RBI has told a parliamentary panel that demonetised notes have been verified for authenticity and numerical accuracy.
New Delhi: The nearly-two-year suspense over the exact amount of demonetised currency notes that returned to the banking system is likely to be over as early as Wednesday.
The Reserve Bank of India has told a parliamentary committee that the specified currency notes (SCNs or demonetised notes), received after demonetisation, have finally been verified for authenticity and numerical accuracy.
“The actual figure will be disclosed in the Reserve Bank’s Annual Report,” the central bank informed the parliamentary committee on finance last week.
An RBI spokesperson told ThePrint that the annual report would be released Wednesday.
Prime Minister Narendra Modi had in a televised address to the nation announced the scrapping of Rs 1,000 and Rs 500 notes on 8 November 2016, dubbing it as a war on black money, corruption, counterfeit currency and terror funding.
Opposition parties, however, criticised the decision, predicting its “disastrous” impact on the economy and citing hardships that it posed to people who had to stand for hours in lines outside banks to replace the demonetised notes with new ones.
In its previous annual report released in August last year, the central bank had revealed that Rs 15.28 lakh crore, or 99 per cent of the demonetised currencies totally worth Rs 15.44 lakh crore, had returned to the banks by 30 June 2017.
The central bank, however, termed it as provisional as the SCNs were still being verified for authenticity and numerical accuracy. The demonetised notes from Nepal and Bhutan were also yet to be counted.
If the RBI’s latest annual report reveals that all the demonetised currency notes returned to the banking system, it would mean that there was no black money existing or if it was, it was converted into white after demonetisation, opposition sources said.
Opposition parties have questioned the stated objective of demonetisation, citing the 99 per cent SCNs returned to the system.
Faced with a volley of questions from parliamentary panel members last June, RBI governor Urjit Patel had promised to furnish replies to all their queries in writing. These replies finally arrived last week.
Digital transactions up but so is currency in circulation
In what was dubbed as an after-thought by opposition parties, the government had claimed that demonetisation had also led to increased digital transactions, thereby reducing opportunities for corrupt practices.
In its response to the parliamentary panel, the RBI presented data to show that digital transactions have gone up compared to the pre-demonetisation period but so has currency in circulation, although not at the same rate.
The value of digital transactions went up to Rs 1,373 lakh-crore in 2017-18 from Rs 1,121 lakh-crore in 2016-17 and Rs 920 lakh-crore in 2015-16, RBI has told the parliamentary committee. These digital transactions include bank transfers such as RTGS, NEFT, ECS, IMPS, UPI, debit and credit cards and point-of-sale transactions, among others, and represent a compound annual growth rate of 22.1 per cent.
In contrast, the currency in circulation went up to Rs 18.29 lakh-crore in 2017-18 from Rs 13.35 lakh-crore in 2016-17 and Rs 16.63 lakh-crore in 2015-16, registering a CAGR of 4.9 per cent.
No shortage of cash in ATMs
The RBI maintained that there was adequate cash with it and the currency chests operated by the banks, denying suggestions of a cash crunch leading to some ATMs running dry.
“During April 2018, reports were received that ATMs in certain places ran out of cash. This was primarily due to logistical reasons. The situation improved within a short period,” RBI informed the committee. Production has been ramped up and adequate cash is available to meet the needs of the people, it added.
The transactions processed by ATMs went up to Rs 29 lakh-crore in 2017-18 fro 23.6 lakh-crore in the previous year, a CAGR of 22.8 per cent.
Signs of significant spike in investment activity
Citing low demand for industrial credit and a slump in IIP numbers in March 2018, parliamentary panel members had sought to know the reason for the optimism of the RBI governor who had stated at an IMF meeting in Washington in April that there was fresh investment activity and exports in India.
In its response, the RBI said that after remaining negative for a year since October 2016, credit growth to industry turned positive in November 2017. Credit to industry in 2017-18 registered a growth of 0.7 per cent as against a contraction of 1.9 per cent the previous year.
The improvement was observed across the categories of industries, RBI said in its response to the parliamentary panel. Credit growth to large industries expanded by 0.8 per cent in 2017-18 as against a contraction of 1.7 per cent in the previous year.
Although credit to medium enterprises contracted in 2017-18, it ebbed at 1.1 per cent — significantly lower vis-à-vis a large contraction of 8.7 per cent a year ago. Credit to small enterprises also witnessed positive growth during 2017-18.
“The improvement in credit growth to industry continued beyond 2017-18, that is up to May 2018, the latest period for which the data was available,” a panel member quoted the RBI as having said in its response.
The Central bank said there are several other indicators, which suggest that investment conditions are improving. After contracting by 3.4 per cent during April-July 2017, growth in capital goods production turned around in August 2017, growing at an average rate of 8.5 per cent during August 2017-May 2018.
Capital goods imports, one of the key indicators of investment activity, have grown at an average annual rate of 16.8 per cent since April 2017.
Gross fixed capital formation (GFCF), after witnessing a protracted downturn, turned around in the second quarter of 2017-18 and grew at six-quarter high at 12 per cent in Q3. Accordingly, the investment rate (GFCF-GDP ratio) picked up from 30.4 per cent in 2015-16 to 31.4 per cent in 2017-18.
Capacity utilisation as per the RBI’s survey improved from 71 per cent in the third quarter of 2016-17 to 74.1 per cent in the third quarter of 2017-18. This augurs well for investment activity as increased capacity utilisation of manufacturing is usually followed by fresh investments, the RBI told the parliamentary committee.
“To sum up, there are now clear signs of a significant pick up in investment activity. Going by various indicators, investment activity is expected to strengthen further, going forward,” it added.