The history of the Indian economy shall forever be a tale of two eras: Before Cash (BC) and After Demonetisation (AD). This comic slant on demonetisation, going viral on social media, isn’t bananas. Lest we forget: Never quite has a government policy post-1947 touched so many Indians so intimately. And if prime minister Narendra Modi has his way, never again shall India enact its economy the same way. The historical analogy isn’t outlandish: Nov. 08 really is Dec. 25.
A parliamentary spectacle
The winter session of parliament began a week after the policy was unveiled. It broke up a month later. In between, members had weeks to vicariously air the people’s angst, to confront, to demand, to defend. Instead, we were greeted to a din. Parties haggled over rules: Must Modi speak? Must he apologise? Must the houses only talk? Or talk and vote, too? Members talked endlessly about why they shouldn’t. It was a spectacle of debates—to impede a debate.
The inanity upset president Pranab Mukherjee, and he wore his frustrations aloud. “For god’s sake, do your job,” he vented at the people’s deputies. “The houses must debate, not disrupt.” Lal Krishna Advani, a parliamentary veteran groomed in decorous dealings, too, agonised at the shenanigans. Resigning from the lower house was on his mind, a pained Advani revealed.
All this was too little, very late. The chambers left for their winter break, and an unparalleled policy, its immediate anxieties and ultimate legacies, invited no accountability. Peer into parliamentary annals in future and plain, wasted pages shall stare back.
Things weren’t always this way.
Demonetisation: The 1978 edition
India’s first date with demonetisation, 1946, was an alien affair: The Raj ruled, and the constitution hadn’t been constituted. But the second, 1978, was different—it was an Indian drama, scripted by personalities, and under rules, we are conversant with.
How was it done?
Around 6pm on Jan. 16, 1978, prime minister Morarji Desai’s office dialled a flurry of numbers. Cabinet ministers hurried to his residence unaware of what lay in wait. Desai held fort for about an hour. At 9pm, the All India Radio aired a bulletin: The president had signed the High Denomination Bank Notes (Demonitisation) Ordinance, 1978, into effect.
The law was a manual of instructions. Three high-denomination notes—Rs1,000 ($34 at 1978 rates), Rs5,000 ($173) and Rs10,000 ($340)—were declared illegal tender. There were about 1.35 million of them, the Reserve Bank of India reported. They totalled just about 1% of the currency in circulation, and so greased an infinitesimal slice of the people: the proverbial 1%. Two days, and 71 branches across India, is all they had to wash off the grease.
The day after, Jan. 17, was made a bank holiday. Banks had to inventory notes already in their possession and log new deposits sincerely. Violations would attract prison terms, the law warned.
Why was the step taken? The ordinance spoke in bureaucratic legalese: “Illicit transfer of money”; “transactions harmful to the national economy”; “illegal purposes”; “public interest.”
A Times of India report ventured an English translation: Black money. Aberrantly high agricultural prices meant hoarding meant black money. Top, anonymous politicians with shadowy wealth meant black money. State elections in Feb. 1978 would have meant more black money. The ordinance gunned for these.
The report offered a guarded tone. A small impact on prices would mean operators hoarded in small notes. Or the hoards themselves were small. Most black money already stood rehabilitated elsewhere: in real estate, gold, and jewellery. Sounds familiar?
Impatient queues snaked out of metropole branches. Bombay saw a maddening rush, Delhi too. Anger. Bedlam. Chaos. It was all there. Unrehearsed in mob control, banks turned to the police. Staff worked late into dusk processing deposits and declarations. But hundreds still awaited their turn. The crush of people proved too much. A reluctant government prolonged the deadline: Jan. 25. Sounds familiar?
Demonetised notes were of especially high value. Did so many Indians really own them? Bankers knew better. Those presenting one or two 1,000-rupee notes could hardly be genuine owners, they grumbled. The Times of India wryly pointed out: Some have-nots had momentarily become “have-notes.” Clearly, they were on rent, helping clean the grease for a fee—or coerced into it. Sounds familiar, again?
Parliament convened on Feb. 20, 1978. A month later, Mar. 21, the lower house parleyed on the ordinance. Two days later, Mar. 23, it landed in the upper house.
Hirubhai M. Patel, India’s first non-Congress finance minister, introduced the measure, now in bill form. Ten members, six of the opposition and four from the ruling coalition, battled the minister. They fired a litany of charges.
One, the move was coloured by illicit motives: It defanged finances of political opponents. AIADMK member CN Visvanathan shot straight and loud: “Why was the step taken before the elections in six states, especially Andhra and Karnataka?” The bill would “stop financiers of political parties from contributing to them,” he alleged, not illegal transactions.
Two, the policy didn’t go far enough: 100-rupee notes also needed this shock. The NN Wanchoo committee, 1970, recommended this, and members took their cue from it. K Lakkappa, a southern Congressman, belaboured the point: “We have been urging for a long time not only this government but also the previous government to implement… the Wanchoo committee report.” “We should start in right earnest to implement [it] in full,” he pleaded.
Three, the move was a half-measure, a piecemeal: It was blind to “monopolists,” smugglers, hoarders, and their ilk. Crooks got away easy. Shyamprasanna Bhattacharyya, a Bengali communist, offered local insight. Black-marketeers in Calcutta got wind of the decision, he told the house. “They took sufficient precautions to go to various areas and asked the panwallas and other poor persons to go to the banks and get [the notes] changed.” Ingenuity is a human condition.
Four, the rules performed poorly: Penal laws weren’t fully read out to false declarants and their bank enablers. