Government pushed ahead with its decision to scrap banknotes even as the Reserve Bank of India’s (RBI) own board expressed concern whether the cash could be replaced quickly enough, the central bank has said in written testimony to parliament.

The revelation comes amid growing criticism about whether the central bank and the government had sufficiently assessed the potential fallout from the Nov. 8 ban of about 86 percent of the cash then in circulation.

Prime Minister Narendra Modi’s surgical strike move caused a severe cash shortage that brought large parts of the economy to a virtual standstill, as the central bank struggled to print new 500-rupee and 2,000-rupee notes to replace the old currency.

Initial 2 months the economic impact wasn’t much except for the visible sufferings of the public. This generally happens by virtue of the continued momentum of a heavy mass, but as time passes and the banking restrictions abound, the economy reels and falters under the impact with sluggishness being felt across the sectors.  The steep drops in various graphs shown below reflect the worst fears that most of the economic experts had predicted.

govt bulldozed rbi concerns
Sharp decline refected in almost all sectors
A copy of the private testimony to a parliament panel, per Reuters, showed the central bank had also warned the government of “possible inconvenience to the public for some time,” among the other potential consequences of the massive exercise. Despite its own doubts, the testimony showed, the RBI board approved the plan to ban 500-rupee and 1,000-rupee notes, as it believed the move would rein in counterfeiting and reliance on cash, and pull unaccounted cash into the financial system.

“It might not immediately be possible to replace these notes fully in terms of both value and volume,” the board felt at a meeting ahead of Modi’s Nov. 8 announcement, according to the central bank submission.

The actions of the all powerful central govt might only have brought cheer to a section of the salaried class of society, but in the words of the erstwhile FM and PM Manmohan Singh, the worst is yet to come. The latters prediction seem coming true as per reports from the ground where business activity continues to reel under the impact of demonetisation and an unprepared banking system that fails to usher in smooth cashless transactions across the vast country.

With Inputs from Reuters

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