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Okaying note ban, RBI rejected govt claim on black money, fake notes

Two years after demonetisation

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New Delhi : Less than four hours before Prime Minister Narendra Modi announced demonetisation on November 8, 2016, the Central Board of the Reserve Bank of India (RBI) gave its approval to the scheme but also rejected, in writing, two of the key justifications — black money and counterfeit notes — that he would make in his televised address to the nation.

The minutes of the 561st meeting of the RBI’s Central Board, which was convened hurriedly in New Delhi at 5.30 pm that day, reveal that the central bank’s directors described the move as “commendable” but also warned that demonetisation “will have a short-term negative effect on the GDP for the current year”.

The minutes were signed by RBI Governor Urjit Patel on December 15, 2016, five weeks after the meeting was held. In all, six objections, described as “significant observations”, were recorded in the minutes by the RBI Board.

 

The RBI directors, after receiving a proposal draft of the scheme from the Ministry of Finance on November 7, 2016, argued that the government’s reasoning, that the withdrawal of HD (high denomination) currency notes of Rs 1,000 and Rs 500 would help in curbing black money and restrict circulation of counterfeit cash, did not really hold good.

The minutes list out the justifications given by the Ministry of Finance.

On demonetisation curbing the flow of black money — the minutes recorded the facts and figures given in the government’s White Paper on Black Money — the Board noted: “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… this move would not have a material impact on those assets.”

On fake currency, the Ministry informed the Board that counterfeiting is on the rise in denominations of Rs 1,000 and Rs 500, and the total quantity of such currency is estimated to be around Rs 400 crore.

In its counter, the RBI Board noted that “while any incidence of counterfeiting is a concern, Rs 400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant”.

Two years after demonetisation: Okaying note ban, RBI rejected govt claim on black money, fake notes Reserve Bank India governor (RBI) Urjit Patel attends a news conference to announce quarterly credit policy at the RBI head office in Mumbai. (Express photo by Prashant Nadkar)

Among the other counter-points, the Board recorded that the growth of the Indian economy and its linkage to the high amount of HD currency in circulation, as pointed out in the government’s proposal, was flawed since the rate of inflation had not been taken into consideration.

The minutes of the meeting noted: “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…”

The Board also put in writing that it envisaged that the withdrawal of HD currency notes would have a negative impact on two sectors in particular: medical and tourism.

Thus, it pointed out, private medical stores should also be included in the exemption list.

Recording the problems that incoming tourists may encounter, the RBI directors noted: “Arriving domestic long distance travelers who may be only carrying high denomination notes will be taken by surprise at railway stations/airports for payment to taxi drivers and porter charges and hence put to hardship. It would also have adverse effect on tourists.”

The minutes include an “assurance” that the issue of demonetisation was under discussion between the central government and the RBI for six months during which “most of these issues had been discussed”.

The RBI Governor also recorded that apart from the stated objectives, “the proposed step also presents a big opportunity to take the process of financial inclusion and incentivising use of electronic modes of payment forward as people can see the benefits of bank accounts and electronic means of payment over use of cash…”
The minutes were signed off with the RBI’s resolution for the withdrawal of banknotes of Rs 1,000 and Rs 500. But with the following lines on record: “The Board was assured that the Government will take mitigating measures to contain the use of cash… the Board considered the memorandum and after detailed deliberations concluded that in larger public interest, the balance of advantage would lie in withdrawal of legal tender status of Rs 500 and Rs 1,000 currency notes currently in circulation…”


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RBI asks banks to grout ATMs to wall, floor for security by September-end

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Mumbai: The Reserve Bank asked banks to ensure their ATMs are grouted to a wall, pillar, or floor by September-end, except those installed in high secured premises such as airports, to enhance security of the cash vending machines.

In 2016, the RBI had st up a Committee on Currency Movement (CCM) to review the entire gamut of security of treasure in transit.

Based on the recommendations of the panel, the central bank has now issued instructions aimed at mitigating risks in ATM operations and enhancing security.

 

As part of the security measures, all “ATMs shall be operated for cash replenishment only with digital One Time Combination (OTC) locks”.

Also, “All ATMs shall be grouted to a structure (wall, pillar, floor, etc.) by September 30, 2019, except for ATMs installed in highly secured premises such as airports, etc. which have adequate CCTV coverage and are guarded by state/central security personnel”.

