RBI Governor Urjit Patel mum again on whose brainchild demonetization is

A calm and guarded Reserve Bank of India (RBI) Governor, flanked by two deputy governors, SS Mundra and R Gandhi, faced a volley of questions from MPs at the Public Accounts Committee (PAC) meeting here on Friday.

Urjit Patel chose to be silent to repeated queries by Opposition members as to who took the demonetization decision. As soon as the meeting started, Chairman K V Thomas, a Congress MP, made a statement on demonetization, prompting protests from BJP members, including Bhupender Yadav, Kirit Somaiya and Nishikant Dubey.

BJP members, citing the RBI Act, said that any question to Patel must be in the context of the central bank's monetary policy and not outside it. "The monetary policy function of the RBI under the RBI Act is different from the action taken by the government on old Rs 500 and Rs 1,000 notes under the Act," Dubey said. The panelfinally agreed that questions on demonetization should only be in the context of monetary policy.

On February 10, after the Budget session, the panel would call senior finance ministry officers, Thomas said.

PAC Cahairman K V Thomas told DNA that Patel and his team answered to "routine" queries but failed to respond to "important questions". Thomas said during the interrogation, the central bank chief and his deputies – were unable to tell the panel whether demonetization of high value currency notes was done on "instructions" of the government and other such important questions.

"What will happen to Indian currency in circulation in neighbouring countries like Nepal, Sri Lanka and others? So many questions were asked but they could not answer them, but they have the right to ask for some time. I have given (them) 15 days and then after 15 days I will again call them," Thomas told DNA.

He said as per the PAC guidelines the RBI governor had the right to remain silent; "according to the PAC's guideline and functioning, we cannot squeeze people. We cannot compel them. We can give them time. We have given them fifteen days".

Patel has been asked to reply to all oral questions by MPs within 15 days. The RBI had prepared a written text, based on written questions from the members, Thomas said. "Naturally, people want to know how much money has come back but we cannot expect the RBI Governor to give a straight answer... We have to protect itsautonomy," he said.

Patel, however, gave a sequence of events. He told the committee that the central bank's board met at 5.30 pm on November 8 and cleared the government's advisory note, sent a day earlier, on outlawing high-denomination bills.

He mentioned that the government and the RBI had starteddiscussions on demonetization in May last year. In fact, he said thatfirst discussion took place as early as in January 2016. But it was on November 7 that plans kicked into action at breakneck speed. Eight of the RBI's 10 board members were at the meeting.

By disclosing the timing of discussions, sources said that the RBI Governor was emphasising that his predecessor Dr Raghuram Rajan was part of the discussions between May and August, when his term ended, and Patel replaced him.

Insiders told DNA that Patel said that the cash flow position has largely improved in the country, but conceded that there were some problems in remote areas and assured that the situation would improve in the next couple of weeks.

During the nearly four-hour meeting, the panel asked questions regarding significant surge in deposits in several cooperative banks and asked the RBI to look into the issue. Patel replied that agencies like the Financial Intelligence Unit and Income-Tax Departmentwere looking into it.

The decision to introduce high-denomination notes was reportedly taken in June. The Prime Minister and the Finance Minister are believed to have cleared the new design and security features. The new bills needed the RBI Governor's signature. So, the printing was held up till Patel took office.

He said that old notes were deposited in 4,000 currency chests. "As of now, physical verification and reconciliation are under way," sources quoted the RBI Governor as saying.