Demonetisation: Cash situation to normalise soon, Urjit Patel tells PAC

Reserve Bank India governor Urjit Patel is learnt to have informed the Public Accounts Committee (PAC) that the cash situation will ‘normalise, soon. Urijit Patel was answering questions about the demonetisation drive and subsequent cash crunch that engulfed India.

However, there are some problems in remote rural areas and members were assured that the situation would improve in the next couple of weeks.

Reserve Bank India also informed the PAC that it is working on a mechanism to bring down transaction cost on online payments post demonetisation even as cash flow position in urban as well as rural areas have improved significantly. Patel is believed to have informed the Committee that they are talking to service providers and banks to bring the transaction cost.

RBI Governor Urjit Patel along with Deputy Governor R Gandhi and other senior functionaries appeared before PAC for oral evidence on ‘Review of Monetary Policy’.

Members asked a host of questions from the RBI Governor, who has been given 15 days time to respond to the queries.

To questions on impact of demonetisation on growth, Patel said there may be impact in the short run, but in mid and long term the move is beneficial for the economy.

Sources said that Urjit Patel was also asked whether there is any apprehension about the government interfering with the central bank’s functioning. This comes after a letter written by RBI employees alleging interference by finance ministry.

Later talking to reporters, PAC Chairman K V Thomas said the Committee will meet again on February 10 to discuss the issues with Finance Ministry officials. He further said that the RBI Governor could be called again if required after February 10.

Responding to queries by members, RBI said the discussion to demonetise old high value currency between the government and the central bank started in January 2016.

During the nearly four-hour meeting, the panel asked questions regarding significant surge in deposits in several cooperative banks and asked RBI to look into the issue.

The legal tender character of old series of Rs 500/1000 notes was cancelled by the government effective midnight of November 8 on the recommendations of the Central Board of RBI.

The Board meeting was attended by Governor Patel, two Deputy Governors (R Gandhi and S S Mundra), and five Directors of RBI -- Nachiket Mor, Bharat N Doshi, Sudhir Mankad, Shaktikanta Das and Anjuly Chib Duggal.

Sources said another director N S Vishwanathan (Deputy Governor) did not attend the meeting as he stayed back in Mumbai for “strategic reasons” to brief the bankers first hand immediately after the decision on demonetisation was taken.

Another director, Natarajan Chandrasekaran was abroad at the time of the meeting.