Demonetisation woes due to bank officers' role: Panagariya
In implementing demonetisation what did not go as planned was that "a lot of bank officials really played it in the way that they should not have played it" and it was on a scale not anticipated, according to Arvind Panagariya, Vice Chairman of Niti Aayog.
 
He defended the demonetisation of the Rs 1,000 and Rs 500 notes calling them a part of an overall strategy to fight black money and to introduce developments like digitisation of currency.
 
"Remember this was not a step taken in isolation," he said. "It sent a very strong signal, 'Look the government's strategy is to combat the black money'."
 
He was answering students' questions after a lecture on India's economic policy and performance organised by the Deepak and Neera Raj Centre on Indian economic policies at Columbia University's School of International and Public Affairs.
 
"It is a gigantic operation," he said. "Those who have been critical of the RBI have not understood what a gigantic task it was to remonetise the economy.
 
"The money that was completely out of the system, a substantial part of the cash that was in circulation was not in circulation, was not in the formal economy," he said. 
 
"A lot of these the RBI (Reserve Bank of India) knew was not coming through the banking system at all. So they all needed to come back.
 
"Demonetisation sends a very, very strong signal that the day when the central government was complacent was over, that if you are going to misbehave we are going to see to it that you pay for it," he added.
 
The demonestisation is being followed up by a number of other things like restrictions on contributing funds for elections, and "the digitsation of the transactions, big time," Panagariya said. "So all in all it was a necessary step in the process."
 
He also praised the RBI for the "admirable role" it paid in keeping the rupee stable in November through two international developments - Brexit and the election of Donald Trump as the US President - that made an adverse impact on most developing country economies.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Kunal Singh

    3 years ago

    What does he even mean by “a lot of bank officials really played it in the way that they should not have played it”? Weren't the banks being played by continuous directions and notifications from the North Block and Mint Street? Was it the bank officials who were responsible for printing and circulating money or is it the RBI which is the authority responsible for this exercise?

    The banks worked overtime and on holidays while the RBI (holy be thy name) enjoyed their holidays. Currency Chests filled with specified bank notes and there was no sign of the new notes making its way to the banks from the currency press. The MoS Finance apparently instructed banks to open currency chests overnight. Who's clueless here?

    The goals were conveniently shifted from black money to digital. A former RBI Governor said on record that he wouldn't take up the job in the current environment. Trump's election win saved Govt the blushes of DeMo.

    Where's the black money? The pseudo-intellectuals gave a huge bounty of dividend from the RBI even as the DeMo exercise was underway. Alas, it looks like Central Bank accounting doesn't work that way.

    Gopalakrishnan T V

    3 years ago

    Implementation has miserably failed is a fact which cannot be ignored and which ever institutions have failed to implement needs to be fixed mercilessly. Lots of expectations were there from Demonetisation and a casual approach to implement the same defeated the whole purpose of it.

    Pradeep Kumar M Sreedharan

    3 years ago

    My apartment, out in the market since September fetched only two enquiries, that too after Dec 31st, both from bank staff - strange, I said and strange it is.

    jaideep shirali

    3 years ago

    Quite obviously, Mr Panagariya, like all the concerned Ministers and bureaucrats, RBI or otherwise, is clueless about the DeMo exercise. Maybe a simple calculation should have helped him. A day's bank strike costs the economy between Rs 25,000 to 50,000 crores loss. Multiply that figure by 50 and even compared to Rs 15 lakh cr in currency, it shows how stupid the exercise was. Goalposts shifted, even till now, as each goal was evidently ambiguous. Add to that the cost of printing new notes, recalibration of ATMs, logistics cost and the fact that the Govt was short of currency notes from Day 1. And yes, the innumerable rule changes by people who think they knew all but are ignorant. DeMo is a failure, but bureaucrats like him will continue to get their DA hikes and benefits, how does it matter who is affected ?

    REPLY

    Govinda Warrier

    In Reply to jaideep shirali 3 years ago

    I'm reminded of Kapil Sibal of 2G SCAM days. He used to multiply any alleged loss to GOI by zero! Now demonetization loss is equal to number of days since November 8, 2016 multiplied by "X" where X is number representing my enemity to....

