RBI's autonomy in question

Though every day there are public assertions from the prime minister, ministers and BJP leaders over the big benefits of demonetisation, there is little evidence to substantiate the claims. After the lapse of over two months, there are no figures that indicate that the declared aims of the exercise will be achieved. There is no official estimate of the quantum of money which has been returned to the banks.
Neither the government nor the Reserve Bank of India has released these figures. The government’s reticence is not unexpected. But the RBI’s silence on this crucial matter and on some other issues in the past weeks and its many shifts of positions and decisions have raised questions about its role, and rendered a blow to its credibility. Governor Urjit Patel is widely seen as having failed to uphold the independence of the institution. Former governors Y V Reddy and Bimal Jalan have expressed unhappiness over the RBI’ conduct in the matter.

The claim was that out of over Rs 14 lakh crore of demonetised currency, notes worth nearly Rs 5 lakh crore, which was black money, would not come back to the banks. The quantum of unreturned money was to be a measure of the success of demonetisation. But 10 days after December 31, the RBI has not released the figures, though it had released an interim estimate last month. There are reports that up to 97% of the currency has come back. If this is correct, it is a major setback. So the government has changed its stance and said that the black money, which has now been effectively laundered, would be taxed. The RBI’s silence on the matter, however, has no convincing reasons. There are doubts that it has not given out the information because that would embarrass the government.  The RBI has said that it was the government which advised it to take the demonetisation decision. This is contrary to the government’s statement, made in parliament, that the initiative came from the RBI. The government’s advice or request is fine, but oddly the RBI took the decision within a day. A more serious issue is the RBI’s failure to disclose the detailed proceedings of the board meeting where the decision was taken. Its reason that the records are not available is difficult to accept. The many changes in decisions about accepting old notes also did not help to brighten its image. The impression is that the RBI was too compliant and did not function as an autonomous and effective central bank. It has come out with its image dented and with disturbing questions about its independence, credibility and integrity.

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