 Hello and welcome to DeuceClick. Today, we are going to discuss the delayed report of the Reserve Bank through a RTI on what transpired during this crucial days and hours before the demonetization decision was taken by the Reserve Bank. Paranjay, you have been covering this issue as well as DeuceClick has been, shall we say, from the beginning deeply interested on the sequence of events. The latest RTI, Paranjay, the response by the Reserve Bank to the RTI requesting the sequence of events that led to this decision was given last week and has appeared in the press recently. What are the key issues that the RTI answer reveals that was the board really, did it really apply its mind, was it the decision of the Reserve Bank of India or was it the fate company given by the Coffin? Probably what has been revealed by the Reserve Bank of India after a gap of two years and four months, thanks to the application under the Right to Information Act put up by Venkatesh Nayak. He is the program head of a division called the Access to Information of the Non-Government Organization called the Commonwealth Human Rights Initiative. What the RBI has responded to Venkatesh Nayak's query after 28 months is very significant because it confirms the worst apprehensions that people had about the circumstances under which demonetization happened. Let's go step by step. Prime Minister Narendra Modi announced that about 86 percent of the currency in circulation would be illegal at 8 p.m. on the 8th of November 2016. The Reserve Bank of India convened a meeting of its board of directors at 5.30 p.m. that same evening. That same evening. That is just two and a half hours earlier. For the final announcement was made by the PM, the Reserve Bank board would have heard it for the first time that this was a proposal on that. Now, out of the 16 directors who were on the board at that particular point of time, present at that very, very important meeting were the then Governor of the Reserve Bank of India, Dr. Urjit Patel. Two Deputy Governors, Mr. R. Gandhi and Mr. S. S. Mandra, significantly there were two directors who represented the Government of India, the Ministry of Finance, Anjali Chhip Dughal, and importantly, Shakti Kanta Das, who is the present Governor of the Reserve Bank of India. At the time he was the Finance Secretary. He was in the Ministry of Finance. He was, if I recall correctly, Economic Affairs Secretary. Okay. Now, the others who were present besides these five individuals were Nachiket Mohr, Bharat Joshi, and Sudhir Mankar, and the Chief General Manager of the Reserve Bank of India, who was also the Secretary of the Board, Mr. S. K. Maheshwari was also presented. Now, what is given so far is that one of the Deputy Governors had presented a draft scheme which had been sent by the Government. Now, we don't know which of the Deputy Governors, but what was this scheme? Essentially, it said the draft of the demonetization scheme that had been drawn up by the Ministry of Finance suggested that the growth of 500 rupee notes and 1000 rupee notes, those high denomination notes, was during the period between 2011 and 2016. It had the 500 rupee notes had grown by 76 percent, 76.38 percent and the 1000 rupee denominated notes had grown by over 100 percent, 108.9 percent during these period, this five-year period, 2011 to 2016. Whereas the economy had grown only by 30 percent. But what has been put on record in the minutes is that at least some of the Governors of the Reserve Bank of India disagreed that this could be the rationale for demonetization. Why? He said that the growth of the economy that these numbers they are showing is the real rate of growth of the economy. That is after adjusting for inflation. Whereas the growth of the currency in circulation was in nominal terms. So if you adjust that for inflation, you do not find much of a difference. The exact words did not constitute any stark difference. Now, here if I take a step back, what it means is that as the inflation continues, your value of the money also decreases. Naturally. And therefore, in terms of purchasing power, therefore say if I have an inflation for X number of years, so of a rate which is a Y, then it could conceivably be that after 10 years, actually my 500 rupee note is only worth 250 rupees. So effectively, this does not constitute a major issue unless we compare the real rate of growth of both the economy and shall we say the 500 rupee and 1000 rupee pool of purchasing power as represented by them. This is in fact the argument being given by the other Governors. So just because you say that 500 rupee notes and 1000 rupee notes in that five year period between 2011 and 2016 have grown by 76% and 108% it means nothing because this is nominal terms. Once you deflate these figures by inflation, you find that in this five period, if the real rate of growth of your economy has been around 30%, there is not much of a difference. Second point and let me take a few steps back. Now, some of these findings in the minutes of the Reserve Bank of India, of the meeting that took place on the 8th of November 2016 at 5.30 pm, already published in November 2018 in the Indian Express. But there were newspaper reports which had not been denied. The gist of what is out in the public domain had been published. Interestingly, because Venkatesh Naik persisted with the RBI, eventually the CIC, the Central Information Commissioner, served a show cause notice to the Reserve Bank of India in February 2018 saying, how can you deny this kind of information? If you cannot deny it to parliament, how can you deny it or a state legislature? How can you deny it to a citizen? That was the argument. This is section 81A of the Right to Information Act. Now, interestingly, let me ask you again on that question. What you are saying is if an information can be shared with the parliament or the state legislature, then it cannot be denied to a citizen. And that was the basis on which they asked that this be made public by the Reserve Bank. Because reports had appeared that the Reserve Bank of India had made available this information to a parliamentary committee. Okay, so that's where it comes from. But what was in that? We didn't know. We only had the leak which had been published in the Indian Express. Now, what did the RBI say? The RBI stalled. Remember, this information has come out as we've just talked more than two years later, two years and four months later. 