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not have refrained from issuing the circular of December 19 that clearly went against earlier assurances and had to be rescinded immediately?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.