POLICY NIGHTMARE

Timeline: 20 days of demonetisation, Narendra Modi’s biggest gamble with the Indian economy

Quartz india
Quartz india

Twenty days ago, on the evening of Nov. 08, prime minister Narendra Modi declared the Rs500 and Rs1,000 notes—India’s two big currency denominations that account for 86% of the money in circulation by value—invalid from midnight that day.

Millions were left stunned and there has since been a clamour to deposit cash in bank accounts, exchange old notes for new ones, and to withdraw scarce cash from ATMs.

Nearly 70 people, including overworked bank officials, have reportedly died due to causes directly or indirectly related to demonetisation. While many of them died after spending long hours in serpentine queues at banks and ATMs, some reportedly committed suicide out of desperation.

Meanwhile, the exercise is expected to slam the brakes on India’s GDP in the coming months. On Nov. 23, Goldman Sachs revised its forecast for India’s economic growth for this fiscal to 6.8% from the earlier estimate of 7.6%.

While Modi’s gamble has been lauded by some economists, others have criticised its shoddy execution.

Even Anil Bokil, head of Arthakranti Pratishthan, the Pune-based think-tank that reportedly advised Modi on the move, appeared to have washed his hands of it. “This is not what we proposed,” Bokil told The Economic Times newspaper on Nov. 21.

Quartz looks at the various flip-flops the Modi government has made vis a vis demonetisation.

Date What happened
Nov.08 Modi declares the Rs500 and Rs1,000 notes invalid. Exchange of currency up to Rs4,000 allowed at banks, ATM withdrawal limited to Rs2,000.
Nov.10 Banks reopen after a day. Massive queues ensue as millions line up to deposit or exchange old currency.
Nov.12 Deaths attributed to waiting in the queues begin to be reported. The Sensex registers the biggest single-day fall in nine months.
Nov.13 Currency exchange limit raised to Rs4,500 and ATM withdrawal to Rs2,500.
Nov.15 Banks asked to use indelible ink marks on those exchanging money; the election commission raises concerns.
Nov.16 Parliament session begins; opposition parties up the ante against the government over the suffering of the poor.
Nov.17 Currency exchange limit lowered to Rs2,000.
Nov.18 India’s Supreme Court says many are “frantic” over demonetisation.
Nov.22 RBI says banks have received Rs5.3 lakh crore in deposits since Nov.08.
Nov.24 Old notes can now only be deposited at banks and not exchanged.
Nov.27 RBI governor Urjit Patel justifies demonetisation, says the new notes are difficult to counterfeit.

Nov. 08: Narendra Modi announces demonetisation. “The 500 and 1,000 rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper,” he says in an address to the nation. “The rights and the interests of honest, hard-working people will be fully protected.”

The government allows the exchange of old notes worth up to Rs4,000 at banks and RBI counters till Dec. 30, 2016 (pdf). It promises to review the daily limit after 15 days. There is no limit on deposits, though. “The Reserve Bank appeals to members of public to be patient and urges them to exchange their old notes at their convenience, any time before December 30, 2016,” a statement from the RBI says.

Cash withdrawal of up to Rs10,000 over-the-counter (OTC) allowed; Rs20,000 a week is the limit till Nov. 24. ATM withdrawals capped at Rs2,000 a day, but the government promises to raise the limit to Rs4,000 from Nov. 19.

Nov. 09: Banks and government treasuries shut.

Finance minister Arun Jaitley says all the abolished denominations, including the Rs1,000 note, would return with better security features.

Hospitals, pharmacies, railway ticket counters, public business, co-operative milk booths, crematoriums, petrol pumps, and airline ticketing counters at airports are allowed to accept old notes for the next three days.

Nov. 10: The Rs500 and Rs1,000 notes can be used to pay educational fees; they can also be used to clear any charges, taxes, and penalties due to government, municipal, and local bodies, and for utilities such as water and electricity. Some 47 municipalities across India have collected Rs13,192 crore in November, as against Rs3,607 crore in the year-ago period.

As banks and ATMs reopen, long queues in front of them are reported from across the country.

