A note to RBI

Its reputation has taken a beating, needs salvaging. It could start with being more transparent, communicative.

Written by Usha Thorat | Published:December 28, 2016 12:00 am
RBI, reserve bank of india, demonetisation, RBI demonetisation rules, remonetisation, note ban, ban on currency, ATM queues, Bank queues, e money, wallet payment, online transaction, cashless economy, usha thorat, indian express news, india news, column It is good that the RBI has started giving some information on the notes issued and deposited periodically.

It is indeed a sad day to see one of the most respected public institutions in India becoming an object of ridicule and scorn. There have been times when the Old Lady of Mint Street was criticised for being too conservative and cautious — for not being able to keep up with innovation and markets — but never has she been accused of not knowing her job. Never has she been the butt of as many jokes as in the last few days.

For one who has been associated with the Old Lady for more than 40 years, it is second nature to start defending the institution. There was need for secrecy; hence the ability to stock up notes for remonetisation in advance was limited. It was not possible to envisage all the emerging situations beforehand; hence the RBI responded quickly by clarifying the position through various circulars. The scale of the remonetisation being what it is, the capacity of the note presses to meet the transaction demand for currency of the public is limited. The need for ensuring defect-free notes also slowed down the supply chain of notes.

At the same time, one is assailed by doubts: Could this not have been managed better? Could the RBI not have been given more time?

Could it not have refrained from issuing the circular of December 19 that clearly went against earlier assurances and had to be rescinded immediately? How could the RBI staff connive in exchanging old notes for new?

The common person has been patiently waiting in queues in ATMs and branches in the hope that tax evaders and corrupt officials will get caught. It has been a matter of wonder that her tolerance is so high. Maybe it is because she is willing to bear pain to see real gains. She is happy to see the media reports of raids on the wealthy, while angry that these few seem to have got privileged access to lakhs of new notes when she and others like her have to make do with just Rs 2,000 each time she stands in a queue — other than, of course, the days when the notes are over by the time she reaches the head of the queue.

Cashless, digital wallets and e-money are good for the system but cannot happen overnight. The United Payments Interface (UPI) is a brilliant concept but needs to be populated and popularised. The rural areas with poor connectivity and limited POS will need cash for a long time to come.

So what can the RBI do now?

First, be transparent. It is good that the RBI has started giving some information on the notes issued and deposited periodically. Doubts have been expressed on the double counting of old notes returned to the RBI. There are press reports that the data furnished by the RBI on notes issued between December 10 and December 19 do not tally between the pieces and values. Data on notes returned to the RBI after December 12 has not been officially released — this is generating enormous speculation whether the notes returned exceed the notes issued. The RBI would do well to release every week, say, every Monday, data on the notes issued, denomination and value-wise, as also on old notes returned, to set all speculation to rest.

Second, the RBI top management must communicate more through the media and speaking opportunities. This is necessary in the interest of transparency and credibility. It generates confidence that the RBI believes in honest communication.

Third, the sight of new currency notes being seized in hoards creates huge distress among the public and provokes anger against the RBI and banks as they rightly feel agitated that they have not even been able to withdraw the minimum of Rs 24,000 as per the rules and here there are people who have beaten the system flagrantly in connivance with the officials. All such cases need to be investigated and the conniving officials severely punished. The public needs to be informed about what action has been taken.

Fourth, there has to be some rationale in the supply of currency to the various states — it cannot be disproportionate to the level of economic activity in each state. Periodic data on currency issued in each state would also add a great degree of credibility.

Fifth, it is presumed that the banks would have sorted the notes for quality before returning them to the RBI. In any case, the RBI would be taking up, for sorting, all old notes before giving the final credit to the banks. Since it is highly unlikely that the fake notes can be traced to individual tenders, it is likely to be tracked down only to the branch level. Clearly, value cannot be afforded to these notes and the banks will have to take a loss on such notes. As the RBI processes these notes, it would do well to let the public know how many notes were detected as fake.

Sixth, the RBI must ensure speedier adoption of the UPI by the banks. More importantly, banks need to ensure a massive education and familiarisation campaign in all languages and through all media. The UPI needs to be quickly opened up to authorised non-bank payment system entities. The UPI must become a reality at the grassroot level and rural areas, so that over time and without pain the economy can adopt the cashless mode of payment with comfort and security.

Digitisation cannot happen overnight and hence the need of the hour is to ensure that the requisite currency is produced and supplied to every nook and corner of the country, in the denomination desired — a fundamental responsibility of the RBI.

The writer is former deputy governor, Reserve Bank of India

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  1. N
    nhk
    Jan 21, 2017 at 7:40 am
    Modi has succeded in developing cult like status where in people are made to believe that what ever nonsense he does is right and what ever rubbish he talks is law. Despite unnecessary demonetization, without even pretense of compliance of process of law, Modi's stature remained intact despite huge all round losses to nation and economic recovery is years away and it is dangerous to talk about wrongdoings of Modi and his henchmen. Modi, backed by his quack advisers, will continue to do this kind of adventures which threatens unity and integrity of India. lt;br/gt;lt;br/gt;Modi suffers from worst possible type of corruption: an insatiable desire for personal glory at any cost, an extremely deep moral and spiritual corruption. He also represents the worst aspect of democracy: a demagogue who caters to an irrational poce’s cravings for self-ideny and release from self-responsibility. Even God can't save India from this demon.
    Reply
    1. S
      Sri
      Dec 28, 2016 at 7:30 am
      Constructive criticism is useful but a list demands made to score political points when the banking personnel themselves are, if not more corrupt than the genereal public has added to the current difficulty that the present government is facing..
      Reply
      1. K
        K.G.Balakrishnan.Thief.Justice.of.India.Retd
        Dec 28, 2016 at 8:11 pm
        Let me tell you this one last time: You are a brahmin DOUCHE.
        Reply
        1. S
          Sushma singh
          Dec 28, 2016 at 9:04 am
          We knew why Raghuram Rajan was asked to resign. So that new set up could cow tow to Modi. Hence demonetisation and chaos everywhere
          Reply
          1. J
            Jim
            Dec 28, 2016 at 4:40 am
            RBI has done brilliant job. It had to issue circulars as we Indians are h a r a m i when it comes to breaking rules
            Reply
            1. G
              George
              Dec 28, 2016 at 1:55 am
              Poor article.RBI is better than ever before. People are fooled by talkers. Urjit is very knowledgable and will take RBI to new heights. Those who criticise RBI are congress stooges who will criticise anything for the sake of opposing
              Reply
              1. V
                Vihari Naidu
                Dec 28, 2016 at 1:35 pm
                Salvage ? RBI is rendered spineless by Central government. If there is anything to do, may be Modi ji should stop taking decisions without any knowledge of economics.
                Reply
                1. R
                  Rajat
                  Dec 28, 2016 at 3:26 am
                  RBI has not failed. We the people have failed. There is corruption from top to bottom. Modi is fighting a lost battle. Corruption can't be weeded out from India. Most of us are rotten to the core. Jiisko mauka milta hai be-imaani karta hai. Security firms, bank officials, ATM maintenance workers so many colluded to divert the money. Why blame only politicians and bureaucracy as being corrupt.
                  Reply
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