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BREAKING NEWS ""**If we want PSU bank to compete with Pvt bank ---Give them a break Saturday first****Outcome of Today’s meeting with IBA - 31.01.2023*********

Sunday, March 17, 2019

In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand very unfortunate for every indian

The Reserve Bank of India (RBI) has finally released the minutes of the 561st meeting of its Central Board of Directors held on November 8, 2016, at 5.30 PM. The minutes make for a very interesting reading. Let's take a look at this pointwise.
1) The meeting was held at 5.30 PM, just about two and a half hours before the prime minister Narendra Modi, announced to the nation that Rs 500 and Rs 1,000 notes were being demonetised.
What this tells us is that the RBI board met almost at the last moment and by the time PM Modi had already made his decision to go ahead and demonetise 86% of India's currency in circulation. The interesting thing is that the minutes are dated December 15, 2016, which is 38 days after demonetisation was announced.
2) The minutes of the meeting tell us that the RBI Board was informed of a steep rise in Rs 500 and Rs 1,000 notes, by the government. Between 2011-12 and 2015-16, the number of Rs 500 and Rs 1,000 notes had grown by 76.38% and 108.98%, respectively. This, despite the fact that the Indian economy had grown by 30% during the period.
This was used as evidence by the government to say that the high denomination notes were being used to accumulate black money, "since transactions made in cash do not leave any audit trail".
3) The core argument of the government, about the currency in circulation (or the number of Rs 500 and Rs 1,000 notes) rising faster than economic growth, was basically wrong. And the RBI Board pointed this out to the government. It said, "the growth rate of economy mentioned is the real rate while the growth in currency in circulation is nominal".
This is the most interesting bit of the minutes that have been released. It tells us that the babus in the government do not know the difference between real growth and nominal growth. And that's very disturbing.
Let's get into this in a little more detail. The Indian GDP in 2011-12, in nominal terms, not adjusted for inflation, was Rs 87.36 lakh crore. By 2015-16, it had grown to Rs 137.72 lakh crore. This was an increase of around 58%.
In comparison, the Rs 500 and Rs 1,000 notes went up by 76.38% and 108.98%, which sounds quite a lot. But here we are comparing just Rs 500 and Rs 1,000 notes, but there are notes of other denominations as well.
The total value of notes of various denominations as of March 2012 had stood at Rs 10.53 lakh crore. By March 2016, this had jumped to Rs 16.42 lakh crore. This was a jump of around 56%.
Hence, the economy had grown by 58% and the value of notes of various denomination had grown by 56%. There was absolutely no problem on this front, and which is precisely what the RBI Board told the government.
4) The government also told RBI Board that "the incidence of counterfeiting is also on the rise in these two denominations [Rs 500 and Rs 1,000]." The government put the estimate of the total counterfeit currency in the country at Rs 400 crore.
As mentioned earlier, the value of the notes of various denominations, or the currency in circulation, in March 2016, had stood at Rs 16.42 lakh crore. By November 2016, before demonetisaiton happened, this had grown to Rs 17.97 lakh crore. Hence, Rs 400 crore of counterfeit money, worked out to around 0.02% of the currency in circulation.
As the RBI Board rightly put it, "Rs 400 crore as a percentage of total quantum of currency in circulation in the country is not very significant."
5) Also, the government told the RBI Board, "cash has always been a facilitator of black money, since transactions carried out in cash do not leave an audit trail". This is again a very fundamental mistake. While cash may be a facilitator of black transactions, a very small portion of black wealth is actually held in the form of cash. If the government had chosen to take a look at the data put out in the White Paper on Black Money published in May 2012, it wouldn't have made this mistake.
As per this report, cash, on an average, formed only 4.9% of the total unaccounted money admitted to in search and seizure operations (euphemism for income tax raids) carried out by the Income Tax Department. This data was for years between 2006-07 and 2011-12.
Not surprisingly, the RBI Board told the government that black money was primarily helped in the form of gold and real estate and "this move [DEMONETISATION] would not have a material impact on those assets."
6) After pointing out these negatives the RBI Board told the government: "The Board considered the memorandum and after detailed deliberations concluded that in larger public interest, the balance of the advantage would lie in withdrawal of legal tender status of Rs 500 and Rs 1,000 currency notes currently in circulation."
After reading the minutes of the meeting and what the RBI Board had to say about it, it made me feel somewhat like this: When it came to the demonetisation question, the RBI behaved like an old uncle who made his nephew or niece aware of the negative repercussions of a stupid decision that he or she was about to make, but then in the end went on to say that, if that is what you want to do, who am I to oppose it. You have my full support.
7) The government would have gone ahead and done what it wanted to do irrespective of what the RBI had to say. But if the RBI had taken a slightly firmer stand it would have been in a better position in the days to come. Urjit Patel wouldn't have to quit as RBI Governor. And a post graduate in history wouldn't have been offered the position of the RBI Governor.
Now only if wishes were horses, beggars would ride!

vivek kaul's daairy   source

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