By Arun Srivastava
Demonetisation was not an economic move instead it had a political dimension tossed by a politician which had the worst nature of economic consequences. If it would have been conceived and designed by one or a group of economists, it would have had the element of constructive nature.
In a competitive politics Narendra Modi had to fight two forces; challenges from his detractors within BJP and erasing the acuity from the minds of the people that Congress was the only ruling party in India. After becoming the prime minister while he completely decimated the internal resistance, turned the BJP subservient to him, he set on the mission to finish Congress. He gave the call for Congress Mukt Bharat (India free of Congress). Most of the people and experts perceived the call as a move to politically finish the Congress. But it has wider implication.
While his anointment as the prime minister sent a clear and loud message to Delhi that the prevailing power structure would be destroyed, it also conveyed to the Congress that it ceases to be the fulcrum for the secular forces and would be completely dissipated.
Obviously acting at the advice of his close bureaucrat aide, shifted to Delhi from Gujarat, he started the process to clog the fund channel for Congress. His Gujarati friends had advised him to close the NGOs as they, according to these officers, were important sources of fund generation for opposition parties. They also told that Congress had huge cache of black money. The best mechanism to cripple a political party has been to cut off the finance supply line. They feared that the Congress with huge fund at its disposal might prove to be a major challenger to him and even may affect the electoral outcome of 2019.
Though Modi government told the Supreme Court, while hearing a petition challenging demonetisation, that it had taken the RBI into confidence, the fact remains that the RBI was misled in the matter. Raghuram Rajan, who was governor of RBI when Narendra Modi took over in May 2014 had denied to endorse the government version, as mentioned in his book I Do What I Do: “At no point during my term was the RBI asked to make a decision on demonetisation.”Rajan left two months before the demonetization decision was announced by the PM on November 8, 2026. Urjit Patel who was deputy governor under Rajan, was made RBI Governor after Rajan left and he oversaw the process after demonetization took place.
Speaking at Harvard Kennedy School in Cambridge Rajan said any macro-economist would say that if 87.5 per cent of the currency is being demonetised, then it better be made sure that a similar amount of currency is printed and ready to be put back in circulation. Calling the move as naive view, he said “India went into it without having done that. It had a negative economic impact but also the idea was that somehow people who had money stored in their basements without having paid taxes on it would overnight see reason and come to the government and say sorry we were hiding this stuff, let me pay taxes on it.”
Rajan held; “Demonetisation disrupted India’s strengthening growth; India was coming back at that point after the global recession and demonetisation disrupted the flow”. Surprisingly the Modi government has been maintaining a secretive silence as why Urjit Patel, who had succeeded Rajan, as the Governor of RBI resigned on December 11, 2018, nine months before his term was to end. While questions were raised on the autonomy of the RBI, whether the central bank was an independent body, some people also pointed out to the deepening economic crisis and refusal of Patel to toe Modi’s line, as the major reasons for his quitting the job.
Not only Rajan, some other economists and even a section of the bureaucrats had objected to this move. They had argued that black money is not stacked only in cash. They are invested in real estate, gold and land. The demonetisation would create problems for the middle order businessmen and especially the poor.
But Modi was unmoved. Since he had decided to finish the Congress’s fund source, he was determined to implement the demonetisation notwithstanding the consequences. The sources maintain that Hansmukh Adhia who was Modi’s principal secretary in Gujarat, had prepared a report for Modi which pointed out that from 2011 to 2016 circulation of currencies of Rs 500 and Rs 1000 denomination has increased by108 per cent. Its share in the currency rotating in the market was around 20 per cent. It is said that based on this report Modi decided to demonetise these two currencies of bigger denomination.
On the lines of Rajan, officers from other departments had also pointed out that this would even prove to be counter effective. What was most devastating while Modi ordered for ban on currencies of Rs 500 and Rs 1000 denomination, he at the suggestions of his close aide allowed printing of currency of Rs 2000 denomination. Modi was not worried of the fact it was more convenient to hoard the Rs2000 currency. It is something else the printing of Rs 2000 was stopped in 2019, after the Lok Sabha elections.
Even today around notes of Rs 2000 worth Rs 3.62 lakh crores are in the market. This is the main source of worry for Modi. He is worried of the possibility of this huge amount being used in the elections to the four states which would go to polls by the end of the year. He intends to remove this money from the market well before the 2024 elections. While, the BJP can get funds from any sources for the coming elections without facing any problems from CBI or ED and IT, the Congress is on a different footing. The ruling party feels that after Karnataka elections, many of those having black funds in Rs. 2,000 notes might be interested in funding the resurgent Congress. The latest Government directive has stopped that possibility.
It is worth mentioning that Modi government had told the Supreme Court that Rs 3 to Rs 4 lakh crore of demonetised currency will not return to the system and that this black money shall be wiped off. But the reality was that 99.3 per cent of demonetised currency was back in the system. There is no denying that black money thrives under Modi. His action has simply endorsed the common perception that it was a calculated attack on the opposition. Black money didn’t come out, only poverty came and the economy became weaker.
Modi’s Demonetization is not the panacea to end the malaise of role of dirty money in Indian politics. While he intends to close the avenue for the opposition, his brand of politics has been surviving on this. If he is really honest in his fight against black money, why is he not placing the details of his PM Care Fund in public domain? Why is he secretive about it? Through resorting to this mechanism, he only intends to undermine the corrosive system of political finance. For India, a country having nearly 70 per cent of its population below the poverty, this is simply turning the people more pauper. India can have two budgets out of the illegal money spent on the elections after every five years.
The way the demonetisation is pressed it will absolutely not challenge the menace of money politics. This is the reason that election has attained the character of big business, even bigger than the combined corporate sector and big business. It is the money politics that has depreciated the real politics. (IPA Service)