Ex-RBI Governor Subbarao warns govt against using unreturned notes to solve fiscal problems
He said if a quarter of the Rs500 and Rs1,000 currency notes in circulation does not come back�this is equivalent to about Rs3.5 trillion, the RBI may consider it as a windfall profit.
Former Reserve Bank of India Governor D Subbarao has warned that any move by the Indian government to treat currency that is not surrendered during the ongoing demonetization process as a profit will be “ill-advised”.
He said he was unsure about the legal position on whether the RBI could claim unreturned currency as profit. According to him, all currency notes carry a legal obligation, as the RBI has guaranteed that it will pay the bearer the sum or the value of the denomination that is printed on that note.
Subbarao said the government has not even used the word demonetisation. He questioned, “All that the government has said is that it is withdrawing these notes as being legal tender. But it still leaves us with the question: does the RBI have the obligation to pay the bearer, or is that obligation over, after the government announcement.”
He said, however, the positives of the current demonetisation drive outweighed the negatives. “The money being deposited in the banks, as against having it in the pocket, or under the pillow was good for the economy,” said Subbarao.