    Beena Kothari

    3 years ago

    Who can say with confidence that this entire exercise was successful? No one not even govt officials with the proof.. Now the data analysis by the IT department is going to create another set of problems for commoners.. Black money still remains illusive and only for talking reference.. Most of the hoarders have gone laughing away...

    Rahul Pande

    3 years ago

    Very interesting.A bad workman always blames his tools.

    S Santhanam

    3 years ago

    In a way to put restrictions on withdrawal by RBI or government does not stand the test of the courts. In other words such instructions are illegal.

    S Santhanam

    3 years ago

    When you are given a loan by a bank it is expected to be repaid either on demand or as per terms of loan contract agreement signed by the borrower. Similarly if a customer deposits money in his savings account it is a contract signed by the bank to the customer that it will pay
    any amount to him or her to the
    extent of balance available in the account. It is similar to the customer lending his money to the bank on conditions mutually agreed upon.
    Now to put conditions for withdrawal of money from
    the savings account is violation of the contractual obligation by the bank and it should compensate the customer by paying higher interest on the savings account. Mutadis mutandi it is applicable to current accounts too.

    S Santhanam

    3 years ago

    When you are given a loan by a bank it is expected to be repaid either on demand or as per terms of loan contract agreement signed by the borrower. Similarly if a customer deposits money in his savings account it is a contract signed by the bank to the customer that it will pay
    any amount to him or her to the
    extent of balance available in the account. It is similar to the customer lending his money to the bank on conditions mutually agreed upon.
    Now to put conditions for withdrawal of money from
    the savings account is violation of the contractual obligation by the bank and it should compensate the customer by paying higher interest on the savings account. Mutadis mutandi it is applicable to current accounts too.

    US Vads

    3 years ago

    It is a thoroughly disappointing reading from none other than Vice-Chairman of Niti Ayog kind of body - highly coloured and absolutely lacking objectivity. It is simple - every task , more importantly a task like demonetisation that destabilises and plays on common man emotions - has to show case the clear cut objectives. This one does not. Till date, the RBI , the internal arm of government, and the government together could not come out with a complete picture what it attained or number analysis like - how much this exercise cost , how much black money out of how many the raids conducted and who are all searched is projected to be entering the exchequer ultimately - let it take decades though. Go to any ATM even now, you just stare at the message that önly Rs.2000 notes are dispensed" and the bankers coldly say "we dont have other denominations" and so on. Is this continued harassment the objective? By saying it is a part of larger set of actions that follow is only to fool the public who just dont have any means to question the government on any inconvenience. Is the goal to have a universe of people as database to target in future? If digitisation is a part of the game, is this the only way to kick start? Today we go to any small time shop keeper or an upcoming clinic, they say it costs 1% + surcharge on the amount swiped - it is real and not fiction like the one we hear from this article. Carry a Rs.2000 note and feel eternally shaky if the merchant would accept or deny for want of change. As against every inconvenience one quotes, there is only one answer - it is all to attack the black money! but we see the municipal authorities , police, every government officer who has been given the power to serve you - all of them want bribes and now in multiples of 2000. This is not a political view . we dont care a damn for any party that supports or opposes. The problems in the small rural areas and even in cities at odd places regarding the currency availability is real. Million bullets fired in all directions to hit a bunch cash hoarders who ultimately escaped or would escape in the crowd of common people who received the bullets for no reason - this is what has been achieved. A non-stop political narratives can be spun for another few years around this act - this another add on. Whom are we blaming - bank officers? the government came up with so many changes every now and then . Will these not cause hardship to people and disruption to the administrative process of the banks? Net , net it has been a big political game causing harm to the innocent public irreparably.

    MOHAN SIROYA

    3 years ago

    Being a part of the Government , it is but natural that Mr. Panagariya is defending demonetization. He did not say how and what way it has helped economy or the common people of India. Although ,he mentions that the Bank Officials did irregularities not expected of them, he has not mentioned what action the Government has taken against such truant
    officials. What use this piece ? Is anyone convinced by what he said ?

