Money & Banking
The demon of demonetisation
In recent RBI history, some highlights: smooth transition to Basel regulations and efficient monetary policy under Bimal Jalan and Rangarajan, global aplomb post-recession under YV Reddy, preventing hyperinflation by Subbarao and taming of the NPAs by Raghuram Rajan. These achievements have put the RBI in prime position among central banks of the world. But the utter lack of planning and monumental mismanagement post-demonetisation by the same institution have tarnished its image.  
 
Banking operations other than currency operations in the country have almost come to a halt, barring exceptions. Credit is on a downturn. All the rating agencies, including Nomura, have down-rated the economic growth. The road to recovery sans GST is going to be difficult.
 
The 59 circulars on demonetisation in 40 days reflect the lack of sensitivity in the currency management risks. The bank’s best talent has been put to worst use and, worse still, fraudsters raised their ugly heads in a regulatory institution known for its integrity. The RBI may have been faulted now and then for untimely decisions or incongruent instructions in certain areas but its integrity was never questioned.
 
Disasters never come singly. There is a disaster management manual for natural calamities like cyclones, floods, typhoons, earthquake and droughts. Such disasters are managed after the event. They manage us instead of us managing them. It takes a few years for the economy to recover from a cyclone, but in the case of floods, the silt turns the next crop a bumper one. This economic disaster of demonetisation has been programmed to look like a flood but has turned into a cyclone.
 
There is no manual on risk management for demonetisation risks. In fact, every circular/ notification/ direction issued by the RBI is supposed to be vetted by the risk management group. But the circulars issued post-demonetisation indicated there was no assessment of risks. Even if the top officials of the Finance Ministry, Government of India, or the PMO had advised a particular course of action it is the responsibility of the RBI to stand up and explain the risks of such a decision. This did not happen, resulting in chaos.
 
Had the RBI insisted on 4-day holiday for banks instead of one day – and we had a number of such holidays when festivals joined Saturday and Sunday -- the banks would have had time to plan their operations. Second, the RBI releasing higher volumes of new currency to digitised banks such as ICICI, HDFC, Axis, Stanchart, CITI and a smaller release for retail cash-driven customer public sector banks (PSB) and smaller private banks, speaks of the failures in currency risk management.
 
Some PSBs followed suit. Some bank branches with high profile customers, who normally use internet banking for 90 percent of transactions, were doled out Rs24,000 per week while retail customers were languishing in queues either for exchange or withdrawal, some even losing their lives. RBI could not even question them. 
 
Had the RBI examined the risks of release of Rs2,000 notes it would not have done so. Second, post demonetisation when recalibration of the ATMs was ordered, it would have done it for only lower denominations, as ATMs are meant for short term cash requirements of people. The limits for such withdrawals could have been restricted to Rs2,000 per person during the first fortnight and, with improvement in new currency inflows, it could have been raised to Rs5000. ATM operation risks were not examined by the RBI.
 
The ICUs of most top corporate hospitals are networked and can be remotely controlled. An application in US or UK or Australia can kill an influential patient in India ICU or elsewhere and that is the level to which disruptive technologies are traversing. After all, the fungible money in plastic or cloud can be manoeuvred much easier.  
 
When it comes to the question of transforming the economy into cashless economy, RBI could have put in a white paper on cyber risks quickly. Today, when the entire data is cloud managed, and when the more digitised economies like the US are turning to cash economy as a safer mode, RBI could have mapped the risks of each digitised instrument and prepared the models that would suit the digitised Indian economy. It should have given the road map for a less cash economy even before the Prime Minister latched up to the idea. 
 
The charm of mobile smart phone dishing out cash in air for a 47% illiterate economy holds immense possibility of easy theft/misuse/abuse of M-Pin or password to such of them. The economy has seen new currency of Rs2,000 in billions caught in seizures within a month after its release. Is it difficult for such persons to penetrate the plastic economy? The growing cybercrime rate clearly indicates imminent disaster.
 
For proper foresight, hindsight is important. Reversing the damage done to the stables of RBI needs a dedicated team and the ability to listen to its sound advice, sooner than later. History would never excuse the present Governor of RBI for his leadership failure of a phenomenal magnitude.
 
*The Author is an economist and risk management specialist.

