The board, according to minutes of a meeting disclosed by RBI in an RTI reply, had met just two-and-a-half hours before Prime Minister Narendra Modi announced the demonetisation decision on 8 November 2016.
Curbing black money was one of the prime objectives of the shock move to junk old ₹500 and 1,000 currency notes, which saw 86% of cash by value going out of circulation.
The minutes of the crucial board meeting, which approved the government's request for demonetisation, recorded the presence of 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 (demonetisation) is a commendable measure but will have short-term negative effect on GDP for the current year," read the minutes of the RBI board meeting.
The minutes were 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 with the aim to curb black money, check counterfeit currency and stop terror finance, among other reasons.
While any incidence of counterfeiting is a concern, the minutes said, ₹400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant.
Of the ₹15.41 trillion worth of ₹500 and ₹1,000 notes in circulation on 8 November 2016, ₹15.31 trillion came back during the 50-day window for depositing junk notes given to Indians in India and till June 2017 for Non-Resident Indians.
Only ₹10,720 crore of the junked currency notes did not return to the banking system, rest 99.9% was deposited—raising a question mark over the government's effort of curbing black money through the demonetisation.
The minutes pointed 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 demonetisation did not have much impact on India's GDP growth. The board was assured that the government would take mitigating measures to contain the use of cash, it said.
In another reply, RBI said it has no data on the old ₹500 and ₹1,000 notes used to pay for utility bills such as fuel at petrol pumps—payments that are anonymous and are believed to have formed a good part of the demonetised currency that returned to the banking system.
The government had allowed exchange of the junked notes as well as they being used for payment of utility bills for 23 services.
Both old ₹500 and ₹1,000 notes could be used at government hospitals, railway ticketing, public transport, airline ticketing at airports, milk booths, crematoria/burial grounds, petrol pumps, metro rail tickets, purchase of medicines on doctor prescription from the government and private pharmacies, LPG gas cylinders, railway catering, electricity and water bills, ASI monument entry tickets and highway toll.
The exchange of old notes was stopped On 25 November 2016 and the government allowed the use of only old ₹500 notes at these utilities till 15 December 2016.
The government, however, stopped the use of even this currency at petrol pumps and for the purchase of air tickets at airports abruptly with effect from 2 December 2016, after reports that they were becoming fronts for laundering of old currency notes.