    REPLY

    Panna Thakkar

    In Reply to MOHAN SIROYA 3 years ago

    Yes what Mr Panagariya said is right some corrupt bank officials have done wrong things and it is also true that NPA in banks are because of political hands and these corrupt bank officials but no Govt till date not even Narendra Modi govt has taken any step against them Why Why . The properties & assest should be confiscated instaed the corrupt bank officials have retired and are enjoying pensions . Is Narendra modi listening?

    US Vads

    3 years ago

    It is a thoroughly disappointing reading from none other than Vice-Chairman of Niti Ayog kind of body - highly coloured and absolutely lacking objectivity. It is simple - every task , more importantly a task like demonetisation that destabilises and plays on common man emotions - has to show case the clear cut objectives. This one does not. Till date, the RBI , the internal arm of government, and the government together could not come out with a complete picture what it attained or number analysis like - how much this exercise cost , how much black money out of how many the raids conducted and who are all searched is projected to be entering the exchequer ultimately - let it take decades though. Go to any ATM even now, you just stare at the message that önly Rs.2000 notes are dispensed" and the bankers say coldly say "we dont have other denominations" and so on. is this continued harassment the objective? By saying it is a part of larger set of actions that follow is only to fool the public who just dont have any means to question the government on any inconvenience. Is the goal to have a universe of people as database to target in future? If digitisation is a part of the game, is this the only to kick start? Today we go to any small time shop keeper or an upcoming clinic, they say it costs 1% + surcharge on the amount swiped - it is real and not fiction like the one we hear from this article. Carry a Rs.2000 note and feel eternally shaky if the merchant would accept or deny for want of change. As against every convenience one quotes, there is only one answer - it is all to attack the black money! but we see the municipal authorities , police, every government officer who has been given the power to serve you - all of them want bribes and now in multiples of 2000. This is not a political view . we dont care a damn for any party that supports or opposes. The problems in the small rural areas and even in cities at odd places regarding the currency availability is real. Million bullets fired in all directions to hit a bunch cash hoarders who ultimately escaped or would escape in the crowd of common people who received the bullets for no reason - this is what has been achieved. A non-stop political narratives can be spun for another few years around this act - this another add on. Whom are we blaming - bank officers? the government came up with so many changes every now and then . will these not cause hardship to people and the bankers. Net , net it has been a big political game causing harm to the innocent public irreparably.

    SuchindranathAiyerS

    3 years ago

    Panagariya blames the Bank Officers. I say Most Bank Officers are Government Officers and, therefore, no different

    SuchindranathAiyerS

    3 years ago

    The demonetization in India was drastic but essential. The vital element of surprise was remarkable. The difficulties arose out of the need for surprise.

    For example the new 2,000/- notes, and large quantities of 100s were to be available, with the ATM re calibration done, a month before the Prime Minister's announcement. However the Reserve Bank and the Banking system are as lackadaisical as any other Police Station, Government Office or Court after Seventy Years of Quota-Corruption Raj by the Constitutionally Certified Congenitally Impaired, and took their time. Any time pressure applied on this rusty machinery would have spiked the secrecy.
    The Banks, like the RBI became corrupt when they came under the control of the Politicians and Bureaucrats (RBI 1947 and Banks in 1969)
    There was an enormous over hang of corruption and other criminal money eliminated by this. The various insurgencies and the Chinese backed Maoist operations have been brought to a dead halt. More importantly, the forged currency being injected by Pakistan and China to destabilize the Indian economy and foment terrorism and insurgency have been wiped out. The most telling demonstration of this is the manner in which the forged currency funded violence and rebellion in the Kashmir Valley came to a dead halt.

    There has been a seventy year accumulation of black cash and black cash funded wealth in the country. The ten years of the Manmohan Singh "Coalition Dharma" that enabled the "Family that loots together to stay together" to chalk up scam after scam with enormous profligacy and pork built up a spurious inflation funded GDP without underlying employment or wealth distribution rather like what is happening in the West owing to war profligacy.

