By Kriti Gupta
[su_pullquote]The objective of the meeting was to brief the members about the impact of the demonetization drive on the economy and the steps that have been taken to ease the cash crunch.[/su_pullquote]
On 18th January 2017, the Governor of the Reserve Bank of India, Urjit Patel had a meeting with the Parliament Standing Committee on Finance. The meeting was headed by the Congress leader M Veerappa Moily. The objective of the meeting was to brief the members about the impact of the demonetization drive on the economy and the steps that have been taken to ease the cash crunch. The committee held two rounds of sittings on Wednesday, one with senior finance ministry officials and the other with the members of the RBI. Apart from Patel, the meeting was attended by the economic affairs secretary Shaktikanta Das, banking secretary Anjuly Chib Duggal and revenue secretary Hasmukh Adhia. Bankers including Chanda Kochhar of ICICI Bank Ltd and Usha Ananthasubramanian of Punjab National Bank also appeared before the committee.
Putting speculations to rest
The meeting was a golden opportunity for the central bank to showcase that it is prepared to guide the public of Asias third largest democracy.
The highlight of the meeting was the statement given by the apex bank that the process of recalling the old high currency notes had begun as early as in January 2016.
This put rest to all the speculations regarding the role of the central bank in the entire procedure and if it had been consulted well in advance. However, the meeting didnt leave the MPs satisfied or equipped with enough knowledge, since most of their questions went unanswered.
Unanswered questions
Trinamool Congress MP, Saugata Roy, reported that one crucial query that received no response was the amount of the old currency that has been deposited into the banks. The Governor said that the process of counting is still in process. Further, he disclosed that Rs. 9.2 lakh crore of the new currency has been brought back into circulation, 43% of which is in the denomination of 500 and 2000 Rupee notes.
[su_pullquote]A month has passed and the apex bank is still unable to present an update regarding the amount of money that has been deposited into the banks.[/su_pullquote]
It was also disclosed that Rs. 15.44 lakh crore has been sucked out of the economy, due to the banning of the old currency notes. However, in its last report dated December 13, RBI had stated that around Rs 12.44 lakh crore currency had returned as deposits till the 10th of December. A month has passed and the apex bank is still unable to present an update regarding the amount of money that has been deposited into the banks. One could understand how difficult the task would have been but a figure on the deposition is important to understand the outcome of the policy.
The RBI Governor met the Parliamentary Committee to answer questions related to the demonetisation process initiated on November 8, 2016. | Source: Hindustan TimesNeither the central bank nor the finance ministry officials could elaborate when the members such as Bhartruhari Mahtab and Jyotiraditya Scindia asked the cost of printing the new currency and how the introduction of higher denomination notes will help the government fight the black money menace and terrorism funding.
Uncertainty regarding the way ahead
The governor didnt have a befitting reply to give on when the restrictions on cash withdrawals (Rs 24000 weekly limit from banks) would be lifted. Even after increasing the daily withdrawal limits and replacing up to 60% of the currency, the cash crunch still continues. The reason is that many of the ATMs still remain un-operational. Also, ATMs that are functional dont have enough cash to dispense.
What should be done now?
This will help further the governments goal of a cashless economy, emphasizing on cash as a medium of exchange rather than as a store of value.
The reason the regulator is taking caution is because it is focusing on printing notes of lower denomination. This will help further the governments goal of a cashless economy, emphasizing on cash as a medium of exchange rather than as a store of value. At a time when the integrity and the working of the institute are being questioned, the governor should be more apprehensive about his replies and give a detailed explanation. It should prepare a well-drafted report, which can give insights into tangible gains from the policy, and a proper direction to the Indian economys fate.