I Reiterate That Urjit Patel Should Resign: A Bankers’ Union Leader on Demonetisation and the RBI’s Annual Report

On 30 August, the Reserve Bank of India (RBI) launched its annual report for the financial year 2016-17. Nearly eight months after the prime minister announced the demonetisation of higher-denomination notes, the Reserve Bank in its report noted that nearly 99 percent of the currency that was taken out of circulation had been returned. The report further noted that the RBI’s income for its financial year ending 30 June fell by 23.56 percent, to Rs 61,818 crore. The central bank noted that it spent Rs 7,965 crore on printing currency notes in 2016-17, more than doubling the previous year’s figure of Rs 3,420 crore. The report also pointed out that 29 billion pieces of currency were issued in an attempt to rapidly remonetise, significantly exceeding the 21.2 billion pieces of currency issued the previous year. The RBI faced severe criticism after the report’s release—several analysts suggested that the data showed that demonetisation had largely failed to deliver on the policy objectives that the government had detailed.

Shortly after the policy was announced in November 2016, D Thomas Franco­, the current general secretary of the All India Bank Officers’ Confederation—a trade union representing over 2.5 lakh senior officers from rural banks in India—had demanded the resignation of the RBI governor Urjit Patel. Franco said that the demonetisation would have lasting effects on the economy, and that by approving the policy, the RBI had committed a grave error. He added that the governor should take moral responsibility for the death of 11 bank officers in the 12 days following the announcement of the scheme. On 1 September 2017, Kedar Nagarajan, a web reporter at The Caravan, spoke to D Thomas Franco to discuss Franco’s views on the report and the impact of demonetisation so far.

Kedar Nagarajan: What are your thoughts on the data contained in the RBI’s latest report?

D Thomas Franco: We had been saying from the beginning that demonetisation is not going to achieve the targets or goals that it had set. On 8 November, the prime minister set four goals that he claimed demonetisation would achieve. If I recall correctly, they were: abolition of black money, abolition of corruption, abolition of counterfeit notes and cutting funds used to sponsor terror in the country. Now it has been proved that nothing has been achieved on any of these fronts. Now that 98 percent of the currency has come back, the government has been proved wrong. The attorney general made a statement in the Supreme Court that at least Rs 4–5 lakh crore would not come back, but he was wrong. In different reports, many members and supporters of the ruling party had been making statements that a lot of money would not come, and that money would be transferred from the RBI, to the government and that that money doled out to people who have a Jan Dhan account.

But all that has been proved wrong. Terrorism has not reduced, and counterfeit currency that was collected was only to the amount of Rs 43 crores. The new notes are already in the market, and as per newspaper reports counterfeit versions of these notes have already been detected. What they had anticipated has not been achieved, and probably estimating this, they set the new goal [of demonetisation] as “digital economy.” Yes, the number of digital transactions has increased, but technology is such a thing where, if people find it comfortable, they adapt. For people to switch to the ATM card, there was no need for demonetisation—people use ATMs when they’re convenient and they are aware, except in places where the reach is less. There was no need to inflict demonetisation on the larger majority.

We had been demanding that the data on currency printed and how much of it was circulated to the private sector and public sector banks be made available, but that data has still not been released. [The former finance minister] P Chidambaram made a comment saying that he has doubts that some currency would have gone into the hands of individuals instead of to the bank based on the huge caches of money in some parts of the country during the demonetisation period itself. When the restriction was there that one cannot draw more than Rs 24,000 [per week], I know of 36 newspaper reports in which more than a crore was caught as fresh currency from individuals. How did that happen? From where did it reach their hands? It is the responsibility of the RBI to share that data. If that data was made available it would have been much easier for the police and the CBI [Central Bureau of Investigation] to find out by now who was responsible for the distribution of this fresh currency, and they could have taken action on that. When you make crores of people stand on the road and give them the hope that there will be a huge amount of black money, which will be brought back and pumped into the economy, there is a moral responsibility for the RBI governor. That is why I demanded the resignation of the governor at the time itself, and I reiterate that he should resign even now.

KN: Why do you believe his resignation is important?

DTF: People have been put through so much hardship. Thirteen bankers have died during demonetisation, more than hundred people standing the queues have died. As per reports, the measure has cost the banking sector more than Rs 30,000 crore. Instead of getting any benefit to the economy, it has led to huge loss—every sector was badly affected. Bankers have demanded that the government reimburse the cost of demonetisation, but not even a single rupee has been given. Banks had to incur so much cost for no fault of theirs, for this idea that now appears to have been quite stupid.

