Evaluating the RBI’s Recent Currency withdrawal Decision

The exchange rate and purchasing power of a currency are frequently brought up while discussing its value. A more important factor to take into account is the inhabitants’ faith in its acceptance and stability as a medium of commerce and a store of wealth. This faith is firmly anchored in the belief that a central bank, like the Reserve Bank of India (RBI), is to be trusted.

Reasons for retaining the 2,000 notes legal tender while removing them from circulation

Promote Clean Note Policy: The RBI’s initiative to support a cleaner monetary system includes the removal. The RBI wants to raise the standard of money in circulation by promoting the exchange of dirty or damaged notes.

Curbing Black Money: The decision is aimed at curbing the hoarding of black money, as higher denomination notes are often associated with illicit activities. By limiting the usage of ₹2,000 notes, the RBI intends to discourage the accumulation of unaccounted wealth.

Enhancing Transparency: The withdrawal is expected to increase transparency in financial transactions. By reducing the availability of high-value currency, the RBI aims to encourage a shift towards digital payments and traceable transactions.

Addressing Counterfeit Concerns: The withdrawal may help mitigate the risks associated with counterfeit currency. High-denomination notes are often targeted by counterfeiters, and by withdrawing ₹2,000 notes, the RBI aims to combat counterfeiting and maintain the integrity of the currency.

Managing Currency Supply: The withdrawal allows the RBI to better manage the supply and circulation of currency. By gradually replacing ₹2,000 notes with lower denomination currency, the RBI can ensure an adequate availability of notes for day-to-day transactions.

Aligning with Majority Usage: The decision is based on the observation that a significant majority of transactions in India involve lower monetary values. By withdrawing ₹2,000 notes, which are predominantly used for high-value transactions, the RBI aims to align the currency with the needs of the majority of the population.

Potential Impact of this move on Business and Economy

Uncertainty and Business Sentiment: The move to withdraw ₹2,000 notes may create uncertainty among businesses, as sudden changes in the currency system can disrupt economic activities. This uncertainty can affect business sentiment and decision-making, potentially leading to a cautious approach in investments and expansion plans.

Cash-dependent Sectors: Certain sectors that heavily rely on cash transactions, such as small businesses, informal sectors, and rural areas, may face challenges in adjusting to the withdrawal. The availability of lower denomination notes to replace ₹2,000 notes and the need for individuals to exchange their existing notes can temporarily disrupt cash flow in these sectors.

Digital Payment Adoption: With the reduction in the availability of high-value currency, there may be a push for increased adoption of digital payment methods. The withdrawal can potentially accelerate the ongoing shift towards digital transactions, as individuals and businesses seek alternatives to cash transactions.

Impact on Consumption: The withdrawal can have implications for consumer spending patterns. If individuals perceive a scarcity of high-value currency, it may affect their spending behavior, particularly for larger purchases. This could lead to a short-term dampening of consumer demand and impact certain sectors of the economy, such as real estate and luxury goods.

Counterfeit and Black Money: The withdrawal of ₹2,000 notes aims to combat counterfeiting and curb the hoarding of black money. If successful, it can contribute to enhancing the integrity of the currency and promoting a more transparent financial system. However, the actual impact on eliminating black money and counterfeit currency will depend on the effectiveness of enforcement measures and the adoption of alternative means for illicit transactions.

Financial Inclusion: The withdrawal may pose challenges for individuals who have limited access to banking services or digital payment infrastructure. Efforts will be needed to ensure that the transition does not hinder financial inclusion and that adequate support is provided to vulnerable segments of the population.

Concerns and arguments over the central bank’s reputation

Demonetization Fallout: The implementation of demonetization in 2016, where high-value currency notes were invalidated, received mixed reactions. Critics argue that the RBI’s involvement in the decision-making process and its execution raised questions about the central bank’s independence and its ability to manage the country’s monetary policies effectively.

Inflation Management: The RBI’s primary mandate is to maintain price stability and control inflation. However, the central bank has faced challenges in achieving its inflation targets consistently. Critics contend that the RBI’s monetary policy framework and communication strategies could be improved to ensure better alignment with its objectives and boost its reputation in inflation management.

What measures RBI must take to restore and maintain its reputation?

Transparency and Communication: The RBI should prioritize transparency in its operations and decision-making process. It should provide clear and timely communication regarding policy decisions, objectives, and the rationale behind its actions. Regular and effective communication can help build public trust and enhance understanding of the RBI’s role in maintaining a stable and resilient financial system.

Independence and Autonomy: The RBI should emphasize its independence from political interference. It should ensure that its decision-making process remains free from external pressures and is based on sound economic principles. Upholding its autonomy strengthens the perception of the RBI as a credible and reliable institution.

Consistency and Predictability: A clear and consistent approach to monetary policy, regulation, and supervision fosters stability and confidence in the financial system. Avoiding abrupt shifts or reversals in policy direction can enhance the RBI’s reputation for sound decision-making.

Accountability and Oversight: The RBI should establish robust mechanisms for accountability and oversight. This includes effective internal controls, external audits, and appropriate checks and balances to ensure that the RBI’s policies and actions align with its mandate and serve the best interests of the economy. Accountability helps maintain public confidence in the RBI’s operations.

Economic Stability and Financial Inclusion: The RBI should prioritize its mandate of maintaining economic stability while promoting financial inclusion. By implementing effective monetary policies, managing inflation, and ensuring a resilient financial system, the RBI can contribute to sustainable economic growth and reduce income disparities.

GANHRI defers accreditation of India’s NHRC

The Global Alliance of National Human Rights Institutions (GANHRI), a UN-recognized organization, has deferred the accreditation of India’s National Human Rights Commission (NHRC-India) for the second time in a decade.

