The Reserve Bank of India has officially confirmed what has been known for long about the demonetisation exercise that Prime Minister Narendra Modi thrust on the nation in November 2016. The sudden withdrawal of high-value currency notes, which was claimed to be a masterstroke that would ferret out all the black money in the system, did not do that but only damaged the economy. The RBI has agreed with this, and has now finally revealed its role in the saga, forced to do so by the Central Information Commission. In response to an RTI query, the RBI has made public the minutes of its board meeting on November 8, 2016. The minutes reveal that its board held only a perfunctory meeting less than three hours before Modi made his announcement. The RBI board was uncomfortable with the government's move and felt that demonetisation would not achieve the aims the government had claimed it would. But the meeting did not dispute the government’s claims, although the decision was intimately related to the RBI’s powers and responsibilities.

At the board meeting, there was no serious deliberation on the issues involved. The board discussed the impact of the currency ban on tourists and travellers, but it had nothing to say on the devastating consequences of demonetisation on the informal sector, agriculture, small businesses and jobs and livelihoods – effects that would have been obvious to it even at that stage. The board merely noted that there would be a “short term negative impact on GDP for that year’’. It said demonetisation would not have a “material impact” on black money. It is difficult to comprehend why the RBI board commended the move to the government when it did not think any of its aims could be achieved. The RBI had resisted releasing the minutes of the meeting for over two years on untenable grounds. Now we know why: it did not want to embarrass itself and the government.

It is clear that the RBI board had only rubber-stamped the government’s decision and thus failed to discharge its institutional responsibility. When the RBI had the power to say no, it did not exercise it and allowed itself to be dictated to by the government. The minutes were approved only more than a month later on December 16, 2016. Therefore, it is clear that Modi went ahead with demonetisation without a formal, written approval from the RBI. The RBI was pressured to approve the decision retrospectively. Demonetisation was therefore clearly in violation of the RBI’s mandate over currency policy. It must be explored if the prime minister is liable for prosecution.