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COMMENTS

R Varadarajan

6 months ago

The details of currency in circulation as per RBI report, at different time period are given below.
Year M0 High Value M0 High Value Share
Rs. Bn. Rs. Bn %
2000-01 2178.18 566.66 26%
2003-04 3269.60 1504.11 46%
2009-10 7993.70 6027.31 75%
2013-14 13006.67 10783.85 82%
2015-16 16634.32 14179.43 85%
Between 2009-10 and 2015-16, the total increase in money in circulation Rs.8640 Bn of which High denomination as much as 94 % aggregating to Rs.8152 Bn. In fact the increase of high value currency between 2014/15 & 2015/16 was Rs.3395 bn. out of the total increase of Rs.3627 bn. This is perhaps the reason was the acute shortage of cash when the 500 and 1000 notes were withdrawn when people could not lay their hands on smaller currency. Perhaps the author could throw more light on the above.

Govinda Warrier

6 months ago

A well-argued piece on what went wrong in the implementation of November 8 announcement. In brief, the customary backward and forward linkages essential while implementing a project of this magnitude were not taken care of. Surprisingly, all of us, even after some 45 days after November 8 look at lapses from narrow perspectives. This space may not accommodate point wise analysis. Let's take just one example of filling ATMs with lower denomination currency. Even by filling them with Rs2000 denomination and allowing withdrawal of one piece per transaction, stocks exhausted fast. While I appreciate the spirit of the argument, when implementation is thought of, problems galore. The continuous clarifications issued by GOI and RBI were in the context of a media dedicated to creating confusion, as vested interests were and are working overtime to defeat the November 8 initiative. The withdrawal of December 19 circular by RBI need to be seen as a positive signal that the institution is responsive to the pulses of public interest as different from the political leadership across parties, which continue to weigh every action with reference to the political mileage with elections in view.

T.c. Shivswamy

6 months ago

I disagree with TVG . RBI is not only a tool of the GOI but also a tool of the Corporates as Governor,4 Dy Governors and the entire BOD are GOI appointees.It has no vision to serve the common man of this land. With my long experience I can say firmly that it is the insiders within RBI and numerous PSBs and SBI and its subsidiaries and the RBI owned printing presses who have successfully made the common man suffer. Finance ministry bosses have no control over the mismanagement in the GOI printing presses as shown by Telgi and his friends. Even the Demonetisation in 1978 had lot of loopholes from which RBI and GOI could have learnt many lessons. RBI is best a Monetary authority without a firm backbone. It is also plagued as well as the entire Banking and financial sector with political unions.The implementation machinery for Demonetisation was itself unfit and had required overhauling. Idealism cannot work under these sordid conditions. Inspite of having high technology institute or Banking technology upgradation at Hyderabad RBI and Banks have not made much progress in fighting the cyber crime and the havoc being caused by e-currencies such as Bit coin etc. Only IT department and some tax collecting Government agencies will have some success out of this exercise.

Gopalakrishnan T V

6 months ago

Well articulated and presented. The demonetisation risk has not been properly assessed is a fact andtherefore the risk management seen cannot also be said to be effective. This is what has been experienced by the economy and the people for the last few days. The task is huge and the RBI a well reputed organisation for its competence and professionalism in managing what ever tasks it undertakes has unforunately let down this time for every one to criticise. The consequnces of demonetisation could have been assessed well and the risks could have been very well minimised if not eliminated altogether. The Introduction of Rs 2000 notes could have been restricted to metropolitan centres and all other areas could have been flooded with small denomonation notes. The outsourced works could have been well monitored and RBI could have relaxed some administrative measures for fast, smooth and equitable distribution of its vailable stocks of notes to reach as many people as possible without disturbing the banks normal functions of accepting deposits and lending. A little planning in the initial stages could have helped implementation of the demonetisation scheme a great success. A stitch in time saves nine is what is demonstrated. To what extent RBI's independence in handling such a huge exercise has been eroded is not made transparent as the Government's interference in RBI's functioning these days is too much and it has perhaps lost its strength and credibility to vent its views to the Government. The coordianted approach from the government and RBI without undermining RBI's own reputation and professionalism could have brought in better results. All said RBI will have its own reasoning for the lapses which need to be adequately captured and factored into while writing the History as and when attempted. It is an Institution which has faced criticism but has always been adjudged as one of the best Central bankers of the world.

