50 days of demonetisation: Why isn't the RBI declaring how much money has come back into banks?

The reasons for demonetisation have never been clear. From declaring war on black money to terror funding, from fake currency to corruption, and finally becoming a cashless (or less-cash) economy, multiple reasons have been cited by senior cabinet ministers and Prime Minister Narendra Modi.

But with 50 days of demonetisation over, there is still no official transparency on how and why the decision was taken.

Denying the Right To Know

Several Right To Information applications filed with the Reserve Bank of India and the Ministry of Finance have yielded either a blank or a rejection on grounds that vary from national security to the integrity of the state. An RTI application filed by this correspondent on November 24 with the Ministry of Finance was accepted by the Department of Financial Services and transferred to the Department of Economic Affairs a day later, but is yet to elicit a response.

The lack of any transparency from the RBI and the Ministry of Finance, at a time when the government has repeatedly enforced greater transparency of citizens on how they spend money, is disturbing. Demonetisation forced people to deposit their old notes, and then imposed a restriction on how much they could withdraw on a weekly basis. Every transaction was supposed to be tracked and filed, leading to investigations by the tax authorities.

However, what actually led to a decision that sucked out 86.5% of India’s cash in a matter of hours is yet to be known, even though the RTI Act stipulates that all details must be released once decision has been taken, even if it is classified as secret.

In the RTI filed with the Ministry of Finance on November 24 by this corespondent, the following information had been sought:

1. Please share details of all meetings held, including details of who attended them, to plan the demonetisation drive.
2.   Please clear legible copies of the minutes of the meeting and the agenda of all meetings that were held for demonetisation.
3.   Please share details and legible copies of all studies, representations, that were received for taking the decision in demonetisation.
4.   Please share copies of all letters, notes shared or sent to the RBI and other banks in regard to the demonetisation.

However, more than 30 days later – the mandated period within which the reply must be accorded to the applicant – the Ministry of Finance is yet to send a response. In fact, section 4(1) (c) of the RTI Act even states that the government must pro-actively disclose “…all relevant facts while formulating important policies or announcing the decisions which affect public” while section 4 (1) (d) states that it must “…provide reasons for its administrative or quasi-judicial decisions to affected persons”.

While the RTI Act act also lays down specific clauses for denying information, it also states unambiguously under section 8 (1) (i) that the “…decisions of Council of Ministers, the reasons thereof, and the material on the basis of which the decisions were taken shall be made public after the decision has been taken, and the matter is complete, or over”. Clearly, demonetisation, while it has been touted as the “boldest decision” taken by the Bharatiya Janata Party-led National Democratic Alliance government so far, has also been one of its least transparent policies so far.

A similar RTI application file by Venkatesh Nayak of the Commonwealth Human Rights Initiative with the RBI was also rejected. While Nayak has appealed the decision, former central information commissioner Shailesh Gandhi has challenged the RBI’s policy on disclosures under RTI.

An opaque decision

Writing in The Indian Express a few days ago, former Deputy Governor of the RBI, Usha Thorat was scathing in her criticism of its lack of transparency. Throat, who served with the RBI for “more than 40 years”, exhorted it to be transparent with data. She noted that RBI had stopped releasing any data after December 12 on the amount of notes returned since the drive was announced. This is problematic on several counts.

One of the key reasons for demonetisation cited by the Prime Minister in his November 8 evening address was to declare a war on black money. He would repeat this theme in Japan and during his address in Panaji, Goa on November 13. However, with over 12 lakh crore of the demonetised currency already back with RBI, nobody is sure how black money has been tackled.

If nearly all the demonetised currency does come back into the system, it will create a serious credibility crisis for the government. It may argue at a later stage that investigations into all the deposits need to be completed before judgment can be passed. But the argument will not work for many citizens who have had restricted access to their hard-earned earnings since November 8.

In his emotional Goa speech, the Prime Minister asked for 50 days before normalcy was restored. However, that claim seems to be in jeopardy as the RBI has been unable to replace the currency that was sucked out earlier.

The government and the RBI have been silent on a number of issues related to this move.

• It has stopped revealing how much of currency has been returned to the system.
• There is no data on how much money has been caught or detected as “black money”.
• There is no clarity on what led to this decision – black money, fake Indian currency, corruption, and so on. Clearly, going digital and cashless was added much later as a reason.
• How much old money has been caught while it was being laundered.
• How much new money has been detected being hoarded after laundering the old money.    

What has added to the confusion is a statement from Economic Affairs secretary Shaktikanta Das that RBI might have made mistakes in the counting of the currency returned to it since November 8. In a press interaction on December 15, Das told journalists that there could have been “double counting” of the returned cash, leading to higher figures.

On December 12, the RBI had said 12.44 lakh crore had returned to the banks. Since then, there has been no official update from the RBI, but a report published in The Times of India on December 28, citing unnamed government sources, pegged the amount of cash back in the banks at 90% of the demonetised currency.

What’s wrong with cash

In a piece authored by Minister of External Affairs, M J Akbar asserted “while all cash transactions are not corrupt”, all corruption is “in cash”. However, no big ticket corruption is known to have been conducted in cash transactions. Be it the Bofors pay offs or the recent AgustaWestland case, there was no cash element to the bribes and all were allegedly paid off in foreign currency in bank accounts held abroad.

While assertions have been made that cash is bad, there is no official data on how much of corruption is actually in cash. This is key to the rationale for the decision to demonetise, and in the absence of this data, it will blunt the claims made by the government significantly.

Already, international media, economists and experts have been caustic about the move. The Economist has argued that demonetisation will “probably make limited strides in shrinking the black economy”. Economist and Nobel laureate Paul Krugman has also expressed doubts about the gains from the move, saying it might only force the corrupt to be more careful.

A March 2013 McKinsey report on payments had argued that the high use of cash leads to an expanding “shadow economy”, and pegged it at 26% of the GDP. However, with high denomination notes of Rs 2000 and Rs 500 coming back into circulation, there are doubts about the move’s efficacy in tackling the shadow economy.

Clearly, the lack of transparency, confusing data and the refusal to share official records on the demonetisation decision only add to the suspicions about the government’s real intentions. With the 50 days that Prime Minister Modi had asked for coming to an end, people are looking at uncertain gains, if any. With the next salary circle after demonetisation just a few days away, citizens are running out of patience.