One year of demonetisation: Narendra Modi tried to do an Indira Gandhi but ended up being another Morarji Desai
Indira Gandhi could make bank nationalisation the biggest plank of her Garibi Hatao slogan. But Narendra Modi failed to replicate it with demonetisation
When the country is getting ready to celebrate the first anniversary of the demonetisation day on 8 November, it is inevitable that the question will be asked: has the momentous decision confirmed Narendra Modi’s place in India’s history? After all, the paramount leader of the BJP does not want to be remembered merely as an also-ran Prime Minister.
We must remember that Prime Minister Modi has an astounding sense of destiny and a fierce motivation to achieve it. His astonishing rise from the impecunious condition of a tea vendor to that of the most powerful position in the largest democracy of the world is a testament to his relentless drive to be at the centre-stage of history.
All the high-decibel slogans and high-optics addresses to the nation are carefully calculated exercises to achieve that one goal – to make a brand image of Modi as a Man of History. The demonetisation move was the biggest, and the most disruptive, exercise in pursuit of that glory.
The prime minister’s 8 November address last year de-legitimising the Rs 500 and Rs 1,000 currency notes was a historic occasion; he promised the nation that he was taking this extraordinary step to make India free of black money and fake currency, to put an end to the twin menace of corruption and terrorism in one stroke.
Possibly, Modi had taken a cue from his predecessor Prime Minister Indira Gandhi who had taken a similarly historic decision almost five decades ago by resorting to bank nationalisation with a vow to put an end to poverty.
But there is a crucial difference between the bank nationalisation move and demonetisation move, in terms of both politics and economics.
Politically, Indira Gandhi was still struggling to assert her authority over her party when she decided to nationalise banks, a policy, she thought, she would be able to sell to the people as pro-poor and dub the veterans in her party – known as syndicate -- who opposed her as pro-rich. And that worked; Morarji Desai, the leader of the syndicate, was left with no option but to resign from the Union Cabinet as he had opposed this move and he was divested of the finance portfolio.
He wrote to the Prime Minister: “If you wanted a change in the Finance Ministry you could have discussed it with me… But now, you have behaved towards me in a manner in which no one would behave even with a clerk.” Prime Minister Gandhi went on to establish her authority over the party and went on to make bank nationalisation the biggest plank of her Garibi Hatao slogan.
In a contrasting scenario, Modi had already become the unquestioned leader of both the party and the government when he embarked on the demonetisation exercise. The demonetisation move was only meant to secure his place in history as the paramount crusader against black money.
However, it was not the first time that the demonetisation exercise was undertaken by a prime minister. Morarji Desai, by the turn of history when he became the prime minister, had also taken such a step to unearth public money.
On 16 January 1978, the Morarji Desai government demonetised Rs 1,000, Rs 5,000 and Rs 10,000 currency notes. But, prior to that, the government had asked the RBI to draft an ordinance; and the draft ordinance was sent to the President N Sanjiva Reddy for ratification. It was only after the presidential assent that the ordinance was issued and the decision was announced through All India Radio news bulletin (there was no television then). Prime Minister Desai did not come on radio to make the announcement; probably because he had no illusion about projecting himself as a man of destiny.
But fast forward to the present and see the contrast: at 5.30 pm on 8 November, the RBI’s board, in an emergency meeting, cleared the advisory note of the government (as testified by the RBI governor before the Public Accounts Committee of Parliament); at 6.30 pm the same day the cabinet had an emergency meeting to approve the note; and at 8 pm the prime minister went live on television. The procedural nicety of an ordinance was given a go-by (the ordinance came by end December when the problems mounted and the legal challenges were filed in the courts of law)
The prime minister presented the demonetisation plan as the crowning effort in his crusade against the black money: he urged the poor to be ready to suffer temporary inconveniences if they want to see the enemies of the nation bite the dust. Kala Dhan Hatao became his buzzword just as Garibi Hatao was central to Indira Gandhi’s campaign.
Slogans may have been similar, but the economic consequences were radically different. Bank nationalisation changed the economic contours for the underprivileged; banks were no more the handmaiden of the rich; they were made the tools to serve the poor. The bank branches opened in the rural, remote areas; they were made to lend to farmers and small businesses as the priority sectors. That made Indira Gandhi the darling of the masses, especially the rural poor. Riding on this, she went on to win the historic election in 1971.
Narendra Modi did not possibly realise that, with the demonetisation, he was trying to do an Indira Gandhi but actually he was moving in the opposite direction – that he was not benefitting the common men and women, the rural households. He was, in fact, putting them and their livelihood at risk. The reason is that the common men and women use cash in all their transactions; small businesses thrive on cash dealings. When 86 percent of the currency notes were suddenly withdrawn and the remonetisation policy was painfully slow (as the RBI had no buffer time to prepare for the contingency), the poor were the hardest hit. Without sufficient cash, the unorganised sector in which more than 90 percent people are engaged, were left twiddling their thumbs.
Conversely, the rich, the black-money holders, had an easy ride. They know how to use every loophole in the system to tide over any government regulation. In complicity with the bank officials, they found ways to turn their black money into white. The RBI admitted as much when it said more than 99 percent of the demonetised currencies came back to the system (if the anecdotal evidence is to be believed, almost the entire banned currency notes have returned to the banks).
Prime Minister Modi ought to have taken a cue from Morarji Desai’s experiment. When Morarji deliberated upon the demonetisation plan in 1978, his finance minister, H M Patel, has gone on record to have said that it would not serve the intended purpose of unearthing black money. He told the prime minister that there was no chance of ending black money “until we destroy the conditions which encourage it”.
He wrote: “Most people who have black money and who are involved in such operations rarely keep their ill-gotten gains in cash. They will have converted much of it into assets or even into white money.”
I G Patel, who was then governor of RBI, had also expressed his view on similar lines: ”Thinking that black money is stashed away under mattresses or suitcases is naïve,” he had told the prime minister as his autography tells us. But the prime minister was adamant and his wish was carried out. The exercise was a disaster.
As regards the second demonetisation drive, all available indicators, as discussed above, tell us that this exercise, too, has turned out to be an unmitigated disaster.
It is ironic that Modi tried to do an Indira Gandhi , but he ended up being another Morarji Desai!
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