    Huge non productive capital investments enforced by foreign inward investments with nothing else to buy was drowning the country with excess capacity.

    In addition, the inflation funded "wealth" economy had inflated housing out of reach of even the upper middle class let alone the poor.

    The enormous private currency hoardings of judges, police men, bureaucrats and other corrupt cogs of the state have also been wiped off.

    This will reduce the deficit and release staggering sums for infrastructure, defence, education and health, all of which have been starving during Manmohan's ten years but have been fasting like a Gandhi for sixty years before that.

    Remarkably, while the opposition and their paid media make much ado about the inconvenience, the ordinary man on the street is thrilled with this darkness before dawn. They have a better grip on monetary economics than the "Economists". Probably because, unlike the politicians, jounralists and economists, they have been forced by penury to a lifetime of monetary economy.

    Despite these enormous advantages, black cash may soon return because the fundamental processes of non accountability, incompetence and corruption that generate this have not been addressed. Nor has the accumulations of black wealth in the form of land, bullion, and precious stones (particularly diamonds) been addressed. But it will take several decades to build up again into the menace that it had become, threatening the fundamental sovereignty of the Nation. This will give Mr. Narendra Modi's Government the time to take even sterner and more long lasting measures that it was mandated to do by the Indian voters in 2014.


    The real enemy is India's failed Constitution and Policies that created the Quota (reservations)-Extortion (Corruption) Raj.

    India is now home to 30% of the World's poor (World Bank 2016), 135 out of 172 countries in Human and Social Development and 143 out of 172 countries in Internal Peace and Stability (UNDP 2015). For amending this failed constitution and ending the failed policies of the last seven decades, Mr. Modi will require a much larger mandate than a mere Parliamentary Majority.

    REPLY

    S Santhanam

    In Reply to SuchindranathAiyerS 3 years ago

    One is doing what is within the reach called plucking low hanging
    fruits ...in that respect Modiji did not show that conviction... He could have removed removed donations by cash for political parties. Instead he went ahead making it more opaque by introducing bearer bonds scheme thus protecting both the corporate and the recipient of political parties.

    Though a few sting Operations showing political parties helped in currency exchange fraud no action is taken.
    Reddy house marriage expenditure reportedly 500 crore rupees . Nothing seemed to have happened to get at the truth.

    S Santhanam

    In Reply to SuchindranathAiyerS 3 years ago

    One is doing what is within the reach called plucking low hanging
    fruits ...in that respect Modiji did not show that conviction... He could have removed removed donations by cash for political parties. Instead he went ahead making it more opaque by introducing bearer bonds scheme thus protecting both the corporate and the recipient of political parties.

    Though a few sting Operations showing political parties helped in currency exchange fraud no action is taken.
    Reddy house marriage expenditure reportedly 500 crore rupees . Nothing seemed to have happened to get at the truth.

    Govinda Warrier

    3 years ago

    As Simple Indian has repeated some 'political' arguments against withdrawal of legal tender status of high value currency notes from November 8, 2016(it was not demonetization), some clarifications may be in order. Whatever be the immediate impact on the economy, mainstreaming of huge quantities of money which was with people before November 8, 2016 will have a long term positive impact on the Indian financial sector. Like money, other domestic assets including gold and jewelry need to be mapped and accounted. There are several areas including agricultural income and real estate, where GOI's own approach is lax. Corrective measures had to have a beginning and ensuring assets held in the form of currency was brought back to banking channel was a right step, in the right direction. It's comforting to see that vested interests could not delay the process. Now, let debates resume and let legislative bodies proceed with corrective measures, wherever there had been lapses in implementation.

    Demonetisation may delay Indian banks asset-quality recovery, says Fitch Ratings
    Demonetisation is likely to push back the recovery in Indian banks' asset quality, given the disruptive impact that cash shortages have had on the country's large informal economy, Fitch Ratings says in a research note. Cash shortages caused by the demonetisation of large-denomination currency notes have affected the income of many borrowers - by holding back economic activity - and reduced their short-term repayment abilities. The Reserve Bank of India has allowed forbearance on some loans to the agricultural sector and small businesses, but these have accounted for a relatively small share of outstanding lending.
     
