Economy

Began talks with RBI eight months before demonetisation: Govt

The Central government on Wednesday told the Supreme Court that it began consultations with the Reserve Bank of India in February 2016 — at least eight months before notifying demonetisation i.e., withdrawal of legal tender character of Rs 500 and Rs 1,000 notes, on November 8, 2016.

“It was taken after extensive consultation with the RBI and advance preparation… The then Finance Minister had stated in the Parliament… that Government consultation with RBI began in February 2016; however, the process of the consultation and the decision-making were kept confidential,” it said in an affidavit.

“The withdrawal… of a significant portion of total currency value was a well-considered decision,” the Centre said in the affidavit, which it said should be read as part and parcel of its earlier two affidavits filed on December 1, 2016, and in October 2018.

Defending its action, the Centre said the decision was based on RBI’s recommendation for the withdrawal of the Rs 500 and Rs 1,000 notes and its proposed draft scheme for implementation. “The Central Board of the RBI made a specific recommendation to the Central Government for the withdrawal of legal tender character of the existing series of Rs 500 and Rs 1,000 banknotes. The RBI also proposed a draft scheme for the implementation of the recommendation. The recommendation and the draft scheme were duly considered by the Central Government,” the Centre said in the affidavit. The final notification published in the Gazette of India was based on this, it added.

Noting that the demonetisation action should not be seen as a standalone measure, the Centre said it was “one of the critical steps in the series of transformational economic policy steps” and “a major step to fight the menace of fake currency notes, storage of uncounted wealth and financing of subversive activities”.

 

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