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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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Saudi signs deals to invest USD 20 bn in cash-strapped Pakistan

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Islamabad: Pakistan and Saudi Arabia have signed a slew of investment agreements worth USD 20 billion which will provide a welcome relief to the teetering economy of the cash-strapped South Asian country.

At a ceremony in the Prime Minister House, Pakistan and Saudi officials signed MoUs for bilateral cooperation in a number of areas a process overseen by Pakistan premier Imran Khan and Saudi Crown Prince Mohammad bin Salman, who arrived in Pakistan on Sunday evening on a two-day visit.

“Today we signed MoUs. The amount of that kind of investment is USD 20 billion. It is big for phase one and definitely it (Saudi investment in Pakistan) will grow every month, every year in bigger numbers and it will be beneficial for both the countries,” the crown prince said.

 

“Pakistan is going to be very, very important country in the future and we want to be sure we are part of that,” he added.

Seven agreements, including MoUs in power, petrochemical and mining sectors, were inked as Prince Salman launched his diplomatic trip to Asia in Islamabad.

After Pakistan, the crown prince will travel to India, where he will meet Prime Minister Narendra Modi and Petroleum Minister Dharmendra Pradhan.

He is expected to finish the trip with a visit to China on Thursday and Friday.

Prince Salman said Saudi “cannot say no to Pakistan, whatever you (Pakistan) want we will do.”

“For Pakistanis, this is a great day,” the Pakistani premier said while addressing a dinner reception held in honour of the visiting Saudi guests at the PM House.

He said Saudi Arabia has always been there when Pakistan needed friends.

“I want to thank you for the way you helped us when we were in (a) bad situation,” Khan told the royal guest, adding that Pakistan and Saudi Arabia were now taking their relationship to a new level, where investment agreements would be mutually beneficial for the countries.

“The future is exciting for both Pakistan and Saudi Arabia after joining hands,” he said.

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Cement, fruit shipments from Pakistan among 10 most hit imports after duty hike

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New Delhi: Fresh fruits, cement and leather are among the 10 main imported items from Pakistan that would take a major hit following the imposition of 200 per cent customs duty by India on products from the neighbouring country in the aftermath of Pulwama attack, say experts.

The top ten products exported by Pakistan to India include fresh fruits, cement, petroleum products, minerals, and leather. Processed minerals, inorganic chemicals, raw cotton including waste, cotton fabrics, and glass and glassware are also among such items that account for 95 per cent of the total shipments.

“After drastically hiking the import duty on goods coming from Pakistan, we will isolate them in front of trade. Hiking of the duty at this level would completely hit exporters of Pakistan,” Professor Biswajit Dhar of Jawaharlal Nehru University (JNU) said.

 

Sharing similar views, Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said that Pakistan would face significant impact due to this decision.

The two main items imported from Pakistan are fruits and cement, which attracted customs duty of 30-50 per cent and 7.5 per cent, respectively.

Domestic importers who have already placed their orders from Pakistan may face issues after this decision. They may have to pay the 200 per cent duty or undertake lot of paperwork to get their consignments, an industry source said.

Taking strong economic action against Pakistan following the Pulwama attack, India Saturday raised the customs duty to 200 per cent on all goods imported from the neighbouring country.

India’s imports from Pakistan had increased to USD 488.5 million in 2017-18 from USD 455.5 billion in 2016-17.

Hike in the duty would drastically increase the prices of Pakistani goods in Indian markets which would make them far less competitive as compared to other imported goods. Slapping an import duty of 200 per cent effectively means almost banning the imports from Pakistan.

Total India-Pakistan trade has increased marginally to USD 2.41 billion in 2017-18 as against USD 2.27 billion in 2016-17.

At least 40 CRPF personnel were killed and five injured on Thursday in one of the deadliest terror attacks in Jammu and Kashmir when a Jaish-e-Mohammad suicide bomber rammed a vehicle carrying over 100 kg of explosives into their bus in Pulwama district.

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India needs fewer but stronger, mega banks: FM Jaitley after RBI meet

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New Delhi: Finance Minister Arun Jaitley addressed the customary post-budget meeting of the central board of the Reserve Bank on Monday.

Post the meeting, Jaitley said India needs fewer and mega banks which are strong.

“India needs fewer and mega banks which are strong because in every sense from borrowing rates to optimum utilisation the economies of scale as far as the banking sector is concerned are of great help,” Jaitley said.

 

On interim dividend, RBI Governor Shaktikanta Das said the central bank will take the decision based on the report by Bimal Jalan-led Committee.

Das also said that the RBI will discuss the issue of transmission of rate cut with bank chiefs on February 21.

Earlier this month, the Reserve Bank cut the benchmark interest rate by 0.25 per cent to 6.25 per cent.

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