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  In December 2013, after 30 years in banking, I stepped down from my role in RBS to devote my time fully to public service. I joined the AAP and was their candidate for South Mumbai in the 2014 Lok Sabha elections. The PortLands formed the core agenda of my 2014 Lok Sabha campaign. I promised that irrespective of the outcome of the elections, I would work tirelessly to ensure that polluting activities in this area were stopped and that the PortLands were redeveloped in a manner that would benefit the citizens of Mumbai and not rapacious builders or politicians.

  I am happy that I have succeeded in placing the PortLands high on the agenda of both the state and Central governments. I filed a Public Interest Litigation (PIL) case against the Port Trust and the Pollution Control Board to stop the dumping of coal. In a landmark judgement, the Mumbai High Court pulled up the authorities and the Mumbai Port Trust (MbPT) finally committed in court in 2016 that they would stop dumping coal and clean up this area. MbPT also orally agreed to phase out further shipbreaking activities. Today, this area, a source of terrible pollution for the past 10 years, is turning into a clean and green space.

  To work on the redevelopment of the PortLands we formed a group called A PortLands Initiative (APLI) Mumbai, consisting of urban planners, architects, bankers, educationists, doctors, engineers and naval officers, among others. Working in partnership with the MbPT, we have brought our professional expertise to help design and conceptualize several projects that will make life easier and more liveable for the citizens of Mumbai: a promenade on the eastern waterfront, a mangrove eco-park and flamingo- watching centre at Sewri, passenger water transport terminals along the eastern freeboard, the redevelopment of Sassoon docks, a marina, and a maritime museum among others.

  I believe we need this kind of constructive politics in India. Those who win an election on the basis of a manifesto should fulfil their promises to the electorate. Those who lose an election must fearlessly stand up against what they believe to be wrong, but also be constructive and help the authorities do what is right.

  This brings us to the demonetization of 2016. When the note ban was announced, I was one of the first, from the banking and financial sector, to criticize the move on the national media.

  Though I am a member of AAP and disagree with the ideology and many of the policies of the BJP-led NDA government, I believe it is important for the government to succeed, if India is to succeed. Each of us have a vested interest in the success of our government, particularly with respect to our economy.

  There are certain good policies of the Modi government that have been well implemented, such as RERA2 (Real Estate [Regulation and Development] Act), which protects home-buyers from unscrupulous property developers, and the IBC3 (Insolvency and Bankruptcy Code), which creates a single law for insolvency and bankruptcy, protecting the interests of creditors and small investors, and providing entrepreneurs a swift exit when businesses fail.

  There are other good policies which have been poorly implemented, such as GST,4 the Goods and Services Tax. Dubbed by the government as a ‘Good and Simple’ tax, it has, unfortunately, turned out to be anything but that. The rollout appears to have been done without adequate homework. Repeated policy rollbacks and amendments, and a GST Network (GSTN) filled with glitches, have resulted in headaches for both tax payers and authorities. Notwithstanding its poor implementation, this is a positive economic policy that should yield long-lasting benefits to the Indian economy, once the numerous teething problems have been resolved.

  Lamentably, there are also bad policies which have been badly implemented – and in my view and in the view of many eminent economists and public policy experts, the demonetization of November 2016 falls squarely in this category.

  Demonetization touched the life of every Indian and impacted households, farmers, traders and businesses across the country. It was the largest demonetization of this magnitude, undertaken by any government, anywhere in the world. The country paid a very high price for this poorly thought-out policy, which was devastating in its impact, especially on the poorest people in our country.

  This book presents the story of India’s 2016 demonetization, which is analysed and explained based on my experiences as a banker, working not just in the world of investment banking and corporate finance, but also with very poor women in the remotest villages of India. It presents a perspective based on my personal experience.

  Chapter 1 describes the demonetization saga as it played out, keeping the nation riveted for months, mostly in queues outside banks! It has the chronology of events in the 50 days that followed the announcement; reactions both in India and from abroad; the motives that were attributed for the move; the key announcements; the daily twists and turns in policy; the nationwide distress and inconvenience; and the mood of the nation as it turned from support to bewilderment, and then to disappointment. This chapter also illustrates how the note ban, presented as a surgical strike on black money and corruption, instead turned out to be more like a carpet-bombing of the Indian people and our economy.

  Chapter 2 discusses the part played by the RBI. Since the RBI has been reluctant to disclose information pertaining to the demonetization decision, this chapter pieces together, from information in the public domain, answers to questions such as when did the planning start; the role of Governors Raghuram G. Rajan and Urjit Patel; and the role of the RBI board. The chapter also covers the infamous Demonetization Dividend and the frequent about-turns of policy that led to the RBI being called the ‘Reverse Bank of India’. Issues such as the impact of this note ban on the reputation and credibility of bankers in general and the RBI in particular are analysed, with the benefit of the perspective of former Governors and Deputy Governors. This chapter also questions why, despite clear warnings, the custodian of the Indian currency and guardian of our country’s monetary stability passively agreed to a step that extinguished 86.9 per cent of the Currency in Circulation, without any clear plan or preparation for remonetizing the system.

