The Big Story: The details of demonetisation

In February 2017, four months after demonetisation had been announced, Finance Minister Arun Jaitley claimed in the Rajya Sabha that the Reserve Bank of India had been kept in the loop about the plan since February the previous year. On November 8, 2016, Prime Minister Modi told the nation of his decision to scrap India’s two largest banknotes – Rs 500 and Rs 1,000. The move shocked the economy, rendering 86% of India’s currency useless. Given the chaos that resulted, questions immediately arose about the kind of preparations the Union government had made to implement the policy. Jaitley’s reply was meant to reassure Indians that their doubts were baseless: the government had done everything it could.

There’s one problem, though. The finance minister’s version of events has been directly contradicted by Raghuram Rajan, who as RBI governor. In his new book, I Do What I Do, Rajan is categorical: “At no point during my term was the RBI asked to make a decision on demonetisation.” Since Rajan was the governor till September, 2016, his account is at variance with the government’s statement about consulting the RBI. In interviews ahead of the release of his book, Rajan is quite clear that when he was asked about his views on demonetisation by the Union government, he said any long-term benefits would be outweighed by the short-term costs of the move. Why did the government then disregard the views of the RBI governor? Were any experts consulted at all?

Advertisement

By now it is more than clear that the demonetisation has been a disaster. The Indian economy is grievously hit, with the country’s GDP growth rates in a nosedive. The informal sector has been the worst affected, with millions of people losing their jobs. When Modi announced the move, he said it was aimed at destroying black money. He seemed to be working under the assumption that black money would not be deposited in the banking system. But now, 99% of the notes are back in the banks. Later, a new aim was suggested: getting Indians to use digital cash transfers. This didn’t work out either. In an interview, Rajan explains, “There was a blip-up when demonetisation happened but it has come back to broadly the trend growth line”. The government later claimed that the move was intended to target the corruption of the rich and to force people to put “domestic savings lying idle at home” into the banking system.

Slowly and surely, the full list of the goals of demonetisation became the stuff of social media parody. The real goal, suggested one wag, was to stop global warming. Another claimed that the policy aimed to intended to get Indians to bond as they stood in interminable queues and stuck up conversations with strangers. Yet, this is no laughing matter. Given the pain of demonetisation, the Union government must inform the Indian public of how it came to take the decision in the first place.

The Big Scroll

Read Scroll.in’s in-depth coverage of demonetisation here.

Advertisement

Subscribe to “The Daily Fix” by either downloading Scroll’s Android app or opting for it to be delivered to your mailbox. For the rest of the day’s headlines click here.

If you have any concerns about our coverage of particular issues, please write to the Readers’ Editor at readerseditor@scroll.in.

Punditry

  • The government failed to anticipate the economic fallout of demonetisation – both the duration and the magnitude, argues V. Anantha Nageswaran in the Mint.
  • India’s handling of Dokalam shows us the way to tackle tough issues with China, writes Pranab Dhal Sharma in the Economic Times.
  • Who were the first settlers of India? Tony Joseph explores the question in the Hindu.











Giggle

Don’t Miss

As Centre tries to shift Goa’s National Green Tribunal cases from Pune to Delhi, citizens and High Court put up a fight, reports Pamela D’Mello.

“Citizens said the government was trying to curb them to make it easier to do business in Goa, because many projects in the coastal state have been stalled over litigation. ‘It [the transfer] will make things very difficult for us Goa litigants,’ said activist Abhijeet Prabhudessai. ‘Pune is an overnight bus journey, litigants can leave Goa at night, reach in time for the day’s hearing and catch the bus back, that day itself, if they have a matter. New Delhi is expensive and distant for us to access.’ Pune is about 450 km away from Goa, while Delhi is close to 1,900 km away.”