India Economy

Whose truth should we believe?

TCA Sharad Raghavan | Updated on January 13, 2018 Published on February 19, 2017

The versions of the RBI and Finance Ministry on demonetisation preparations don’t match

The last few weeks have seen the government and the RBI finding it increasingly difficult to get out of answering direct questions regarding demonetisation. RBI Governor Urjit Patel was grilled by Parliament’s Public Accounts Committee (PAC) and Finance Minister Arun Jaitley had to answer several pointed questions in the Rajya Sabha. That is as it should be. As the heads of the respective monetary and fiscal authorities, these two gentlemen should definitely face scrutiny.

But why don’t their stories match? Surely enough time has passed from November 8 for the two of them to have thrashed out a common storyline, even if they want to keep the truth a secret. If they were each telling the truth, whose truth should we believe?

Should we believe Urjit Patel when he told the PAC that the government and the RBI were in talks regarding demonetisation as far back as January? Or should we believe Arun Jaitley when he confidently told the Rajya Sabha that his Ministry had been discussing the issue with the central bank since February?

Behind closed doors

This might seem like nitpicking, but the fact of the matter is that there can be only one correct answer. This ambiguity suggests somebody is not quite aware of the facts. And when it comes to a move of the scale of demonetisation, then not knowing what exactly happened is inexcusable for officials of their position.

But really, at the crux of it, how does it matter when they started talking about it as long as they had enough time to discuss the repercussions and plan for them, right?

Jaitley, in his speech in Parliament, said that the RBI Board had in May decided the new designs of the notes that would replace the demonetised currency and that thereafter, the government and the Board met often — “at times on a defined date once a week” — for consultations on the issue of demonetisation. Such regular meetings in the run-up to demonetisation must be commended, but what then explains the lack of preparation — as evidenced by the almost-daily rule changes, and the clearly illegal transportation of new notes in bulk — in the days following the demonetisation announcement? What did they do during these weekly meetings?

So! What’s the story?

Even Power Minister Piyush Goyal had to defend his government, saying: “We don’t claim everything we do is right the first time. We acknowledge it and take steps to mitigate it,” referring to the multiple rule changes on withdrawal limits and the places allowed to accept the old notes. He also went on to say that the government did not have enough time to prepare the logistical groundwork necessary, since secrecy was essential.

Fair enough. The need for secrecy was understood by all those who bought into the original ‘this will hit all those holding black money’ reasoning for demonetisation. This essential need for this secrecy becomes less clear if the purpose of the move was to move people to digital transactions, as the messaging has lately become.

But let’s accept that secrecy was indeed essential. Was there so much secrecy that even the people at the meetings didn’t know they were discussing demonetisation? What other reason could there be for the RBI to say in an RTI reply in January that while its Central Board had approved the idea to introduce ₹2,000 notes in May, the possible withdrawal of ₹500 and ₹1,000 denominations didn’t come up for discussion during the May, July or August meetings of the Board. That seems a little cavalier, doesn’t it?

Given that all this information was either provided to Parliamentary bodies or through the Right to Information, their veracity cannot be questioned. So what does that leave us with?

Must we then be forced to believe that, even after having ample time to plan, neither the government nor the RBI could predict what would happen post November 8? If that’s true, then it’s no surprise that they still haven’t got their stories straight in the mere 100 or so days since they made the move.

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