On a mellow Tuesday evening when the world was getting ready for the endgame in the United States presidential election, Prime Minister Narendra Modi came up unannounced on our TV screens and dropped a nuke on black money. In a move that was daringly simple and breathtakingly audacious, the Prime Minister announced that within the next few hours, all Rs 500 and Rs 1000 notes will turn into ash from cash.
Any sweeping step that simultaneously affects a population of 125 crore is hazardous. The risk increases manifold when it involves withdrawing notes at such a short notice. It would require incredible synergy between all arms of the government, the bureaucracy and the executive to pull off a coup of this magnitude. There is every chance that even a minor botch up in the execution stage somewhere will have a cascading effect everywhere and result in mind-bending chaos.
When you add the unpredictability of human behavior to these factors, it becomes clear what an insane risk the Prime Minister took on Tuesday as he went about performing a surgical strike on black money hoarders, fake currency racket and terror financing.
The risk factor wasn't just limited to execution. By appearing on live TV and appraising the nation of the steps he was about to take, Modi made the demonetisation a very personal affair, putting in line his entire political capital. Any decision taken by the Centre ultimately lies at the Prime Minister's door. However, by exhorting people to join the fight against corruption, Modi dismantled the levers of power between the people and their leader and made the appeal and support a personal give and take. The political risk of such an action stems from the fact that the short-term negative impact and teething issues will anger the man on the street and most certainly irk the trader community which forms the core support base of BJP.
It takes nerves of steel to play high-stakes poker with own political goodwill to eradicate corruption, knowing that even a small misstep will turn a crazily bold move into an insanely foolish one. It not only shows that Modi is committed in his mission to tackle black money and corruption — the twin key planks which gave him a sweeping mandate in 2014 — but also that he isn't risk averse to fulfill that commitment.
But why was it necessary to withdraw the 500 and 1000 denomination notes? There are two main reasons among many. High denomination notes are easy and cost-effective to fake, and most of the terror financing is done through counterfeit money which forms part of Pakistan's arsenal. In one sweep, at the stroke of midnight on 9 November, Modi delivered a blow as crucial as the surgical strikes on Pakistan-sponsored terror.
High denomination notes are also an important pillar of the parallel black economy, which according to World Bank was 20.7% of the GDP in 1999 and rose to 23.2% in 2007. As The Times of Indiapoints out, the shadow economy which sits outside the banking system corrodes and eats into the vitals of the country's economy.
Journalist Vivek Kaul has explained in his blog how Rs 500 and Rs 1000 notes aid corruption. "The move," he writes in his blog, "seems to be inspired from the American dollar as well as the British pound. In the US, the highest denomination bank note is $100. When it comes to the UK, the highest denomination bank note issued by the Bank of England is £50 — essentially 50 times the smallest denomination note of one dollar or one British pound. In India, up until now the highest denomination note was Rs. 1,000 and this was 1000 times the smallest denomination note of Re 1, issued by the ministry of finance. When a currency has notes of higher denomination, it is easier to launder money i.e. store black money."
But these are theoretical and statistical assumptions. The real tour de force of Modi's move was to give the hardworking commoner a moral boost that she isn't a loser in paying tax and being a good citizen. It is the crooks who would be the real losers, from now on.