he Reserve Bank of India (RBI) seems to have surrendered national interests for personal gains of a few individuals currently holding office in that organization. The decision to bow before the demand to part with a huge amount of reserve funds generally held by RBI with government implies that the central Bank has surrendered its independence. The RBI, in a 9 hour long Board meeting held 19 Nov 2018, agreed to form an expert committee on Economic Capital Framework (ECF). Just this acceptance clearly indicates that it acquiesced with bended knees to part with a major portion of Rs7.28 lakh crore out of Rs9.6 lakh crore held by it as national reserve. Thus it will retain only Rs2.32 lakh crore as contingency fund. The rest will be decided by the expert committee of ECF, which is believed to be guided by the Basel III, an international regulatory accord where banking regulations, supervision and risk management needed for reforms are decided. The façade of Basel III is mere eyewash. In reality, no international accord need be obeyed if it is not acceptable for the well-being of any particular member country. In this case, this international accord will be used by the Union government to take away a major chunk of the national reserves for petty political gains. With the general elections 2019 drawing close, government obviously wants to cover up its past grave economic follies such as demonetisation and implementation of GST in quick succession. The damage done to the Indian economy has been stupendous. Now, if this ECF committee report allows withdrawal of a big portion of the reserves, which it most probably will, the final outcome will be
disastrous for the economy
While Deputy Governor of RBI, Viral Acharya, had publicly spoken out about the central government interfering in the bank’s affairs and curtailing its independence, Urjit Patel, the Governor had initially toed the same line. However, Patel has changed his tune to suit the government.
This individual would be remembered in the annals of Indian economic history for always bending over to please the government. Earlier, his utterances supporting demonetisation in November 2016 had stupefied the general public. At that time, no one was aware of his credentials. Later on, the general public came to know that he was no economist with any
achievements to his credit.
Keep this as the background and now come to another sphere. Bluff and bluster are accepted forms of public speech to whip up public mood or score points over one’s political rivals. All Prime Ministers generally rise above such compulsions and conduct themselves in more sensible ways. This does not apply to incumbent Narendra Modi, as his past performances also amply testify. A claim the PM made at an election rally in Madhya Pradesh this week was that he had resorted to the controversial step of demonetisation in November 2016 as a “bitter pill” to induct the huge amount of ‘black money’ into the formal banking system and end corruption. The attempt on the part of the PM might be seen as a desperate attempt to whitewash a hugely unpopular step and give it a new coat of sanctity.
The Prime Minister needs all his persuasive skills to impress upon the nation that the demonetization move was not a disaster for the national economy and to the people at large, each of whom struggled hard to survive those odd times. The ordeal, as can be seen now, is not left behind in the past but seems to be growing in its menacing form every day. The PM’s own claim at the outset was that he was resorting to such a step, out of the blue, to eliminate fake notes in the system – partly injected by Pakistan’s ISI, and others – and end the use of such money in terror funding. All hoarded notes in the hands of black money holders, it was claimed, would end up as valueless paper. Expectations were that some 20 per cent of the currency in circulation would not return to the banking system after the high-denomination currencies of `500 and `1,000 were scrapped. As it turned out, nearly 99 per cent of the paper currency returned to banks as white money. This does not include the money left behind in Nepal, Sri Lanka and other countries. This high return percentage was also made possible by repeated extension of deadlines for submission of old notes in exchange for new notes. Several businessmen close to the government were allegedly allowed to turn their black money into white through back-door channels. This created a situation in which, even after a few months, old notes were being traded in the black for new notes – for huge commissions for the Banks’ staff. That process, it is said, has not stopped even today, for strange
Alongside, from day one of demonetisation, the government’s failure in streamlining the distribution of new notes led to a massive shortage of currency, largely affecting not just trade and business but also industrial and agricultural activities. As is well-known, every sector of human activity took huge hits, from which recovery is still a far cry. The RBI, the Finance Ministry, and the Modi government as a whole, simply sat back and blinked or played the wrong tunes. The rollout of the Goods and Services Tax (GST) regime, with all its attendant flaws, added to the market exasperation. Put together, national economy took a major hit, from which recovery is easier said than done.
So much so, the Prime Minister and his government have no face to approach the people seeking a fresh term in office. Hence, Modi’s feeble attempt to give a fresh coat of paint to a blackened surface, vis-à-vis the government’s image, in the hope that what amounts to a distortion of facts could bail his government out. Public memory is admittedly short, but not that short. Especially the portion of the white collared workers who had initially turned strong supporters of demonetisation. Those who were employed had thought that since they are paid salaries through bank accounts and do not have any cash, they would go unscathed. Little did they realize that cash is not necessarily ‘black’ money. Later on, when the employers started retrenching and people have started losing jobs, the mood started changing.
If the goings-on in the CBI as also the allegations pertaining to the Rafale deal, directly under the PM’s nose, are any indication, Mr Modi’s claim about his attempt to end corruption, too, must be taken with a pinch of salt. Clearly, the Modi Magic that helped the BJP win the 2016 Lok Sabha polls and some assembly polls thereafter is today seen as a ‘demonetised’ currency that will have no value or effect in the coming rounds of polls.