New Delhi: Three hours before Prime Minister Narendra Modi used a television speech to announce that 500- and 1,000-rupee notes would be abolished at midnight, the board of the Reserve Bank of India had cleared the ban.
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RBI Governor Urjit Patel is meeting today with a second parliamentary committee to explain the sequence of events that resulted in November 8's shock demonetisation drive.
Mr Patel told the Public Accounts Committee that the central bank's board, which is headed by him, met at 5.30 pm that evening and cleared the government's advisory note, sent a day earlier, on outlawing high-denomination bills.
On Wednesday, he testified for parliament's Finance Committee. The accounts he presented today and then show that though the government and the RBI began discussing demonetisation in May last year, it was on November 7 that plans kicked into action at breakneck speed for 24 hours.
While the RBI board was looking at the plan to make 500- and 1,000-rupee notes illegal, the PM had his cabinet waiting in his office from 7 pm onwards. The ministers were not allowed cellphones -a decision first introduced in July for cabinet meetings. Sources said that the Prime Minister's Office staff as well as the Finance Ministry team that knew what was coming were on edge as they waited for news from the RBI's board, which was meeting in Delhi.
Then arrived the message that the government's proposal had been unanimously cleared by eight of the RBI'S board which has 10 members. Right after that, PM Modi drove from his home to his office and disclosed his huge reform to the cabinet, which formally reviewed the notes ban as its agenda, and okayed it. At 8.00 pm, the Prime Minister was on air addressing the country.
That is when India was told that 86 per cent of the money in circulation, adding up to 15.44 lakh crores, was no longer valid for transactions.
The RBI says it was ready. Eight of its 10 board members had cleared the proposal in Delhi. A ninth was abroad. A tenth was in the central bank's Mumbai headquarters, assigned to coordinate the immediate implementation of one of India's biggest-ever economic decisions.
Top sources say that while the final push was a sprint, the planning for the notes ban was not casual or rushed. They since that starting in May, the RBI chief and a Deputy Governor would fly down to Delhi regularly to meet with an as-yet-undisclosed team compiled by PM Modi from the Finance Ministry and his own office.
The meetings, held nearly every Friday after 6 pm, were detailed planning sessions that also tried to gauge and prepare for the consequences of the notes ban. The need for secrecy meant that minutes of the meeting were not recorded.
Mr Patel has told parliamentary panels that the RBI agreed with the government's assessment of the notes ban serving as a deterrent for black money and counterfeiting. Blueprints that had been compiled at the Friday sessions were shared as soon as the move was announced with enforcement agencies like the Income Tax Department and the Enforcement Directorate, which handles financial crimes.
Sources say that Dr Raghuram Rajan, who was RBI Governor, was part of the discussions between May and August, when his term ended and Mr Patel replaced him.
Sources claim that there was a minor delay in the printing of the new 2,000-rupee notes because of the change in leadership. The decision to introduce the new high-denomination note had reportedly been taken in June to ensure that once the old notes were banned, replacements were ready. The Prime Minister and Finance Minister Arun Jaitley had allegedly cleared the new design and security features. The new bills needed the RBI Governor's signature, so the printing of notes was held up till Mr Patel took office. All other requirements were in place - as soon as he took charge, his signature was cleared and the printing of notes began.
The RBI has been faulted by critics who say it failed to take charge of a move that allowed the country to hurtle into a major cash shortage with little clarity on guidelines for banks and people. But the RBI Governor has offered the details here to prove that the central bank was not just in the know, but performed its role through several months of preparation.