Ultimately, nothing has been achieved. Even the digital part of it could have done by increasing the awareness among people and educating them about how digital transactions would have been more convenient to them. As per the report submitted to the parliament earlier, only 5 to 6 percent of black money remains in currency, so for that you did not have to subject so many people to hardship, and incur so many expenses. Therefore, it is the RBI that has to take responsibility because they met the PM a few hours before this decision was taken and they approved the demonetisation.

KN: Do you disagree with the manner in which demonetisation was carried out administratively or do you disagree with the policy at large?

DTF: I disagree with the policy, and it has clearly not helped. To increase the number of income tax payers, demonetisation was not required. There are other ways; you know who are the people that have money. The IT department keeps collecting information on people who are buying high-end cars and expensive housing and investing in land. Banks have been sending reports of larger deposits to the IT department and the RBI because it is mandatory for the banks to do so. That data itself could have been used to find out who are the people that are not paying tax and to take action.

According to the government’s own socio-economic survey, [in rural areas] 92 percent of the households have an income that is less than Rs 10,000 per month. But these 92 percent were also asked to stand in the queue and even now people have some currency left with them. Everyday we come across poor people coming to the bank, especially ladies, saying that “I have got some money and I was not aware,” “I had kept some money under the mattress to hide it from my drunkard husband and now only I got that money, please exchange it”—but there is no way. [The Supreme Court] also gave a directive to RBI that you should permit the exchange in genuine cases, but the RBI has taken no action. RBI has given a guarantee that when you possess that note you are eligible to get your money’s worth and now people are holding that note and they are not able to use it. This does not mean much to us maybe, but for people with low incomes, this means a great deal.

The policy was wrong and its implementation, tardy. During the months the RBI kept changing the directives and issued around 62 circulars. They have been refusing to share data. Up to 23 December whatever currency was deposited, they could have given the data the next day itself, why did they not? It is only to hide something—you are not able to give figures correctly because the anticipation was wrong.

KN: Nearly 99 percent of the old currency notes have returned to the banks. This figure is exclusive of the money collected by district cooperative banks, and the demonetised notes held by citizens and organisations in Nepal. If those were factored in, could the number exceed 100 percent?

DTF: I feel that it will. Cooperative banks also were allowed to exchange currency during the first phase of about eight or nine days. They had collected quite a lot of money. Similarly, the Nepal embassy had stated that there is huge currency available which has to be exchanged. I know of a case in Port Blair where somebody had deposited the currency in the court of law and the court judgment came after this exercise was over. So, now this fellow has Rs 30 lakh deposited, which banks are not allowed to deposit. I do not even know if they have factored in deposits after 31 December. People who deposited money after that time period have not been given credit thus far. If all this is factored in, the figure will be larger.

KN: The percentage of counterfeit cash that returned was 0.0007 percent of the cash received, and counterfeit versions of the new Rs 2000 and Rs 500 note have already been detected. What possible steps could have ensured that a greater amount of this counterfeit currency was brought back into circulation?

DTF: To detect counterfeiting is very difficult once the notes are old. Only when the notes are fresh, one can easily detect this. When it is old notes, physically when we are counting also it is difficult. I used to be a cashier and the moment I touched new notes that were fake, my hand would stop. Machines these days also cannot detect a note that has been used many times. Counterfeiting cannot be stopped that easily. Many countries use the same paper that we use also. The source of the paper is common, so maybe we should work towards being in a position to print our own currency papers. We have great printing presses, so that infrastructure has to be developed independently.

KN: A Kotak research report published on 31 August stated that, “even as most of the cash has been returned to the RBI without any significant increase in fake currencies, the demonetisation exercise has effectively presented the policy makers with a data trove of individuals’ financial transactions which can be leveraged to improve tax compliance.” What are your views on this assessment?

DTF: As I said earlier, this was not the way. There are people that hold huge estates, but it is not being taxed because the land is declared agricultural. Today, the way of finding out about tax evaders is available. The number of notes in circulation is more than what it was with the older notes. A lot of it is not in the bank, again it is with the individual. Just getting a deposit of currency in the banking sector is not going to do anything for tax.

Another issue is, when you tax people more, tax has to be utilised to provide services like healthcare, education, employment, cheap public transport and cheap energy. Instead of attracting people to pay more tax and enjoy greater benefit, we have been trying to coerce people. The entire population has been taken to task to catch a small number of people and this policy has had no impact on other forms of black money whatsoever. This policy was like evacuating a house to catch a rat.

This interview has been edited and condensed.