The Big Story: Being the watchdog

It has been 13 days since Rs 500 and Rs 1,000 notes were demonetised. Since November 8, when Prime Minister Narendra Modi announced the policy in a late evening television address, millions have lost precious work hours to queue up at banks to exchange their old notes. Workers have been plunged into distress as wage payments have been delayed, states are bracing for a drop in food production as farmers are unable to access crop loans and the supply of commodities in rural markets has plummeted.

The Opposition has come out all guns blazing against the Centre. Serious questions have been raised about the lack of preparedness in tackling the effects of demonetising 86% of all currency in circulation. Adequate numbers of new currency notes to replace the old ones had not been printed before the policy was announced. Automatic Teller Machines had not been calibrated to dispense the new Rs 500 and Rs 2,000 notes.

The person responsible for the implementation of the policy has been completely silent over the past 13 days. Urjit Patel, who took over from Raguram Rajan as the Reserve Bank of India governor in August, has not found it necessary to make a single statement about the chaos that demonetisation has unleashed. The man firefighting in the media has been the Economic Affairs Secretary Shaktikanta Das.

Since the policy came into effect, the regulatory body that controls India’s monetary policy has issued several notifications tinkering with cash withdrawal limits. It was as if the RBI had no plan in place and was tackling emergency situations only after reading media reports. So unprepared was the institution that it had to reintroduce soiled notes into circulation to meet the tremendous demand for valid currency.

The chaos has called into question the degree of autonomy under which the RBI now functions. The framers of the Reserve Bank of India Act were aware that a monetary authority had to be accorded some insulation from government interference to ensure economic stability. While the RBI is expected to listen to the government while making crucial decisions, there have been instances where it has put its foot down and resisted certain decisions.

In fact, former Union Finance Minister P Chidambaram claimed in a television interview last week that demonetisation had been discussed during the United Progressive Alliance regime. But Raguram Rajan, who was then RBI governor, said that the pain of demonetisation would outweigh any benefits from the move. Banking associations have demanded the resignation of Patel, blaming him for not protesting the government’s “ill-conceived and unimplementable move”. It is up to Patel to explain how the monetary situation had changed since 2014 to allow for such a dramatic policy decision.

The Big Scroll

  • Anupam Gupta on why gradual and incremental reforms could have been a better idea than sudden demonetisation. 
  • Harvard University professor Kenneth S Rogoff on why the demonetisation could turn out to be a good move in the long run. 

Punditry

  1. In the Indian Express, Manish Sabharwal says the demonetisation could set right some of the problems plaguing labour and job creation in India. 
  2. Former governor of West Bengal MK Narayanan writes on the lessons Donald Trump’s victory carries for democracies worldwide. 
  3. Shashi Shekar in the Hindustan Times hopes that Indira Gandhi’s birth centenary will do greater justice to her legacy. 

Giggles

Don’t miss

The demonetisation has forced villagers in Dhasai in Maharashtra to eat less.

 “One of the few in the pada who had a high denomination note was Yamuna Wakh, not a relative of Avdibai. ‘I went the day after the ban to buy groceries with my Rs 500 note and the shopkeeper laughed at me and told me to keep the note at home and look at it,’ she said, with a short laugh. She has not returned to the market since.”