August 29, 2018 / 12:33 PM / in a month

Indians turned in almost all the currency notes banned in 2016: RBI

MUMBAI (Reuters) - Indians returned almost the entire amount of currency withdrawn in the government’s note ban of November 2016, raising fresh questions over the purpose of a shock move that triggered a sharp slowdown in the economy.

A man checks his phone outside the Reserve Bank of India (RBI) headquarters in Mumbai, India June 7, 2017. REUTERS/Shailesh Andrade/File Photo

In its annual report, the Reserve Bank of India (RBI) said the total value of notes returned by the public was 15.3 trillion rupees ($216.7 billion) or 99.3 percent of the total of 15.4 trillion rupees of notes in circulation on November 8, 2016.

“The figures show the demonetisation exercise was flop,” said a chief economist at a bank, who sought anonymity as the subject is a sensitive one. “Almost the entire amount came back, which showed that people were not hoarding money in cash.”

Prime Minister Narendra Modi stunned India with his so-called demonetisation campaign that he said aimed to uncover unaccounted wealth and counterfeit money.

The old notes of 500-rupee and 1,000-rupee denomination ceased to be legal tender from Dec. 31, 2016.

A man counts 500 and 1000 Indian rupee banknotes outside a branch of Bank of India in Mumbai, India, November 10, 2016. REUTERS/Danish Siddiqui/File Photo

The move hit India’s growth, driving it to a three-year low of 5.7 percent in the June quarter of 2017, with several small businesses shutting down and many labourers losing their jobs.

However, Subhash Chandra Garg, the government’s economic affairs secretary, told reporters the RBI data did not mean the effort was unsuccessful.

“I think demonetisation achieved its objective quite substantially,” Garg said, declining to elaborate. “Let’s not enter into debate on this issue.”

The RBI also highlighted the upside risks to inflation from global crude oil prices strengthening expectations of another rate hike. India’s July inflation rose an annual 4.17 percent, the ninth straight month in which it surpassed the RBI’s medium-term target of 4 percent.

The upside risks to inflation in the rest of the year warrant a “continuous vigil and a readiness to head off those pressures from getting generalised”, RBI added.

($1=70.60 Indian rupees)

Pieces of old fake 1000 rupee notes lay on the street during a protest, organised by India's main opposition Congress party, to mark a year since demonetisation was implemented by Prime Minister Narendra Modi, in Ahmedabad, India November 8, 2017. REUTERS/Amit Dave/File Photo

Reporting by Suvashree Dey Choudhury; Editing by Clarence Fernandez

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