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Demonetisation and RBI
Demonetisation and RBI
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
The role of RBI in Demonetisation has been widely discussed in economic as well as social forums due to the importance and relevance that the bank commands. It is still a matter of debate and discussion whether the Reserve Bank of India suggested Demonetisation to the government as a tool to get rid of black money and counterfeits. This is because available records available to date suggest otherwise. However, after the declaration, the onus of recalibrating the ATMs for the new banknotes fell on RBI and in addition to printing the new notes it had to coordinate between banks, switch operators, ATM manufacturers and the National Payment Corporation of India (NPCI) for the smooth rollout.
The reasons for Demonetisation that were cited by the government included eradication of black money, curbing the menace of fake counterfeit currency, disrupting anti-national activities and terror funding, encouraging cashless transactions, reduction of income inequalities among citizens, and formalising the vast Indian informal economy. Apart from all these reasons, the government also pointed towards the reduction of interest rates that were prevalent during the period and therefore, it looked like the best plan to achieve all these objectives. However, when the matter came up for hearing in the Supreme Court, the government responded by saying that it wanted to regulate the huge increase in the circulation of Rs. 1000 and Rs. 500 banknotes.
The RBI report on Demonetisation mentions that Rs. 500 and Rs. 1000 notes were withdrawn and that brought high-value demonetised currency worth Rs. 15.28 lakh crore back into the banking system. In absolute terms, it is around 99 percent of the total value of the currency that was withdrawn during demonetisation. Additionally, the GDP decreased by about 2 percent during the next fiscal and businesses also suffered massively.
The note demonetisation was an exercise that was supposed to fetch some outstanding results for the economy. The plan was to weed out all the unaccounted money and make the republic more secure and independent. However, after the exercise was undertaken, the cost for the same came out to be quite high as people had to wait endlessly in queues to get the old notes exchanged. Also, most of the stated objectives could not be met which is why the RBI never suggested demonetisation to the government.