Three years on, mystery surrounds as to who advised Modi on demonetization

By Rajiv Shah 

Recently it was reported that the Reserve Bank of India (RBI) has stopped printing Rs 2,000 notes. The report said that the “slowdown” in printing the notes – which were widely proclaimed (for unknown reasons, and from unknown sources) as high security because it was claimed they contained a hidden chip which would help the powers-that-be to trace their whereabouts – began about two years ago. Fewer and fewer notes were being printed, and now the printing has just stopped.

Several reasons are being advanced for the “withdrawal”, something that was in the air for quite some time – one of them being it is “easier” to hoard high denomination notes. It was also rumoured that fake Rs 2,000 notes – printed with much fanfare alongside the by now infamous demonetization days of November-December 2016 – are taking rounds in the market. Meanwhile, the ATMs across the country appear to have stopped offering these notes; they mostly offer Rs 500 currency notes.
There was, of course, a positive impact of demonetization at least on me: I stopped using cash wherever debit card is accepted, something I was afraid of doing. Yet, the fact is, as economists would tell you, the step badly affected the informal sector, employing about 75% of the workforce. If Prof Arun Kumar, with whom I interacted a year after demonetization, is to be believed, demonetization pushed down the Indian economic growth to a mere 0-1%, as the informal sector’s growth went into the negative.
Now, there are no dearth economists who say demonetization negatively impacted the economy – ranging from former Prime Minister Manmohan Singh, former RBI governor Raghuram Rajan, former chief economic adviser to the Government of India Arvind Subramanian, and, now, the new Nobel laureate, Abhijit Banerjee. While Rajan resigned ahead of demonetization, Subramanian was bold enough to jot down its negative impact in the annual Economic Survey, which he authored as government adviser.
Soon, it is going to be the third anniversary of demonetization – November 8, 2019. But mystery surrounds as to whose was it to come up with the idea which has allegedly pushed the Indian economy in a relatively bad shape than what it was in 2014, when Prime Minister Narendra Modi took over reins of power. Some months back, I went to the Gujarat government Sachivalaya, and met a top IAS bureaucrat, who, I thought, would surely know whose idea it was.
This bureaucrat, who was always frank during my Times of India days in Gandhinagar (late 1997-early 2013), told me bluntly, he had “no idea.” Yet, I persisted. I asked him if the idea was offered by

Hasmukh Adhia, a Gujarat cadre bureaucrat who served as revenue secretary in November 2016 and was Modi’s principal secretary in Gujarat, and the reply was: “Impossible. Do you think Modi will take his advice?” It was already known, even the two economists, both Arvinds, then working with the government – Subramanian and Panagariya – were not in the know of the demonetization plan. 

Finally, this bureaucrat came up with a name, Anil Bokil, about whom I had not heard. Belonging to Arthkranti, a Pune-based financial “think tank”, Bokil, this bureaucrat suspected, had suggested to Modi “key measure” to contain the flow of black money in economy and banning the big currency notes was one of them. According to one report, Bokil met Modi and gave a presentation on financial reforms and how to contain the flow of black money. One of the suggestions was demonetization. The bureaucrat, however, quipped, “I am not sure… This what reports say.”

Modi "advisers"? Bokil, Ramdev

Three years on, the only thing some of top Gujarat government insiders “confirm” to me is this: That all top moneyed people, known to be close to Amit Shah, were “sounded” about demonetization much ahead of the November 2016 move. They were quietly told to invest all their hard cash in real estate, which they did, “the last being a media baron”, to quote a bureaucrat. Yet, mystery surrounds as to who advised Modi to demonetize, and these insiders still keep guessing.
A few days back, some of these “insiders” are set to have met to enjoy dinner together somewhere around the state capital. Here, an informal chat ensued on the state of the Indian economy and how demonetization affected the country’s growth. While all agreed it had negatively impacted growth, one of them revealed: “During discussions on how to further improve the Gujarat economy, Modi as state chief minister would move over to India’s economy, and suggest demonetization of Rs 500 and Rs 1,000 notes was the only way out.”
This person further revealed: “One of those who knew a little more about economy asked Modi as to who gave him this idea to demonetize Rs 500 and Rs 1,000 denomination notes. And pat came the Modi reply: Baba Ramdev.” I cannot confirm or deny all that was said during this informal chat, during which time drinks may also have been served. For, there are bureaucrats who have bar at their residence, and they open the doors of these bars as and when an “esteemed” guest is to be entertained.
But this is what I was told: All those who had met on dinner agreed that Modi does not understand intricacies of the functioning of the economy, and all efforts to make him grasp them appear to have gone waste. Currently, there are no economic advisers on whom he should bank upon. Even Arvind Panagariya, the only Modi loyalist till date, resigned from his top Niti Aayog post in August 2017 citing bureaucratic interference. Thereafter, he is without any top economic adviser. “All his advises come from an RSS-run foundation run the name of Vivekananda in Delhi”, I was told.
I mentioned this conversation – which lasted till late at night – to a senior academic, whom I have known for quite some time. This academic rued that there is “no good economic adviser with Modi.” Bibek Debroy? I asked the academic. The reply was in a strong no-no. Rajeev Kumar? “He sounds more a politician than an economist nowadays… Even otherwise, among economists, he is rated poorly, not taken seriously”, I was told. The academic added, “The Congress, even in opposition, has better economists… Rahul Gandhi’s NYAY idea may not have clicked during Lok Sabha polls, but it was Abhijit Banerjee’s baby.”