Section 26(2) of the RBI Act, 1934. 

It seems Rajan’s successor, Urjit Patel, was persuaded by the government to urgently secure the central board’s approval for demonetisation. The approval was sought on the false premise that the impact of the exercise would be temporary and efforts to replace demonetised notes would be swift.  

The RBI’s endorsement of the exercise drew flak from several economists, past policymakers, including former prime minister and former RBI governor Manmohan Singh. Of course it was Singh who defended Patel when he was quizzed by the Parliamentary Standing Committee on Finance.

The RBI’s written disclosure before the committee could cause ripples in government circles. Will the RBI governor now draw flak from the government, too?

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