  What makes this episode of demonetization interesting is that it was preceded by two earlier note bans, both of which failed in achieving the objectives of eliminating black money and corruption.

  Chapter 3 takes a step back into history to look at the story and outcomes of India’s previous demonetization experiments in 1946 and 1978. We also look at the history of similar unsuccessful demonetizations in countries across the world such as Ghana, Myanmar, the erstwhile Soviet Union and North Korea. However, in and of itself, demonetization is not a bad idea. It is merely a tool – well suited in certain specific circumstances, and most effective if planned meticulously and executed efficiently. There are also examples of successful demonetizations and the circumstances under which this policy measure is best used.

  Chapter 4 describes the human impact of the note ban. With the passage of time, it is easy to view such policy measures through the prism of statistics, which disguise the misery, despair and desperation experienced by those who suffered its consequences. This chapter has extracts of stories of Indians from all walks of life and the devastation wreaked by demonetization on their lives. Though government spokespersons have dismissed such reports as ‘anecdotal evidence’, these stories are real and they matter. The picture they paint is one of a monumental catastrophe.

  Chapter 5 analyses the economic impact – both in terms of the immediate cost demonetization imposed on the economy and its more long-lasting effects. As data emerged, the government reluctantly acknowledged that there had been some limited adverse impact of the note ban, but insisted that this was, and would remain, only transient. While only time will disclose the long-term impact of this move, evidence points to a clear fall in GDP over two consecutive years, significant job losses, and declining investment.

  In fairness, any policy measure should be judged against the objectives that it had set out to achieve. Though it is clear that demonetization caused great disruption and distress to millions of Indians and delivered a massive shock to the Indian economy, d
id it achieve any of its stated goals?

  Chapter 6 presents objective, factual data from Government of India sources to enable the reader to arrive at a conclusion on the Report Card of India’s 2016 note ban.

  Demonetization has been described by some as a courageous and visionary step; by others as a reckless gamble; and by its staunchest critics, as a disastrous and badly implemented decision, which instead of flushing out black money, became a massive money laundering exercise.

  I hope the objective and factual analysis of what, on evidence, should be called India’s infamous demonetization, and the stories of the human suffering and drama that ensued from this decision, will help the reader in arriving at a conclusion on its consequences, on India’s economy and politics.

  1

  The Surgical Strike

  The road to hell is paved with good intentions…

  – Attributed variously to Samuel Johnson, John Ray, and Saint Bernard of Clairvaux

  The story of demonetization reads like a thriller. It is a saga which had kept the nation riveted – in queues outside moneyless banks and ATMs.

  It was far worse than a run on a bank. Hundreds of millions of Indians were forced to drop everything to stand in bank queues from early morning, often to return home empty-handed and exhausted at the end of the day. Work came to a halt across the country as people struggled to withdraw the basic amounts needed to be able to eat and live.

  The key protagonists and their roles, the almost daily twists and turns in policy, the nationwide distress and inconvenience, the sting operations and raids on hoarders of black money and corrupt bankers – all made for fascinating copy and viewing, except for those whose livelihood it wiped out.

  It was a bleak and overcast day in Delhi. We had arrived in the city from Mumbai by the Rajdhani Express on the morning of 8 November 2016. We were on a pilgrimage of sorts. My mother wished to visit the holy shrines of Salim Chishti in Ajmer, the Brahma temple in Pushkar, and the Gurdwara of Guru Gobind Singh in Gurdaspur. Delhi was to be our base. The smog and pollution that greeted us on our arrival, making breathing difficult, were, perhaps, a dire precursor of the events that were about to unfold.

  My attention, like that of millions across the world, was focussed on the Clinton vs. Trump US presidential election, the result of which was to be announced that night. Through my interactions with her, I had grown to respect and admire Hillary Clinton greatly. Sitting glued to the television, I was hoping she would breach the glass ceiling and enter the White House.

  As early reports of the US elections started coming in, there was a newsflash, signalling an important announcement by Prime Minister Narendra Modi, at 8 p.m. As his broadcast began, all thoughts of the momentous US elections were pushed to the background. We were stunned to hear Prime Minister Modi announce, first in Hindi and then in English, that from the midnight on 8 November 2016, India’s `1,000 and 500 notes would be no longer legal tender and would become worthless pieces of paper.

  Many swiftly dubbed the move as a ‘surgical strike’, in apparent reference to the attack conducted by the Indian Army a few weeks earlier against terrorist bases in Pakistan-occupied Kashmir.1

  It was a dramatic announcement, salient excerpts of which are below (see full text of the Prime Minister’s speech in Appendix 1):

  The evil of corruption has been spread by certain sections of society for their selfish interest. They have ignored the poor and cornered benefits. Some people have misused their office for personal gain.

