PM Modi’s masterstroke: How the ‘strike’ against black money unfolded

When the Army Chief Dalbir Singh, Navy Chief Sunil Lanba and the Indian Air Force Vice Chief B. S. Dhanoa arrived to meet Prime Minister Narendra Modi at his office around 2 pm on Tuesday, they had expected to receive orders to launch a punitive action against Pakistan. But the meeting, where National Security Advisor Ajit Doval was also present, turned into a routine one with the PM asking for a briefing on the situation along the LoC, international border (IB) and the preparedness of the Armed Forces amid ceasefire violations after the surgical strikes in September.

Their apprehensions were not unfounded. For many days now, top officials from the finance ministry and Reserve Bank of India (RBI) had been quarantined in a highly secretive portion of South Block, the seat of the defence ministry, away from the prying eyes of outsiders and journalists. Rumours were flying fast that these officials at this secret place were on a mission assessing and analysing the costs of strikes against Pakistan.

Top sources here told DNA that the idea to demonetise Rs 500 and Rs 1,000 notes had originated last June, when a report from the financial intelligence service concluded that the government’s scheme running till September 30, to unearth black money, would yield a paltry Rs 3,000 to Rs 4,000 crore. This is when an old proposal submitted by the Central Board of Direct Taxes (DoBT) to then Finance Minister Pranab Mukherjee in 2012 was taken out of the shelves, dusted and read.  Taking note of these proposals, Prime Minister Narendra Modi acted on them.

Such a dramatic address, as the Prime Minister made to the nation on Tuesday, should have not come as a surprise. Earlier too, the PM had made his intentions clear in a televised interview to a leading channel in September. He had said then: “No one should blame me if I take tough decisions after the 30th (of September). This money belongs to the country's poor. No one has the right to loot this. This is my commitment. I am working with full force and will continue the effort (to act on black money),” he said.

The planning for this ‘strike’ against black money was kept a well guarded secret. Even the PM’s cabinet ministers and other officials in the Finance Ministry were kept completely in the dark and were only informed of the plan shortly before Tuesday's address. But they were not allowed to leave the room, where the cabinet meeting had been held, till the prime minister had finished his address.

In the run-up to the PM’s declaration, the concerned officers were asked to prepare notes themselves, instead of depending on juniors, to avoid any leak of sensitive information. It is believed that the PM, while calling on President Pranab Mukherjee on October 1— to brief him about surgical strikes across the LoC— had broached the subject and asked for his guidance.

It is not known what the President said to the PM but one can suspect he was enthusiastic about the idea. In fact, Mukherjee, as a finance minister in the UPA government, had taken this proposal to then Prime Minister Manmohan Singh, who, after a series of meetings, had shot it down.

Senior Congress leader and former finance minister P. Chidambaram, who had succeeded Mukherjee admitted on Wednesday that such suggestions had come to the UPA government. “Yes, from time to time, suggestions were given on high denomination notes but it was then felt that perhaps the economic gains from this  would not be so great,” he said. An acclaimed economist himself, former PM Manmohan Singh perhaps felt that the inconvenience caused to the common man would outweigh the economic gains.

Sources from within the Congress party said, it was then felt that the economic activity would contract further in the country which was already under a spell of low growth.

Once the quarantined officials reported on Tuesday morning that they had placed things in order, the notification was printed in the basement of the finance ministry in North Block— the same press where Union Budget is printed.  In fact, in the preparation and printing of the Union Budget, around 100 officials remain locked up in North Block office till the Budget has been presented.

But while the Congress may have considered this proposal while it was in government, it was certainly opposing them now. Congress vice-president Rahul Gandhi said in his tweets, the move was creating utter chaos for the common man.

In one tweet he said. “Once again MrModi shows hw little he cares abt ordinary ppl of this country-farmers, small shopkeepers,housewives-all thrown into utter chaos.”

At a press conference on Wednesday, senior Congress leader P Chidambaram stressed that the timing of the decision was wrong, particularly when it came just ahead of the month long marriage season across the country from November 15. Chidambaram said,  “The introduction of new series of notes is estimated to cost between Rs 15,000-20,000 crore and hence the economic gains of demonetisation should be at least equal to that amount.”

The former Finance Minister also pointed out that he hoped the decision would not meet the fate of another move introduced in 1978 by the then Janata government. The government had then removed high denomination notes —Rs 1,000, Rs 5,000 and Rs 10,000— but this had failed to achieve its objective, as these notes were re-introduced shortly afterwards and the volume of unaccounted wealth and income was believed to have increased.

On the other side, the BJP is hailing Prime Minister Modi for his “master stroke” in removing black money. However senior BJP leaders told DNA privately that they were worried over the decision and its possible fallout on the upcoming Assembly elections. These leaders said they hoped that the PM’s decision would not create panic, particularly in villages where the banking system is in its infancy and cash is much required. It remain to be seen how such people adjust to life with the new currency notes and how this move will impact the PM’s image, in the months to come.