shadi katyal

6 months ago

Evidently whoever advised Modi could not be a friend of the nation and Modi is not a person who will admit his mistake. He will keep talking about black money and Ache Din top come. How the poor daily wage earners or farmers and industry are suffering is not his problem .He feels no remorse for the poor or those who died while standing in lines. One doubt if he even understands the economy of the nation who has lived 96% on cash and when such action is taken without any preplanning. the chaos is there to see.
Modi has done more harm to Indian development for few decades and he still keeps talking about taking care of poor.
Where is now Swammy who called Rajan as
not enough Indian and Modi decided to let him go.
The idea behind this action is that a cashless society will be created with no infrastructure and illiteracy. Where are poor going to get smart phone and learn how to transact their funds?
The idea behind is that all transactions will go through banks and everyone will be charged certain bank charges, thus a new tax. AREYOU READY TO PPAY TAXES WITHOUT ANY REPRESENTATION?

vswami

6 months ago

Among all, this one odd event of hasty action, strikingly absurd, sticks out as a painful sore- thumb

REPLY

vswami

In Reply to vswami 6 months ago

Now that the comment has been left truncated, to complete, the bizarre event referred is this:
“After receiving much criticism, the Reserve Bank today made a U-turn on customers depositing demonetised notes over Rs 5,000 till December 30 by making it clear that there will be no questions asked either in case of one-time or repeat deposits if the accounts are KYC-compliant.”

Ramesh Bajaj

6 months ago

Chaos everywhere. What is the solution now? The answer is not available any where. It is most confusing.

Ramesh Poapt

6 months ago

dear mr r rajan, we miss you a lot since 9 nov.
you might have saved all from this nightmare!

Nifty, Sensex may bounce back next week – Weekly closing report

We had mentioned in last week’s closing report that Nifty, Sensex were in a slow decline. The major indices of the Indian stock markets have continued to slip with each trading day this week and the bulls are not able to turn the tide. Daily trading volumes have also been on the lower side. The trends of the major indices in the course of the week’s trading are given in the table below:

 
Sensex, Nifty traded in the red throughout the day on Monday. Nifty sectoral indices ended in the red, while Nifty IT was in green and up marginally. Also, the Sensex indices ended on a negative note after being marginally down. S&P BSE Sensex ended the day at 26,375, down 115 points, while the broader Nifty50 settled at 8,104, down 35 points. Broader market indices performed in line with the headline indices, with BSE Midcap and Smallcap down 0.51% and 0.46% respectively.
 
Weak global indices, coupled with foreign fund outflows and rupee depreciation were a drag on the Indian equity markets on Tuesday. The key indices closed on a flat note -- marginally in the red, as selling pressure was witnessed in banking, healthcare and automobile stocks. The BSE market breadth was skewed in favour of the bears -- with 1,777 declines and 832 advances. On the NSE there were 427 advances, 1,180 declines and 74 unchanged.
 
Finance Minister Arun Jaitley on Tuesday indicated that no populist measures will come through for the railways when its budget will be merged with the general budget from the next fiscal. "Around the world that organisation is successful which follows a financial model wherein consumers pay for the services they use," Jaitley said here at the national conference on Accounting Reforms in Indian Railways organised by Confederation of Indian Industry (CII). He said populism required that consumers do not need to pay for the services they use but these were not the principles "on which the largest operator of transport can work". "We aim for a creation of Railways as a service organisation which is commercially able to sustain itself and also provide world class quality and infrastructure." These policy measures from the government could lead to higher inflation and higher interest rates, thus weakening the indices in the stock markets.
 
Pharma major Cipla on Monday said that it plans to raise Rs4,000 crore through the issue of various securities, subject to regulatory approvals. The decision to raise the targeted fund was taken by its Board of Directors, the pharma major said in a regulatory filing to the BSE. The company disclosed that it plans to raise "funds up to Rs2,000 crores by issue of equity shares or American depository receipts or global depository receipts or foreign currency convertible bonds or other securities/ financial instruments, whether denominated in Indian rupee and/or foreign currency(ies), though a public issue or a private placement in accordance with the provisions of the applicable law".  It plans to raise another Rs2,000 crore via the issue of non-convertible debentures (NCDs) or bonds. Cipla shares closed at Rs562.00, down 1.13% on the BSE on Tuesday.
 
Profit booking, coupled with a weak rupee and outflow of foreign funds, pulled the Indian equity markets lower on Wednesday. The key indices provisionally closed flat -- marginally in the red -- as heavy selling pressure was witnessed in IT, FMCG and capital goods stocks. 
 
Sun Pharmaceutical Industries dipped 2% to Rs615 on the BSE, its lowest level since November 9, 2016. Reliance Communications (RCOM) ended nearly 7% higher on the BSE after the company announced the signing of binding agreements with Brookfield Infrastructure in relation to the acquisition of RCOM’s nationwide tower assets by affiliates of Brookfield Infrastructure Partners LP. JBF Industries moved higher by 6% on the BSE after a nearly 4% of total equity of the company changed hands via block deal in noon deal trade.
 
