The demonetisation of Rs 500 and Rs 1,000 notes on November 8, 2016 that claimed about 100 lives and caused slow economy growth of the country was brainchild of Prime Minister Narendra Modi, and formal approval by the RBI central board came days after the announcement, an RTI query has revealed.
In the minutes, it is stated that the Urjit Patel-led RBI board had met just two-and-a-half hours before Modi’s announcement and the minutes of the meeting were signed by the RBI governor five weeks later on December 15, 2016.
The RBI board, which included the present Governor Shaktikanta Das as a director, had also observed that demonetisation would not have any material impact on tackling the black money menace or counterfeit currency — the prime objectives cited by the PM while announcing the move.
“It is a commendable measure but will have short-term negative effect on GDP for the current year. Most of the black money is held not in the form of cash but in the form of assets such as gold or real estate and that this move would not have a material impact on those assets,” as per the minutes posted by RTI activist Venkatesh Nayak on the blog of Commonwealth Human Rights Initiative.
The RBI, in its annual report for 2017-18 on August 29, 2018, said that nearly all the money that was withdrawn returned to the banking system. The RBI said it had received Rs 15.31 lakh crore of Rs 500 and Rs 1,000 notes, or 99.3 per cent of the Rs 15.417 lakh crore worth of notes which were in circulation as on November 8, 2016.
This meant that just Rs 10,720 crore of Rs 500 and Rs 1,000 notes failed to come back to the RBI, as against government expectations that well over Rs 3 lakh crore of black money would not return to the banking system.
The sudden withdrawal of notes led to a liquidity shortage and GDP growth declining close to 1.5 per cent.