NEW DELHI: The Reserve Bank of India board, which had its present governor Shaktikanta Das as a director, had warned of short-term negative impact of demonetisation on economic growth, reveals an RTI reply.
Just two-and-a-half hours before Prime Minister Narendra Modi in announced the demonetisation decision on November 8, 2016, the RBI board had observed that the unprecedented move will not have any material impact on tackling the black money menace.
Curbing black money was one of the prime objectives of the shock move to junk old Rs 500 and 1,000 notes, which saw 86 per cent of high-value currency going out of circulation, the minutes of the meeting, said.
The minutes of the crucial board meeting, which approved the government's request for demonetisation, recorded the presence of the then RBI Governor Urjit Patel and the then economic affairs secretary Shaktikanta Das. Others at the board meeting included the then financial services secretary Anjuli Chib Duggal, and RBI deputy governors R Gandhi and S S Mundra.
Both Gandhi and Mundra are not part of the board now, while Das was appointed as the RBI governor in December 2018.
"It is a commendable measure but will have short-term negative effect on GDP for the current year," as per the minutes posted by RTI activist Venkatesh Nayak on the website of Commonwealth Human Rights Initiative.
"Most of the black money is held not in the form of cash but in the form of real sector assets such as gold or real estate and that this move would not have a material impact on those assets," the board observed in its 561st meeting held in Delhi.
The prime minister had announced demonetisation of high-value currency notes with the aim to curb the black money, check counterfeit currency and stop terror finance among others.
While any incidence of counterfeiting is a concern, the minutes said, Rs 400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant.
Of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on November 8, 2016, notes worth Rs 15.31 lakh crore came back during the 50-day window for depositing junk notes given to resident Indians and till June 2017 for non-resident Indians.
Only Rs 10,720 crore of the junked currency notes did not return to the banking system, rest 99.9 per cent was deposited raising a question mark over the government's effort of curbing black money through the demonetisation.
The minutes pointed out that "the growth rate of economy mentioned is the real rate while the growth in currency in circulation is nominal. Adjusted for inflation, the difference may not be so stark. Hence, this argument does not adequately support the recommendation (in favour of demonetisation)".
The government has always maintained that the decision did not have much impact on GDP growth.