Nov. 13: OTC cash-exchange limit raised to Rs4,500. At ATMs, too, customers are now allowed to withdraw up to Rs2,500 a day. Limit on daily withdrawal through cheques, too, removed. The weekly limit on withdrawals through cheques is now raised to Rs24,000.

ATM usage charges of savings bank customers waived on all transactions till Dec. 30.

The Urdu text on the new Rs2,000 note has an error: it reads bazaar (market) instead of hazaar (thousand), The Times of India reports.

Nov. 14: Exemptions on accepting the old currency to stay until Nov. 24. Even petrol pumps are allowed to accept old notes. Modi meets finance ministry and RBI officials to take stock of demonetisation. Since the new notes are smaller in size than the ones India’s 220,000 ATMs are calibrated to dispense, a special task force to be set up to recalibrate all the teller machines.

Nov. 15: As the length of queues grows and the economy takes a hit due to currency shortage, the government asks banks to apply indelible ink marks on the fingers of people exchanging old notes.

However, India’s election commission, which uses such ink on citizens to avoid polling fraud, raises concerns. In a letter to the finance ministry, it asks the government to ensure that this does not create trouble for the voters of five states going for by-elections.

Nov. 16: Cash deposits of over Rs250,000 to need PAN card. Farmers allowed to withdraw up to Rs25,000 a week against crop loans. Parliament’s month-long winter session begins.

“When the PM was elected, he was elected on a mandate to curb corruption and black money. For the first time, the honest have been honoured and the dishonest have been troubled,” India’s power minister Piyush Goyal says in the Lok Sabha.

The opposition ups the ante. “The dishonest are sleeping peacefully, they don’t have to take sleeping pills as the PM suggested,” Sharad Yadav, leader of the Janata Dal-United, says. “It is the hardworking, hungry people who are made to stand in queues for their own money.”

Nov. 17: Amid concerns of a severe currency shortage at banks, the cash exchange limit is brought down to Rs2,000. Withdrawals of up to Rs250,000 allowed from bank accounts in case of a wedding in the family.

Finance minister Arun Jaitley now says there is no plan to re-introduce the Rs1,000 note.

Nov. 18: RBI sets a cash withdrawal limit of Rs2,000 per day through card-swiping at petrol pumps.

The supreme court refuses to stay the various high court proceedings against demonetisation. “People are affected. People are frantic. People have the right to approach the courts,” a bench comprising India’s chief justice, TS Thakur, says.

Nov. 22: The use of Devanagari numerals on the new Rs2,000 note is questioned by the Madras high court. The PIL to which the court seeks the government’s response wants the new notes declared “invalid” as the Indian constitution does not permit such use of Devanagari numerals.

RBI says banks received Rs5.3 lakh crore in deposits since Nov. 08, with the State Bank of India alone receiving Rs1.2 lakh crore.

Nov. 23: Modi shares the results of a cellphone app-based survey he held a day earlier to gauge the level of public support for demonetisation. Nearly five lakh people respond, of which 92% think it was “very good” or “good.”

Nov. 24: The old notes can now only be deposited in bank accounts and not exchanged. The government had earlier said that old notes worth up to Rs4,000 could be exchanged at banks and RBI counters till Dec. 30. However, now only foreigners are allowed to exchange notes up to Rs5,000 per week.

In parliament, former prime minister Manmohan Singh calls demonetisation “organised loot” and “legalised plunder.”

Nov. 27: After weeks, RBI chairman Urijit Patel breaks his silence, justifies demonetisation.

“People have asked why the new currency introduced was different in size and thickness from the old. This is because the new currency has been designed to make it hard to counterfeit. When you are going to make a change of this magnitude, you need to get the best standards in place,” Patel says.

Meanwhile, following demonetisation, India’s post offices collect around Rs32,631 crore in deposits.

“From November 10 to November 24, we have exchanged 578 lakh notes of value of about Rs3,680 crore. If you look at the deposits, 43.48 crore old Rs500 and Rs1000 notes were accepted as deposits, and their value is about Rs32,631 crore,” BV Sudhakar, the secretary for the department of posts, said on Nov. 27.

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