Former Finance Minister P Chidambaram on Wednesday said that the government has virtually taken over the Reserve Bank of India's (RBI) role with Prime Minister Narendra Modi calling the shots on everything from demonetisation to rates cuts by banks.
"Virtually, government has taken over RBI's function and the central bank is stunned into silence. Tomorrow the government will stipulate who will get a loan and who will not," Chidambaram told BTVi in an interview
"The credibility took a further hit when the Prime Minister on December 31 announced that banks will reduce interest rates, working capital limits will be increased, cash credit will be increased. This was on Saturday and Sunday evening, the State Bank of India (SBI) announced a rate cut," he said, noting that while the government is entitled to nudge the banks, but making a formal announcement on interest rates cut is unprecedented.
He said that demonetisation is also a good illustration of how RBI surrendered to the government compromising its independence and autonomy.
"If RBI was pulling out Rs 15.40 lakh crore from circulation, it should have told the government that they quickly need to remonetise the economy. If not Rs 15.40 lakh crore, but at least Rs 10 20 lakh crore. But apparently they did not as the agenda of the board meet did not disclose these numbers. That's why they are reluctant to disclose the minutes of the meeting," Chidambaram said.
The total amount of high denomination currency circulating in the system on November 8 was Rs 15.44 lakh crore or $225 billion (Rs 8.58 lakh crore in Rs 500 notes and Rs 6.86 lakh crore in Rs 1,000).
Alleging that demonetisation was a pre-scripted performance by the government where everyone was asked to play its role, Chidambaram said: "We need to know if in the RBI board meeting, there was any dissent."
RBI, in response to an RTI plea, has refused to reveal the minutes of the board meeting wherein demonetisation was discussed saying it will compromise the security of the nation and the people.
Chidambaram said that no earlier RBI Governor had thought that demonetisation would turn around the economy.
"Now we have a governor, who after 64-65 days of assuming office, is suddenly saying that demonetisation is the way to turn around economy, given the turbulence in the world economy. Why did they hit upon the completely disruptive move. Nobody has been able to justify the move, nor the Prime Minister nor the RBI governor," he added.
He said that RBI Governor Urjit Patel has not given details of the new currency being pushed into the system, which shows "that demonetisation was poorly conceived, badly planned and terribly executed".
He added that in October 2014, the then RBI Governor Raghuram Rajan had opposed demonetisation.
"In October 2014, Rajan was totally opposed to demonetisation. There is a note given by RBI to the government listing the demerits of demonetisation. It is an official note with the PM's office," he said.