Demonetisation and Reserve Bank of India
 Diary of an unusual year: Business Line
Demonetization and RBI

Puja Mehra’s brief article with focus on RBI governor Urjit Patel (Business Line, “Diary of an unusual year”, August 29) gives us an opportunity to discuss once again the mysteries surrounding demonetization announced by Prime Minister Modi on November 8, 2016. That can wait release of RBI Annual Report 2016-17.
 As the measures taken by GOI and RBI post-demonetization have been widely debated in the media, for now, let us restrict this discussion to certain misunderstandings that may still remain after one goes through the article.
Economic Survey 2016-17 carried some misleading observations like the following:
“Last year’s  Economic Survey had raised the issue of the government’s  excess  capital  in the RBI. That issue could  become even more salient this year because of demonetization…If  there is a demonetisation windfall - not included here - the RBI will stand out even more as an outlier in terms of government capital in the central bank…The estimate for India assumes, conservatively, no windfall from demonetisation. There is no particular  reason  why this extra capital should  be kept with the RBI. Even at current  levels, the RBI is  already  exceptionally  highly capitalized.”
Such vague and lose observations in traditionally reliable documents and analysts and media not taking cognizance of official positions taken by RBI on demonetization (RBI had brought out a paper analyzing ‘impact of demonetization’ which was placed in public domain) have done irreparable damage to the reputation of Indian Financial System. It is convenient and easy to isolate RBI or its Governor and quickly ‘fix’ responsibility, as Urjit Patel is not Raghuram Rajan who almost kept giving online responses when allegations were made against him or his policies.

M G Warrier, Mumbai


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