Parliamentary committee to question RBI governor on cash crunch

Tuesday, 10 January 2017 00:00 - - {{hitsCtrl.values.hits}}

Reuters: A parliamentary committee, probing the government’s decision to scrap high-value bank notes, has sent the country’s central bank governor a list of questions on the demonetisation process and asked him to appear before it on Jan. 20.

The Public Accounts Committee (PAC) has asked the governor of the Reserve Bank of India, Urjit Patel, to explain how the decision for demonetisation was taken and for details on its impact on the country’s economy, PAC Chairman K.V. Thomas, also a senior member of the opposition Congress party, told Reuters.

Patel, under fire from some politicians over shortages of replacement currency and restrictions on depositing old notes that have caused long queues at banks and ATMs, is already set to testify before another parliamentary committee.

Last month, the RBI unexpectedly kept its key policy rate unchanged at 6.25 percent, despite calls for action in the face of an intense cash shortage that threatens to slam the brakes on the world’s fastest-growing large economy. The bank was widely expected to cut the rate by at least 25 bps.

Pressure on the central bank and Patel has grown since Prime Minister Narendra Modi stunned the country on Nov. 8 by abolishing 500- and 1,000-rupee ($7.34-$14.69) notes, removing 86 percent of the currency in circulation in a bid to crack down on the “shadow economy”.

The PAC has asked Patel to provide details on the value of currency that has been returned to the bank, the quantity of “black money” it has received and the amount of new currency released so far, Thomas said.

Thomas added that the governor has also been asked about the country’s preparedness to handle cashless transactions.

“We had decided to call the RBI governor sometime in December but because the prime minister had asked for 50 days, we decided to postpone it to sometime January,” Thomas told Reuters. “We did not want to give it a political colour.”

Apart from Patel, the PAC has also called other finance ministry officials, including the revenue secretary and finance secretary, Thomas said.