    The impact of demonetisation on asset quality is likely to only start showing up significantly in data for the January-March quarter. However, most state banks have already indicated publicly that loan recovery has been affected, point out Fitch analysts.
     
    Demonetisation has also weighed on loan growth, at least in the short term. Loan demand has weakened in the uncertain economic environment and banks have had to focus on cash management instead of normal lending activities. Mortgage lending is likely to be affected, with home sales down by 44% year-on-year last quarter. Loan growth slowed to 4.8% in November 2016, from 6.7% in October 2016. Fitch analysts feel that  it is likely that loan growth will be below its previous forecast of 10% in FY17 and may even slow from the 8.8% recorded in FY16.
     
    Finally, Fitch analysts forecast that there is scope for further lending rate cuts, but much will depend on the proportion of new deposits that remains in the banking system. Tight restrictions on cash withdrawals were imposed at the start of demonetisation and have so far been relaxed only slightly. The lasting impact on bank deposits - and lending rates - will become clear only after withdrawal limits are lifted.
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    Deposits in lakhs made post-note ban under tax scanner: Officials
    The first phase data from the government's "Operation Clean Money", launched earlier this week, has revealed deposits worth lakhs of crores in old notes made after demonetisation into accounts and are being scrutinised by Indian tax authorities, senior officials have said.
     
    "These 18 lakh cases even by primary data analytics we found to be glaring because their deposits and income size are simply not matching. Number of deposits made in these 18 lakh deposits is not a small number...its in lakhs of crores," Revenue Secretary Hasmukh Adhia told BTVi in an interview regarding the lakhs of taxpayers identified by the Income Tax Department who will be served notices seeking explanation within 10 days.
     
    "This is only the first phase of data that we have put in the domain of people's e-filing account. More set of data is set to come in phases 2, 3 and 4," he said. 
     
    "We would expect people will reply within 10 days. If they do not reply within 10 days, we will have to do further something about them. We had to announce it as soon as possible because this is a matter that cannot wait," he added. 
     
    The initial phase of Operation Clean Money involves e-verification of large cash deposits made during November 9 to December 30, 2016. 
     
    According to the Central Board of Direct Taxes (CBDT), data analytics has been used for comparing the demonetisation data with information in the department's databases. 
     
    The information in respect of these cases will be made available in the e-filing window of the taxpayer at the government's e-filing portal. 
     
    In this connection, CBDT Chairman Sushil Chandra told BTVi in a separate interview that Finance Minister Arun Jaitley's taxation proposals for next year seek a significant expansion in the tax net.
     
    Presenting the 2017-18 Budget in the Lok Sabha, Jaitley said he proposes to halve the income tax for persons earning between Rs 2.5 lakh-Rs 5 lakh from the current 10 per cent.
     
    "This will reduce the tax liability of all persons with incomes below Rs 500,000 either to zero (with rebate) or 50 per cent of their existing liability. It has been done to widen the taxpayer base in the lower slab to bring the non-filers into the tax net," he said. 
     
    "Afet demonetisation a lot of money has been deposited. Amounts of over Rs 2 lakh have been deposited in 1 crore accounts having 70 lakh unique PAN numbers," Chandra told BTVi.
     
    "The department has just launched the Clean Money Abhiyan and it is much easier for us now to track these accounts," he added. 
     
    Jaitley in his Wednesday budget speech said that post demonetisation, deposits between Rs 2-80 lakh had been made into 1.09 crore accounts.
     
    On the Securities Transaction Tax (STT) at 10 per cent rate proposed by Jaitley, the CBDT chief said it is an "anti-abuse" provision. 
     
    "Earlier, many people were not utilising the stock exchange channel to buy shares to avoid paying tax," he said.
     
    Jaitley has now prposed that long-term capital gains tax exemption be available only if STT has been paid both at time of acquisition, as well as divestment, of shares.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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