Post-DeMon Currency Management

Post-DeMon Currency management

Demonetization is once again in focus after the release of the RBI Annual Report 2017-18. We need to congratulate those responsible for currency management in India, from RBI down to those manage the smallest rural banking outlet in India for ensuring that post-Note-Ban, 99.3 percent of the currency notes which lost legal-tender-status which were with the public as on November 8, 2016, were exchanged for value. This should boost the confidence and trust of the common man in the promise (by RBI) and the guarantee (by GOI) printed on currency notes of value Rs2 and above.

The above observation is in the context of the misconception being sustained at the highest level and percolating to the ground level that demonetization was a scare to encourage citizens to themselves destroy part of the currency notes they held. I am trying to interpret the expectation that currency worth lakhs of crores of rupees should not have come back for exchange.

The decision to demonetize presumed (a) hoarding of high-value currency notes for purposes other than genuine transactions, (b) the existence of fake currency notes in the system and (c) evasion of tax by off-the-book high-value transactions as in the purchase of jewelry and real estate properties. Perhaps, demonetization has not met with much success in reducing the ‘hoarding’ tendency, as the fall in currency in circulation is not much. The quantum of fake currency that existed in denominations of Rs1000 and Rs500 as on November 8, 2016, and got destroyed may not get accounted. But the expansion of tax base and imposition of tax on deposits of ‘hoarded’ currency must be a work in progress now and concerned departments may be able to report the benefits India received, in due course.

A related issue needs flagging. On August 29 there was a media report captioned “Govt seen ‘burying’ MP’s panel report on DeMo”. The reference was to the delay in submission of the report of a committee headed by a Congress leader with the substantial presence of opposition parties appointed last year to study the pros and cons of Demonetization in the context of widespread criticism. The committee has senior MPs as its members who must have been well aware of the procedures and therefore one gets curious to know why the committee went slow in its deliberations and preparation of the report, in the first place.

It is well known that Congress and some other political parties, besides some celebrity economists had a different view on withdrawal of legal tender status of Rs500 and Rs1000 currency notes announced by the government on November 8, 2016. A year later, even Dr Raghuram Rajan who was RBI governor when Centre and RBI were considering demonetization, and making preparations, had made public statements to the effect that he had reservations about the measure. During the last one year, the Veerappa Moily Committee would have studied various aspects of demonetization and come to some conclusions about the positives and negatives of the decision to demonetize high-value notes and the adequacy of preparations made before the announcement of the decision and deficiencies in implementation post-November 8, 2016.

Now, in public interest, the committee should make available its findings to the parliament. The differences in views within the committee are internal for the chairman of the committee to sort out. The opposition which has a significant presence in the standing committee should not use this forum also as a tool for the political blame game, by stalling the report.

M G Warrier, Mumbai