What was meant to be a clear communication strategy resulted in even more confusion with daily changes in demonetisation rules
Mumbai: In the month following the withdrawal of Rs500 and Rs1,000 as legal tender, the Reserve Bank of India (RBI) issued at least 50 notifications. But what was meant to be a clear communication strategy resulted in even more confusion as these daily evolving guidelines ended up showing the central bank as being unprepared for the problems that the public faced. Often, it went back on promises made earlier.
For instance, on 8 November, RBI put up a list of frequently asked questions promising that exchange of currency notes would be allowed till 30 December. Again, on 11 November, the regulator reiterated that people need not crowd bank branches as they can exchange their cash at their own convenience. On 24 November, the regulator said that no more exchange facilities would be allowed at bank branches.
“Closely guarded secrecy is understandable, but the first few days after the demonetisation announcement could have been used better. The order of preparation could have been higher," said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP.
The central bank defended itself by saying that demonetisation wasn’t a hasty decision.
“The central bank and the government were conscious of difficulties for public at large and all efforts were made to mitigate them," said RBI governor Urjit Patel at a post-policy meeting with the media on Wednesday.
“The problems of common people were on top of our radar and all dispensations were put in place to ensure that period for disruption is minimal," Patel added.
However, the central bank notifications reeked of opacity and flip-flops. For instance, on 8 November, the RBI had said that the minimum ATM withdrawal limit would be increased to Rs4,000 on 19 November from Rs2,000 applicable then. Later on, the regulator did increase the limit to Rs2,500 per day, but did not consider any further increase in limits. On 30 November, the RBI also capped withdrawals from accounts opened under the Prime Minister Jan Dhan Yojana (PMJDY) at Rs10,000 a month. The regulator said this was to protect innocent farmers and rural account holders against money laundering.
Since about 40% of Jan Dhan account holders are from urban areas, the decision could be considered discriminatory, as other bank account holders are allowed a limit of Rs24,000 per week. Even when the regulator allowed bank customers to withdraw up to Rs2.5 lakh for weddings, it added tough riders, asking for affidavits from each person who was to be paid in cash.
With multiple regulations coming in, bank branches found it difficult to keep up with the changes in rules.
The RBI’s communication strategy also failed to clear speculation when it was necessary to do so.
On Wednesday, the RBI governor clarified that talks of a windfall dividend payment to the government because of the note ban could be exaggerated.
“...there is no implication on balance sheet as of now. Question of dividend doesn’t arise by withdrawal of legal tender character. They still carry the liability of RBI as long as only the legal tender characteristic is withdrawn," Patel said.
This clarification came after a month of speculation in the market about the government’s inflated earnings. The withdrawal of high-value currency notes also resulted in significant strain in RBI’s currency management, but the data shared was sparing. Only in two instances in the last month did the central bank say how much of the invalidated currency was deposited with banks. The third instance was Wednesday when it said the system had received Rs11.5 trillion worth old high-denomination notes in the form of deposits and currency notes exchanged as of 6 December.
Since 10 November, the central bank has supplied about Rs3.81 trillion worth of new notes compared to about Rs11.5 trillion pulled out of circulation, according to the attorney general of India’s submission with the supreme court.
Of this, about Rs1.06 trillion were in smaller denominations of Rs10, Rs20, Rs50 and Rs100, according to the RBI’s website.
According to R. Gandhi, deputy governor of RBI, the total number of small value currency notes which the regulator circulated was 19.1 billion pieces, which is higher than what it had done in past three years as a whole.All currency presses are working at full capacity, he added.