Questions over RBI's Reputation Post-demonetization

Reputation of RBI through Demonetization Episode:

General confidence in RBI impacted: Right from the RBI central board’s decision to go along with the government and cancel legal tender of high denomination notes to the 60-plus notifications issued since then, the top brass of the apex monetary authority has inspired less confidence with each passing day.

Partially vacant board of RBI: The RBI is wholly owned by the government, and is supposed to have a diverse central board (and regional boards) comprising not only economists and bankers, but persons involved in public policy and civil society. The Modi government has allowed positions on the boards to remain vacant. Over the past three years, the boards of the RBI have been shrinking. The central board that “recommended” cancelling the legal tender status of high denomination notes on 8 November had only four independent members when there should have been 14, and had six executive members when there should have been seven.

Disregarding RTI: The RBI’s refusal to disclose the minutes of the central board meeting that “recommended” cancelling the legal tender of high denomination notes is perplexing. The right to information application for these minutes was turned down. Certainly, there is no need for secrecy now after the unprecedented decision has been taken!

Many Questions Unanswered: The RBI and its governor have done little to address pressing questions that institutions in a democratic country are obliged to answer. Why is the shortage of currency notes more acute in some regions? How is the distribution of new notes being prioritised? Why is the RBI refusing to disclose the reasons for demonetisation?

The government and the RBI owe citizens a much greater degree of transparency and accountability.

Note: Consequences of Severe Cash Shortage in Indian Economy:

* Acute shortage of currency in a cash-based economy such as India’s have meant fewer transactions in general.

* Economic forecasts by private research agencies point out that the short-term consequences of the shortage of cash are causing a shrinkage of economic activity. If these forecasts are anything to go by, the second half of 2016–17 will see a sharp reduction in gross domestic product growth as well.

* News reports suggest that prices in agricultural markets have fallen. The reasons for these fluctuations are not seasonal, but indicative of a shortage of demand.

* With severely limited cash, firms in the informal sector are finding it hard to continue functioning. Those employed in the sector have also suffered, with many migrants being forced to return to their villages.