The jury is still out on the tangible economic benefits of demonetisation that sucked out Rs 15.4 lakh crore from the system overnight in move that was expected to weed out black money. The political benefits are there for all to see, with UP state elections giving the BJP a thumping majority, as did the local body elections in Maharashtra and Chandigarh.
While a section of financial experts have attributed the slowing down of the economy in the final quarter to demonetisation, what seems to be more pronounced is the haphazard way the currency change was managed.
The latest embarrassment for the RBI was it being ridiculed by the Parliamentary Standing Committee of Finance for its failure to produce a figure for the amount of money that has come into the banking system following demonetisation in November 2016. When asked for the reason for the delay in producing a number the RBI said it was still counting the demonetised notes.
It did not have adequate counting machines, and has floated tenders to procure more such machines. This is in addition to the 59 counting machines it already has and the seven it has hired. Digvijaya Singh, a Congress member in the panel, reportedly even asked the Governor Urjit Patel if counting would be over by May 2019, time for the next general elections.
The remark concealed a jibe, that any delay in producing the actual amount of bank with banks would go in the government's favour, and help it in the next polls. This presupposes that most of the demonetised currency would have come in, proving the government's claims of having eliminated hordes of black money hollow. The bigger embarrassment would be if more money comes in that was actually demonetised, thanks to counterfeit currency!
Even as early as December 10 last year, Rs 12.4 lakh crore had got back to the banks, as revealed by R Gandhi, RBI Deputy Governor. Considering that another Rs 60,000 crore was already with the banks at their branches and ATMs at the time of demonetisation (as extrapolated by experts based on the numbers RBI made public in 2014-15), some Rs 13.3 lakh crore had already come back to the system by then.
Unconfirmed reports had then said 97 per cent of the money has been turned in this way by December 30, but RBI is yet to announce any concrete numbers after its December 10 announcement, saying it is still in the process of doing the calculations. If much of the money has come in, then the government's argument that anywhere between Rs 3-4 lakh crore of demonetised currency would not come back into the banking system and would be extinguished, falls flat. It also puts in jeopardy plans to spend those huge sums of stashed-away money in welfare programmes (by way of reduced liability of the RBI), as anticipated.
This clearly means that the highly disruptive process of demonetisation has caught the RBI completely off-guard. There is, of course, some logic is saying RBI needs to recount all the notes back in the system to avoid 'double counting' and would need to sort out the good notes from the counterfeit. Even then, the central bank is seen to have faltered on various fronts.
It delayed remonetising the currency (replacing the old with new notes), printed notes that were out of sync with the ATMs, so much so that 1,80,000 ATMs had to be recalibrated. RBI was also criticised for its flip-flops in coming out with too many notifications (almost one every day for the 50 day demonetisation window), and now for its inability to estimate the infrastructure needed to count the demonetised notes.
The question then clearly is why the RBI had not bought those machines much earlier, if it had anticipated that the machines would be inadequate. There is no doubt recounting such a huge volume of notes is a mammoth exercise. Moving the money around is a problem, as well as storing it.
People in the know say even the storage facilities are inadequate. Now it is becoming all the more clear that RBI will not show these figures in its Annual Report that is due in August. Perhaps the central bank will report the figures separately later. But that's a technicality. It should release the figures of currency back in the system to the public in the spirit of transparency and accountability, at the earliest. Such numbers, if nothing, would throw more light on the banking system, that is already seeing a lot of remedial action, and aid in its revival.