Rejecting criticisms, the RBI today asserted that demonetisation decision was taken after detailed deliberations and not in haste, but conceded it could affect part of industrial activity while it has already impacted construction, trade, hotels and communications sectors.
The central bank also came out with the figure that nearly Rs 11.85 lakh crore or 76 per cent of junked notes have come back into the system.
With crash crunch continuing, the RBI promised to maintain steady supply of new currency to ease the situation.
"The decision was not and has not been taken in haste but after detailed deliberations," RBI Governor Urjit Patel told a media briefing after unveiling the 5th bi-monthly monetary policy review of the current fiscal.
The government and the Reserve Bank have been attacked with both accused of not having done enough preparatory work to replace the junked currency that made up for 86 per cent of currency notes in circulation. Even after a month of the decision, banks are finding it difficult to meet the cash needs of customers.
"The consequences that have emanated from that (demonetisation decision) were taken on board. That is why the planning, the process and implementation was what it was, keeping in mind high secrecy had to be maintained. The central bank and the government were conscious of certain immediate difficulties for the public at large and all efforts were made to mitigate them," he added.
Patel said the problems of the common person were at "the top of our radar" and all dispensations were put into the place so "that period for disruption is minimal while we recalibrate our note supply to the denomination that were not withdrawn in terms of legal tender character".
RBI Deputy Governor R Gandhi said that almost Rs 11.85 lakh crore in the scrapped Rs 500/1000 notes have come back to the banking system.
Gandhi further said printing presses of RBI and the government are working to full capacity and all efforts are being made to reach the notes in every part of the country.
"In fact, during this period that is from November 10 to December 5, the RBI supplied to the public banknotes of various denominations near about Rs 4 lakh crore.
"As regards lower denomination of notes, the RBI through its counters and bank branches have supplied 19.1 billion (pieces) in this period which is more than what RBI had supplied to the public in whole of last three years," he said.
Patel said presses have been recalibrated in the past two weeks to print more of new Rs 500 and Rs 100 notes.
RBI also urged the public not to hoard the new currency and put it into circulation to ease the situation.
"Large quantity of notes of various denomination have already been supplied... I appeal to the public that they may not worry about availability. It is continuously coming. If they freely re-circulate the notes...This problem will not be there," Gandhi said, adding that "hoarding of notes helps nobody's cause".
In the monetary policy document, RBI said demonetisation could result in short-run disruptions in economic activity in cash-intensive sectors like retail trade, hotels, restaurants and transportation, and the unorganised sector.
The withdrawal of old Rs 500 and 1,000 notes "could result in a possible temporary reduction in inflation of the order of 10-15 basis points in Q3 (October-December period", the central bank said in the Fifth Bi-monthly Monetary Policy Statement Resolution of the Monetary Policy Committee (MPC).
RBI, however, kept retail inflation target of 5 per cent for the fourth quarter of the fiscal and the medium-term target of 4 per cent within a band of +/- 2 per cent while supporting growth.
MPC, RBI said, felt that the assessment is clouded by the still unfolding effects of the withdrawal of specified bank notes (SBNs).
"The outlook for GVA (gross value added) growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs (Rs 500/1,000 notes) which are still playing out," the policy document said.
RBI further said the withdrawal of SBNs could transiently interrupt some part of industrial activity in November- December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited.
In the services sector, the outlook is mixed with construction, trade, transport, hotels and communication impacted by temporary SBN effects, while public administration, defence and other services would continue to be buoyed by the 7th Central Pay Commission (CPC) award and one rank one pension (OROP).
GVA by financial services is expected to receive a short- term boost from the large inflow of low-cost deposits.
