Pointing out that the GoI has also refused to hand over the black money reports despite his “formal request” under RTI, Nayak says, the RBI minutes, interestingly, argue that “most of the black money is not held as cash but in the form of real-sector assets such as gold or real estate and that demonetization would not have any material impact on those assets.”
This was in reply to the GoI argument that the shadow economy for India (where black money transactions do not leave an audit trail) was estimated at 20.7% of GDP in 1999 and had risen to 23.2% in 2007 (based on World bank estimates).
Criticizing the Union Finance Minister making a “curious statement” in Parliament that the black money study reports may be made available to MPs, but will not be placed in the public domain, Nayak says, this violates RTI Act.
According to him, “The government seems to have ignored the proviso underlying Section 8(1) of the RTI Act which contains the noble democratic principle that information which cannot be denied to Parliament or State Legislature cannot be denied to a citizen. To hold that information may be provided to certain MPs but not to the people who sent them to Parliament is perplexing to say the least.”
While “The Indian Express” reported on November 8, 2018, quoting the minutes, that the RBI board rejected the GoI argument in favour of demonetization,that it was meant to fight black money, the minutes were never made public. Received last week, these were sent to Nayak following RTI watchdog Central Information Commission (CIC) issuing a penalty show cause notice to a GoI official for “inordinate delay” in the matter.
Ironically, the RBI board’s 561st meeting, show the minutes, was held less than five hours before Prime Minister Narendra Modi announced the controversial decision on television, though the RBI sent its resolution approving to GoI on December 16, a full 38 days after the Rs 500 and Rs 1,000 notes were banned on November 6, 2016.
Claiming that suggests “RBI's Board had only rubber stamped the Government's initiative”, Nayak, who is with the Commonwealth Human Rights Initiative (CHRI), says, the minutes show the board also rejected the GoI argument in favour of noteban which stated that growth of the bank notes of Rs 500 and Rs 1,000 denomination was 76.38% and 108.98% during the period 2011-16 whereas the economy had grown only by 30%.
“RBI's directors disagreed with this reasoning and responded that the growth rate of the economy was the real rate whereas growth in currency circulation was nominal and when adjusted for inflation did not constitute any stark difference”, Nayak says, citing the minutes.
He adds, the RBI directors also “rejected the Government's concern that an estimated Rs. 400 crores of counterfeit currency in circulation was significant as a percentage of the total quantum of currency in circulation”, noting the noteban would “ impact negatively on the GDP in the short term.”
According to Nayak, the RBI minutes are “strangely silent” on “what were the compelling factors that justified demonetization which took the lives of more than a hundred citizens who stood outside banks to exchange their currency notes and scores of bankers who collapsed counting them and have had well documented negative impact on various sectors of the economy.”
He continues, “At para #4.3(i), it is mentioned that the Board found the measure commendable, but there is no reasoning provided for this commendation anywhere in the minutes. At para #4.4 there is a vague mention that demonetization will help achieve financial inclusion. How will criminalising possession of the DeMon currency beyond the grace period, lead to financial inclusion is not explained anywhere.”
Nayak adds, “What is interesting is that the minutes do not contain any sensitive information such as factors, data or exchange of opinion about financial and economic security. Nothing in the documents that I have received indicates that any portion of it has been severed under Section 10 of the RTI Act to remove sensitive information.”
Commenting on the board argument that would help incentivise use of electronic modes for making payments instead of cash, Nayak says, “Opinion on whether increased use of electronic modes of payment was due to DeMon is divided. RBI's own recent reports present a contradictory picture. While e-transactions have grown manifold there is more cash circulating in the economy than there was on the date of demonetisation.”
“Interestingly”, says Nayak, while the minutes claim, “a deputy governor of RBI was “working with the Central Government on the initiative to withdraw legal tender of the Rs 500 and Rs1,000 currency notes, for six months, his name is not mentioned anywhere in the minutes.”
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