Is Indian central bank still counting notes?

It has been more than 4 months since India’s demonetisation drive got over. We have had 2 monetary policy meetings in Feb and April along with Union Budget where analysts anticipated policymakers to release data on demonetised notes. In particular the question that how many old notes came back to the system is vital to knowing what went during demonetisation.

But there is still no data on the currency notes. With shocking silence on RBI front all this while, the government keeps giving us some random data here and there. But there is nothing concrete from the authority whose word finally matters in the debate. The central bank even released a paper assessing demonetisation but it did not have any such data. Moreover, it had stuff which most of us knew from multiple articles written by other experts.

It was also surprising to note how RBI earlier called the exercise Withdrawal of Specified Bank notes. From Feb-2017 meeting onwards, RBI started calling it  demonetisation specifically. It was thought that RBI has changed its classification as it believed some % of notes had indeed not returned to the system. Thus it was demonetisation and not just currency withdrawal.

But 3 months have gone by since the Feb-2017 meeting and we still don’t have any figure whatsoever.

Like all economics action, the demonetisation drive also divided the experts into two camps: for and against.

During the demonetisation, the against camp made arguements based on understanding of monetary history and India’s own previous two demonetisations. But eventually they could not make much progress as the government and central bank refused to either give data on their won or even via RTI. It is amazing how the central bank cited threats to life kinds of clauses to refuse queries on demonetisation. Even all this while the central bank has been quite spectacular on ensuring people know as little on demonetisation as it could be.

Thus, those who thought that demonetisation could create problems for the ruling party in upcoming elections were just proven wrong. However, the problem was not as such about their faulty prognosis but they not having enough information to back their claims.

Meanwhile, the government very successfully changed the narrative from black economy/terrorism to digital India. The transition was so smooth and clever that one never really knew about the final objectives, This narrative was followed by government continuously telling us about newer digital ways and aggressive promotion. Now the entire focus is on building a surveillance government which has become really easy linking Aadhaar to all kinds of human activity.

The for camp (also comprised  government advisers but obviously) which nice saw the grounds slipping gained mojo. Ironically, most in this camp have in some point of their carrer always written and ridiculed any such bans by previous governments.  Keynes once said “when facts change I change my mind”. But here it was a case of “if the government changes (my government comes to power), I change my mind.” So much so for economics experts in India”. This camp also used the recent status quo by RBI on policy rates against expectations as a vindication of their claims. But then central bank did not need to cut rates as that objective was anyway achieved by demonetisation itself.

The demonetisation exercise if anything mocked the entire idea of Indian central bank independence given the submissive manner in which it was done. In earlier demonetisations, RBI top staffs refused to engage in it despite the central bank seen as a department of the government.  But in recent years it was felt that RBI has become more independent/autonomous and yet we see no dissents whasoever from any RBI executive or RBI Board member (a Board which was so understaffed) or MPC member. So whether RBI cuts rates or not, is just a very small matter compared to striking off 86% of notes with such submission.

Given all this , it is amazing how the central bank has managed to keep so mum on perhaps one of the most important events in the country’s monetary history. It has actually turned it into a non-event which itself is quite something..

The question is whether RBI will release this data in future? Will people believe in the reported data?

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