Further, banks may also consider rolling out a comprehensive e-surveillance mechanism at the ATMs to ensure timely alerts and quick response, it said.

The new measures to be adopted by banks are in addition to the existing instructions, practices and guidance issued by the RBI and law enforcement agencies.

The RBI also warned the banks that non-adherence of timelines or non-observance of the instructions would attract regulatory action including levy of penalty.

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SBI refuses to disclose communication from RBI, govt on electoral bonds

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New Delhi: The State Bank of India has refused to disclose any communication it received from the government or the Reserve Bank of India on electoral bonds, terming it “personal information” and held in “fiduciary capacity”.

Responding to an RTI filed by Pune-based activist Vihar Durve who had demanded copies of all letters, correspondence, directions, notifications or e-mails received from the RBI or any government department between 2017 and 2019, the SBI said it cannot be provided by it.

The bank cited two exemption clauses under the RTI Act to deny information — Section 8(1)(e) which pertains to information held in fiduciary capacity and Section 8(1)(J) which pertains to personal information of a person which has no link to any public activity.

 

“Information sought by the applicant cannot be disclosed as it is in fiduciary capacity, disclosure of which is exempted under Section 8(1)(e) and 8(1)(j) of the RTI Act, 2005,” the Central Public Information Officer of the bank said in his reply.

The bank also refused to give any details of action taken by it on such communications from the RBI and the government.

The electoral bonds, for giving donations to political parties, are being sold through SBI only. The sale opens in SBI branches when the Finance Ministry issues a notification of their sale for a given period.

The scheme of electoral bonds notified by the Centre in 2018 has been challenged in the Supreme Court.

Only the political parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the bonds.

The bonds may be purchased by a person who is a citizen of India “or incorporated or established in India,” the government had said in a statement last year.

The bonds remain valid for 15 days and can be encashed by an eligible political party only through an account with the authorised bank within that period only.

A voluntary group working in the field of electoral reforms, Association for Democratic Reforms (ADR), has demanded a stay on the sale while the CPI(M) has challenged it before the Supreme Court in separate petitions.

ADR recently filed an application in the Supreme Court seeking a stay on the Electoral Bond Scheme, 2018 which was notified by the Centre in January last year.

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Walmart’s Flipkart, Indian startup GOQii settle dispute over sharp discounting

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New Delhi: Walmart unit Flipkart has settled a legal dispute with an Indian startup that alleged it suffered losses because its products were sharply discounted on the global retailer’s website.

GOQii, a seller of smartwatch-type health devices, sued Flipkart last month in a Mumbai court, alleging its devices were discounted by around 70 per cent to the retail price, much more than the two sides had agreed. The court had, as an interim measure, ordered device sales to be halted on Flipkart.

In a joint statement , the companies said the dispute had been resolved and GOQii health devices would again be available on Flipkart. They didn’t say how the settlement was reached.

 

Vishal Gondal, CEO of GOQii, told Reuters the company would withdraw the case against Flipkart. The e-commerce retailer’s “team worked on a resolution benefitting the brand and the customers”, Gondal said in the statement.

The legal spat was seen as a test case of the giant retailer’s operating strategy in the country.

Small traders and a right-wing group close to Prime Minister Narendra Modi’s ruling party have raised concerns about large e-commerce companies, saying they burn billions of dollars deeply discounting some products to lure customers onto their sites, in the expectation that they will also buy other goods.

GOQii said it signed an agreement last year with a Flipkart unit to sell two of its devices at a price not below 1,999 rupees (USD 28.63) and 1,499 rupees. It later found the devices were being sold for 999 rupees and 699 rupees, calling it “unauthorized” discounting.

In response, Flipkart said it reserved “the right to institute actions for defamation, both civil and criminal”, arguing it wasn’t responsible for any discounts which are determined by third-party firms which sell via its website.

The two companies struck a friendlier tone in their joint-statement on Friday as they brought the legal battle to an end.

“We have ensured constant engagement with GOQii to resolve any differences,” Flipkart said in the statement.

With a 19 per cent market share, GOQii was the second-biggest player in India’s so-called wearables market last year, data from industry tracker IDC showed. The market is dominated by China’s Xiaomi, with Samsung a small player.

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