Broadly, negative global indices, coupled with foreign fund outflows and rupee depreciation, dragged the Indian equity markets lower on Thursday. The key indices closed in the red, as selling pressure was witnessed in metal, banking and capital goods stocks. The wider 51-scrip Nifty of the National Stock Exchange (NSE) declined by 82.20 points or 1.02% to 7,979.10 points. Headline Sensex index on Thursday tanked 263 points, extending its falling streak to the seventh consecutive session, and ended below the crucial psychological level of 26,000.
 
The Indian Rupee was trading lower by three paise at 67.93 per dollar. Gold was trading at Rs26, 918 per 10 grams and silver was trading at Rs38,983 per kg.
 
On Friday, the major indices were range-bound and closed on a flat-to-small-gain note over Thursday’s close. Gains were less than 0.25% over Thursday’s close on lack of domestic trigger and broadly negative global indices. NSE trading volumes were on the lower side at 72.41 crore on Friday, and it is clear that investors are staying away from the market, especially since foreign institutional investors are now off for their yearend vacation. On the NSE, there were 683 advances, 789 declines and 71 unchanged. On the BSE, there were 1,257 advances, 1,305 declines and 170 unchanged. We expect the market to remain subdued though having fallen quite a bit, the main indices may try to stage a rebound. 
 

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Hall of Shame: Web platform for tracking attacks on RTI activists
Consider this depressing scenario of threats/ killings of RTI activists reported in 2016:
13th January: N A Shah Ansari, Puri, Odisha
16th January: 12 MKSS RTI activists assaulted in Jhalawar, Rajasthan
2nd February: Romel Sutharia, assaulted in Tapi, Gujarat
16th March: Tukaram Chavan, death by suicide, Pune, Maharashtra
21st March: Vinayak Baliga, killed in Dakshina Karnataka
31st March: Vijay Kumbhar, threatened
17th April: Dattatray Patil, assaulted in Kolhapur, Maharashtra
15th May: Suyam Raut, assaulted in Kendrapada, Odisha
7th June: J Parasmal, killed, Chennai 
24th June: D K Sone, threatened, Surguja, Chhattisgarh
29th June: P Suresh, threatened, Ranga Reddy, Telangana
16th August: Yashovardhan Verma, threatened, Rajasthan
15th October: Bhupendra Vira, killed, Mumbai, Maharashtra
25th October: Surjeet Singh, assaulted, East Delhi
 
Whistleblowers, who unearth large-scale corruption, illegal activities and financial irregularities of public servants and politicians, are very vulnerable to attacks and murders. The investigations and convictions in these cases is pathetic as the police and the court drag the matter so much that the criminals who attack RTI activists feel emboldened to continue with such assaults.
 
RTI activists have been advocating that once any sensitive information is unearthed under RTI, it must be put in public domain so that the culprits know that information has gone beyond just that one person who has procured certified documents that expose them. Of course, seeking police protection is another way, in case the activist is threatened, but the casual attitude of the police, despite court orders and state government directives, is well known.
 
In a laudable effort, the Commonwealth Human Rights Initiatives (CHRI) has recently launched an interesting web portal called `Hall of Shame.’ RTI users who have been threatened can report on this portal and the CHRI will take it forward to the police authorities and the national human rights commission (NHRC) and the national campaign for people’s right to information (NCPRI). You can fill up the details here
 
The portal also has detailed information on attack on RTI activists since 2005 through the facilitation of the Google Maps. CHRI has developed Hall of Shame portal to plot these cases geographically using Google Maps. Readers can access more than 300 media reports of such attacks on RTI users at the click of a button. CHRI has also created a facility on this web platform for readers and activists to report instances of attacks on RTI users that we may have missed because they are published in regional languages. Additionally, readers can access practical tips for preventing attacks in future. The web platform also contains guidance on how to approach the police and the National Human Rights Commission for an investigation or an inquiry into incidents of attacks on RTI users.
 
States Venkatesh Nayak, research scholar and coordinator of CHRI, “Since 2005, when The Right to Information Act became fully operational, at least 51 citizens have allegedly been killed, 127 assaulted, 119 harassed or threatened and five driven to commit suicide because they sought information to expose corruption and wrong doing in government.
 
