Former Reserve Bank Deputy Governor KC Chakrabarty has slammed the government’s demonetisation exercise saying, “it won’t serve any purpose” and there’s “no benefit to the economy”. Going by the capacity of the note printing presses two years ago, it may take six months for the government and the RBI to replace the demonetised Rs 500 and Rs 1,000 notes, he said.
“Demonetisation won’t serve any purpose. We’re creating inconvenience to the people. This is from the economic point of view. I don’t know about the psychological and political impact. The government is sovereign and they are free to do anything. There’s no benefit to the economy,” Chakrabarty said.
“The reason they are saying… one is corruption and black money and second is counterfeit notes. Both are illogical. These currency notes are not black. They are all white money and printed by the Reserve Bank of India. If a person is not paying tax, then it’s black. If a person is not paying tax, that person has to be tackled. You’re after innocent people. There’s no logic in that,” he told The Indian Express.
According to Chakrabarty, who was the Deputy Governor from 2009 to 2014, nowhere in the world demonetisation has stopped counterfeit notes. “The person who is counterfeiting the existing note will counterfeit the new notes also. How many counterfeit notes are there? Its 10-20 in one million. If you purchase dal from the local kirana store. In the dal, there are some stones. You pick out the stones, clean and then cook. You never throw away the dal. The administrative machinery is ineffective to identify how the counterfeit notes are manufactured in India or Pakistan. How is it coming to India? Who’re the people bringing it into India? For that, you want to say I should punish the notes. You’re not able to identify the culprit,” he said.
When asked whether the government and the RBI will be able to finish the work by December 30, he said, “it depends on the efficiency of the government and the RBI. How quickly they will be able to replace these notes and supply the new notes. It depends on the capacity of the press. When I was in the RBI, and if that is the position, it will take six months to print the currency notes. Whether they have made any advance preparation or they started printing early… I don’t know.”
On reports that customers are wary of taking Rs 2,000 notes, Chakrabarty said: “You have to print less number of notes. That’s the only reason they had gone for Rs 2000 note. If this note is demonetised, then what will happen?”
Chakrabarty ruled out any impact of demonetisation on the liquidity or interest rates. “How can there be liquidity? You’re sucking out the liquidity from people. You have these notes… just scrap paper. Suppose you had Rs 20,000 for your daily needs. You’re going to the bank to deposit this Rs 20,000. Where’s the liquidity? It’s lying in the vaults of the banks. Liquidity will be in the system and it’s not in the market,” he said.
The former RBI DG said interest rates will come down but for different reasons. “Lending rates will come down. They were already high and inflation has come down. It has nothing to do with demonetisation,” he said.
“If you want to encourage digital transaction, you must make it cheaper and cash transactions costlier. You must say customer has to pay for each cash transaction and digital transaction should be free. Government made cash transaction free and digital transaction costlier. You’re discouraging digital. And now only you have made it free,” Chakrabarty said.