  ˜

  There comes a time in the history of a country’s development when a need is felt for a strong and decisive step. For years, this country has felt that corruption, black money, and terrorism are festering sores, holding us back in the race towards development.

  ˜

  To break the grip of corruption and black money, we have decided that the 500 rupee and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8 November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The 500 and 1,000 rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.

  Summarizing the objectives of the move, the Prime Minister said, ‘This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency.’ And in words reminiscent of former Prime Minister Jawaharlal Nehru, he added, ‘In a country’s history, there come moments when every person feels he too should be part of that moment, that he too should make his contribution to the country’s progress. Such moments come but rarely…’

  As people tried to weigh the implications of his message, phones across the country began ringing off the hook.

  Many of India’s high net worth individuals acted swiftly. Luxury malls sent messages to their regular customers that their doors would remain open till midnight. It is believed that more haute couture designer bags, shoes, clothes, watches and jewellery were sold in the next few hours than on any previous day in India. The stocks of many of these high value items were completely exhausted as people spent their money liberally before it turned ‘worthless’ the next morning.

  At the other end of the spectrum, the poor worried about how they would convert the meagre cash they had into useable notes. As banks opened, like thousands of others, my 82-year-old mother and I went on 11 November to the nearest bank, to join the queues to exchange our money into usable currency, for our upcoming pilgrimage. Our auto driver said that he’d never felt so poor. ‘Didi, mere paas 5,000 rupiye they, par mujhe do din bhuka sona pada.’ He had `5,000 in cash but had to sleep hungry for two nights as banks and ATMs had neither started exchanging notes nor dispensing the ‘new’ cash and no one was willing to accept the now worthless old notes.

  As per RBI instructions, banks had remained closed on 9 November and ATMs on both 9 and 10 November to help bank staff gear up for the tsunami of cash deposits and withdrawals that was about to hit them. As the nation scrambled to obtain cash, serpentine queues formed outside every bank in the country. Bankers did their best to cope, but were often flummoxed by the frequently changing rules and guidelines. Between 8 November and 30 December, no less than 63 circulars pertaining to the note ban were issued by RBI. These circulars, which refer to demonetization as ‘Withdrawal of Legal Tender Character of existing `500/- and `1,000/- Bank Notes’ (or Specified Bank Notes – SBNs) are fascinating for the picture they present of the muddled and confused implementation of the note ban.

  As the queues lengthened and the chaos continued, it became painfully clear that no one was in charge. The RBI Governor Urjit Patel was conspicuous by his silence, as were Finance Minister Arun Jaitley, the Chief Economic Advisor Arvind Subramanian, and the NITI Aayog Vice Chairman Arvind Panagariya.

  Whether by design or happenstance, the RBI issued `2,000 notes before they started the real remonetization. This caused much controversy and some embarrassment to the government. On the one hand, the objective of demonetization was stated to be the removal of black money held as cash. On the other, the `2,000 notes released, because they were of the higher denomination, made stashing and caching money easier for black money hoarders, while making life more difficult for honest citizens who found it impossible to use as there was no one willing to give change in lieu. The eminent economist Bibek Debroy, member of NITI Aayog, had to step in to defend the government, saying on television that this denomination was chosen since ATMs could only store limited notes.2

  To add to the confusion, videos and messages began to circulate on social media, first stating that the new `2,000 notes had special security features such as an embedded nano GPS chip that would enable authorities to track and catch hoarders of black money. Then there were messages circulated on social media about a smartphone app that could ostensibly confirm if the new `2,000 bills were genuine or counterfeit. If you scanned them with your camera phone, and if the bills were real, a speech by the Prime Ministe
r would start playing!

  Other posts showed new notes with obvious printing defects and running colour. This led to fears that the new notes in circulation could be counterfeit.3 In an attempt to provide clarity, the Economic Affairs Secretary, Shaktikanta Das, went on national television to state that the new notes had no additional security features, thus trying to dispel the rumours on the GPS nano chips and the ‘triggered’ Prime Minister’s speech. This was followed by the ludicrous comment that if the colour did not run on a new `2,000 note, it was a sign that it could be fake.4 Unfortunately, these announcements only added to the confusion.

  The West Bengal Chief Minister and leader of Trinamool Congress, Mamata Banerjee, and the Delhi Chief Minister and leader of the AAP, Arvind Kejriwal, were the first opposition leaders to stringently criticize the move, citing the devastating effects it was having on the poorest citizens of the country.

  In an effort to regain the confidence of the people, the Prime Minister made a highly emotive speech, in Hindi, on 13 November in Goa, asking people to grant him 50 days to restore normalcy.

  Excerpts from his speech (emphases in this and all subsequent quotes have been added by me):5

  Brothers and sisters, I was not born to capture power. My dear countrymen, I have left my home, my family, everything for the nation … I constituted a small team 10 months ago to execute a big operation. It was a humongous task, to print currency notes, distributing them to different banks. We had to keep it under wraps very carefully because the corrupt have strong sources within the government. If the information got leaked, they would have settled their accounts.