“According to our latest estimates, between 5-5.6 million RTI applications are received every year, wanting to know the reasons behind government decisions. Many want public authorities to take prompt action on grievances about stoppage of pensions or scholarships, or poor quality of services in government hospitals, schools and colleges. Others use RTI to expose corrupt practices in building roads with taxpayers’ money, or how welfare programmes for the underprivileged are implemented.’’
  
Stating that all RTI users who are attacked for seeking information in the public interest are human right defenders and therefore need to be supported and defended, Nayak encourages citizens to provide information on such attacks by writing to him at  venkatesh@humanrightsinitiative.org  or Sneha Chandna, rtiattacks@humanrightsinitiative.org
 
CHRI provides the following safety tips for RTI activist on its web portal
 
1. Often, there is strength and solidarity in numbers. Nothing in The Right to Information Act, 2005 says citizens cannot request information jointly. Recognising the increasing number of cases of attacks on RTI users, the Punjab and Haryana High Court ruled in 2012  that citizens may file joint RTI applications on any subject. So an individual may send an RTI application in her/his name and those of friends or relatives. All applicants should put their names and signatures at the bottom of the RTI form. However, applicants need to remember to indicate which of them will be responsible for paying the copying fees for the records requested from the public authority. (Similarly, nothing in the RTI Act prevents several citizens seeking the same information from the same public authority through several RTI applications.)
 
2. The Calcutta High Court also showed its concern for citizens who are attacked for asking information from public authorities. In 2013 the High Court ruled that a citizen should not be compelled to give personal contact details in the RTI application. If the information can be delivered to any Post Box number provided by the RTI applicant, the public authority must send it there. So an applicant may ask for information to be delivered to her/his Post Box to prevent vested interests from knowing where she/he lives. However, if the information sought is bulky, or if applicants want the information delivered by Registered Post or Speed Post, they will have to disclose personal contact details. Recorded mail cannot be delivered to a Post Box number because the applicant has to sign a receipt on delivery.
 
3. The RTI Act recognises citizens’ right to seek information electronically. An applicant may file an RTI application through email also. If the information is held by the public authority in electronic form, she/he may ask for it to be sent through email. In such cases it may not be necessary to reveal her/his postal address to the public authority.
 
4. If an applicant thinks that her/his RTI application may result in an attack on her/him, play it safe. Talk to a journalist or a social activist or a civil society organisation.
 
What should you do after an attack?
1. If an applicant is attacked or learns about any RTI user who is attacked, threatened or harassed, she/he should not delay seeking or arranging for medical assistance. Immediately contact the local police station directly or through a relative or friend to get an FIR registered about the incident.
 
2. If the local police refuse to lodge an FIR, send the complete details of the incident naming the attackers (if they have been recognised) by Registered Post or Speed Post to the head of the District Police (Superintendent of Police or Senior Superintendent of Police) and demand an investigation. Do not forget to mention the name and rank of the police officer(s) who refused to file the FIR, so that action may be taken against them also. Send a copy of the complaint to the  NHRC. The NHRC has a point person for Human Rights Defenders whose duty is to take action on such complaints without delay.
 
3. Contact CHRI  or NCPRI with complete details of the incident and the legal action that you have initiated. CHRI will forward the case details to the NHRC and the Director General of Police of the concerned State urging immediate action. CHRI and NCPRI will also write to the concerned Information Commission demanding that all information sought by the person who suffered the attack should be proactively disclosed in accordance with the provisions of the RTI Act. By disclosing the information sought, the motive of the attackers to prevent it from becoming public will be defeated.
 
Tips for Navigation
The primary navigation bar on the Home Page of this web platform is self-explanatory. On the left hand panel you may "Search" for incidents by the type of attack on RTI users on the basis of the name of the State or for a period starting 12 October, 2005. On the Google Maps, you may click on a pointer to access the name of the person attacked, date and location as well as a contemporaneous media report of the incident. All 307 cases documented on this platform are not displayed in the form of pointers on the Google Maps because it will slow down the web platform considerably, even with a high speed Internet connection. We are working to overcome this glitch. The ticker above the map is designed to update automatically with every additional entry in the database we make at the back end. All 307 reports of such attacks may be accessed using the "Search" Facility or the "Attacks on RTI Users" link on the left hand panels.
 

 

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COMMENTS

shashi kiran

6 months ago

Ruling parties in above mentioned cases of killing of RTI activisits-BJP 8 cases(57%),BJD 2 cases (14%), AAP, TRS, CONG, AIADMK 1 case each.....so much for transparency

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