Govt shouldn't play Robin Hood with unreturned notes: Subbarao

Even as the government's demonetisation drive -- an overnight move that froze circulation of Rs 500 and Rs 1000 notes -- has been lauded as a big-ticket reform albeit one that is bound to cause short-term pain, Former RBI Governor D Subbarao isn't siding with the popular view that government treat all unreturned notes as profit. Speaking at MintAsia’s global banking conclave in Singapore, Subbarao said it would in fact be unwise on the part of the government to use the cash haul from the currency ban to infuse liquidity into banks. It would send out a wrong message, he warned. By law the RBI should transfer any profit on top of what it earns via discounts and interest from bonds and open market operations to government coffers. Subbarao's attack seems to be two-pronged. First, currencies not surrendered should not be categorised as profit; second, assuming the RBI passes on the 'profits', the government, channeling 'Robin Hood' tendencies, shouldn't use such money to revive a flagging banking system or fix a fiscal leak.Subbarao hedges his attack on the government. "I don’t believe that this is the intention of the current government, but if they were to do such a thing, it will be highly ill-advised."He further argued that such an act would mean that the currency ban will be viewed as a means for targeting more than just black money.

Besides, Subbarao also questioned the legality of RBI calling 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”, the report stated.