The Reserve Bank of India (RBI) board had put forward four key objections against the note ban announced by Prime Minister Narendra Modi on November 8, 2016, before they had agreed to it “in larger public interest”, revealed an RTI reply.
The board had met just about 2.5 hours before PM Modi had made the announcement.
The ban of Rs 500 and 1,000 notes, which wiped out 80 per cent of the cash in circulation, was announced even before the board’s approval.
The approval was sent to the government weeks later, on December 16, and the RBI had disagreed with most of the government’s pleas in favour of the ban.
According to the minutes of the RBI meeting, shared in response to the Right To Information (RTI) query, the directors had noted that it was a “commendable measure” but would have a short term negative effect on the GDP “for the current year”.
The board pointed out that the growth rate of economy mentioned was the real rate while the growth in currency in circulation was nominal. “Adjusted for inflation, the difference may not be so star. Hence, the argument does not adequately support the recommendation,” the directors said.
The central bank directors also felt that while counterfeit notes was a concern, “Rs 400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant”.
Also, most of the black money was held not in the form of cash but in the form of assets like gold or real estate and demonetization would not have a material impact on those assets, the board felt.
The Board was assured that the matter has been under discussion between the centre and RBI over six months.