28 months to be exact. They said that there are certain minutes of meetings of the Reserve Bank of India, like the meeting of the Monetary Policy Committee, that legally, statutorily has to be made public. But not all the meetings have to be made public. That's the argument. But eventually that's an academic issue. Finally, everything was made public. But wait, let's now look at what is being disclosed now. The Reserve Bank of India at that time and that crucial meeting disagreed with the report of the revenue department in the Ministry of Finance, which had cited estimates made by the World Bank to argue, to point out that there was a shadow economy for India, which we call all kinds of names. Great black money, great economy, parallel economy. The World Bank called it a shadow economy where black money transactions do not leave any audit trail. And according to that report of the World Bank, which had been cited by the Department of Revenue in the Ministry of Finance, this had grown from 20.7% of India's GDP, roughly one-fifth of India's GDP in 1999 to 23.2% in 2007. So you're saying in this period of eight years, this is how much the so-called shadow economy has grown. Now, what happened is there are many other reports, some of which have been commissioned by the government itself, including one by the NIPFP, the National Institute of Public Finance and Policy. Now, they were also given the task of trying to estimate the black money in this country, and none of those were quoted. Remember that. Now, and this is the real significant, because this has been what has been criticized, I mean, right from the day that demonetization, the most disruptive decision taken. Yes, what's that? And this, the RBI director saying, we don't know which director, but it's recorded in the minutes, that at least some of the directors said that most of the black money is not held in the form of cash. It is in the form of real estate assets. It could be gold. It could be all kinds of things, but not cash. Therefore, demonetization would not affect the stock of black money. Exactly. At best, it would impair, for a certain period, the flow of transactions of black money, like it would impair the flow of all transactions. Just it. And in fact, they said, the directors, we don't know which directors, but some of the directors, I can guess which director said it, including one person who's no more the director. Maybe I'm speculating. I would have thought that somebody like Ananshi Ketmore would make such points, but I'm not sure because I don't know. It pointed out that demonetization would have a negative impact on the economy in the short run. That's exactly what everybody said, that, look, your black money is not kept in the form of cash. It's not going to affect it. It's in real estate. It's in gold, etc., etc. In fact, this is the whole argument, which a number of economists have given at that point of time, including the past governor, Raghuram Rajan, that essentially by talking about the flow, you do not affect the stock. The total amount of black money is not held as money. You don't hold it under your bed or in locked cupboards or in bank lockers. You actually hold it in other asset form. Therefore, looking at the flow is not the key issue as far as black money is concerned. I want to ask you this question, that demonetization is an act of reserve bank. Who legally demonetizes the notes? Is it the government or the reserve bank? Well, this is a very interesting question you raised. The decision was announced by the prime minister. So it was taken by the reserve bank. It was announced by the prime minister? But it was taken by the reserve bank, the board? No, no, no. Hold on. It was taken by the reserve bank presumably before eight o'clock. Now, is this very close to the declaration of emergency in India, where the declaration was signed by Fakruddin Ali Ahmad, basically? Apparently, around the time he was having a bath or something like that? Something like that. And he signed it, but already all the machinery had been put in place and it just needed a formal signature like in this case, the formal meeting of the board of governors. But everything had put in place and the prime minister really took the decision. It let's put it very bluntly. This was really rubber stamped by the board. There's only one person who can tell you the full story. I don't know if he'll talk, when he'll talk, whether it'll be in his memoirs or not. He's the former governor of the Reserve Bank of India. I guess only he knows. And I suppose Mr. Modi also knows. I do not know who will talk, if either of them will talk, as to what exactly were the discussions or the verbal discussions. But what you are suggesting, and I don't disagree at all with what you're suggesting, Praveen. This was possibly the beginning of the undermining of the institution of the Reserve Bank of India, the country's central bank, its IPEC's monetary authority. And we can speculate as to why Dr. Jit Patel put in his papers. What were the circumstances? I mean, we know Dr. Raghuram Rajan has said, okay, he wanted to go back to Chicago to get back to academics. We don't know why Dr. Jit Patel decided to quit. All we know is that it happened just literally hours before the elections are, the assembly election results in states like Rajasthan, Madhya Pradesh, Chhattisgarh was announced. This is the story. Interesting, before the election campaign started. Before the election results were known. Between the elections take finishing, polling finishing and the results being announced. In that window, Dr. Patel put in his papers. He didn't put in his papers before or after the election result, just within that window. We do not know whether he may have offered to resign earlier. We do not know whether he verbally communicated to the Prime Minister. All we know is on that day, he formally demitted office. You know, Balaji, when you raise this kind of issues, institution of the Reserve Bank being compromised and so on, it does appear that if Mr. Urijit, Dr. Urijit Patel did go along with the Modi government on the demonetization issue at some point, either due to personal reasons, he didn't want to continue or the course that the Reserve Bank was taking on the pressure that is being put on him was finally something he didn't want to continue with. Of course, it's all speculation. We don't know unless you say he writes his memoirs. But what, I mean a bland reading, a sort of a reading. We don't know what transpired verbally between the governor of the Reserve Bank of India and the Prime Minister of India or other officers or other ministers in the council of ministers or other top officials of the RBI. But it seems, prima facie, that the Prime Minister went ahead with his decision to demonetize even before receiving a formal official stamp of approval from the Reserve Bank of India. I mean that's what it appears from the data or from the information that has just been disclosed. And we have no information whether the cabinet was a party to the decision or not. We know the cabinet was closeted there and they were told and there was a recorded message from the Prime Minister which was put out almost as soon as, I mean the whole thing had to be done in secrecy, you understand. That was the reason given why even the council of ministers were closeted in Racecourse Road. Thank you very much, Paranjeev, for being with us. I think this is again one of the stories is not going to go away as the elections draw near. Demonetization certainly is going to be on the agenda. Thank you very much for watching NewsClick. Do keep watching our other episodes as well.