Reasons for India’s Deferment

The GANHRI’s letter to the NHRC cited several reasons for the deferment of accreditation, including:

Political Interference: The NHRC-India faced objections related to political interference in appointments, compromising its independence.

Police Involvement: Involving the police in probes into human rights violations raised concerns about impartiality and fair investigations.

Lack of Cooperation: The NHRC’s poor cooperation with civil society was criticized, hindering its effectiveness in protecting human rights.

Lack of Diversity: The GANHRI highlighted the lack of diversity in staff and leadership positions within the NHRC.

Insufficient Protection of Marginalized Groups: The NHRC was found to have taken insufficient action to protect marginalized groups, contrary to the U.N.’s principles on national institutions (the ‘Paris Principles).

Concerns highlighted against India

Many NGOs such as Amnesty International, Front Line Defenders etc. wrote a joint letter to GANHRI expressing their objections to NHRC India’s ‘A’ rank.

They highlighted the commission’s failure to protect marginalized communities, religious minorities, and human rights defenders.

The letter emphasized that the NHRC’s functioning has regressed since 2017, undermining its independence and adherence to the Paris Principles.

Paris Principles and Accreditation Criteria

The United Nations’ Paris Principles, adopted in 1993, serve as international benchmarks for accrediting National Human Rights Institutions (NHRIs). The Paris Principles outline six main criteria that NHRIs must meet:

Mandate and Competence: NHRIs should have a clear mandate and the necessary expertise to protect human rights effectively.

Autonomy from Government: NHRIs must operate independently from government influence or control.

Independence: NHRIs should have their independence guaranteed by a statute or constitution.

Pluralism: NHRIs should ensure diversity and inclusivity in their staffing and leadership positions.

Adequate Resources: NHRIs should have sufficient resources to carry out their mandated functions effectively.

Powers of Investigation: NHRIs should possess adequate investigative powers to address human rights violations.

Historic ‘Sengol’ to be installed in new Parliament

The new Parliament building, which will be dedicated on May 28, 2023, will feature the “Sengol,” an ancient sceptre from Tamil Nadu, which the Prime Minister plans to place.

Describe Sengol.

The mediaeval sceptre known as Sengol has a great cultural and historical significance in Tamil Nadu.

Sengol, which derives from the Tamil word “Semmai,” which means “Righteousness,” is a representation of justice and effective government.

The passing of the sceptre, a representation of authority and the need to rule with justice and fairness, served to sanctify the transition of power during the Chola era.

At the time of India’s independence, it rose to prominence as power passed from the British to the Indian people.

History: Traditional Chola Practice and Symbolism

Historical Practice: The presentation of the Sengol aligns with a traditional Chola practice where Samayacharyas (spiritual leaders) led the coronation of kings, sanctifying the transfer of power and symbolically recognizing the ruler.

Symbol of Justice and Good Governance: The Sengol, a symbol of justice and good governance, holds cultural significance as recorded in ancient Tamil texts like Silapathikaram and Manimekalai.

Sengol’s recent context and creation

Lord Mountbatten’s Question: Prior to Independence, Lord Mountbatten, the last Viceroy of India, asked Nehru about the ceremony that should symbolize the transfer of power.

Inspiration from Chola Dynasty: Rajagopalachari, the last Governor-General of India, suggested a ceremony from the Chola dynasty, where the transfer of power was sanctified and blessed by high priests.

Manufacturing the Sengol: Rajagopalachari approached Thiruvaduthurai Atheenam, a renowned Shaivite mutt in Tamil Nadu’s Tanjore district, which commissioned the creation of the Sengol from Chennai-based jewellers, “Vummidi Bangaru Chetty.”

Craftsmanship: Vummidi Ethirajulu and Vummidi Sudhakar skillfully crafted the five-foot-long Sengol, featuring a symbolic ‘Nandi’ bull representing justice.

Significance of the ‘Sengol’

Symbolic importance: Derived from the Tamil word “Semmai,” meaning “Righteousness,” the ‘Sengol’ represents a significant historical symbol of Independence.

Marks Transfer of Power: On August 14, 1947, Pandit Nehru, the first PM, received the ‘Sengol’ from the Adhinam of Tamil Nadu, marking the shift of power from the British to the Indian people.

The Handover Ceremony

Arrival of the Sengol: Three individuals, including the deputy high priest of the Adheenam, a Nadaswaram player, and an Oduvar (singer), brought the newly made Sengol from Tamil Nadu.

The Ceremony: On August 14, 1947, the Sengol was handed over to Lord Mountbatten during a procession, and later taken to Jawaharlal Nehru’s house, where it was officially presented to him.

Sacred Song and Attendees: A special song composed by the 7th-century Tamil saint Tirugnana Sambandar, as specified by the high priest, accompanied the ceremony. Dr. Rajendra Prasad, India’s first president, and other dignitaries were present during the event.

Ceremonial Procession and Tamil Traditions

Grand Procession: The Sengol will be ceremoniously transported to the House in a grand procession.

Musical Ensemble: Traditional Nadaswaram musicians, playing Tamil Nadu’s iconic instrument, will lead the procession, and PM is expected to walk alongside them, embracing Tamil culture.

Adheenams and Sanctification: Adheenams, priests from Shaivite mutts in Tamil Nadu, will be present in the Lok Sabha’s Well. They will sanctify the Sengol with holy water after Prime Minister Modi greets them, honoring Tamil traditions.

Oduvars and Sacred Recitation: Tamil temple singers known as Oduvars will recite the “Kolaru Padhigam” lyrically, while the Nadaswaram musicians enchant with their soulful music.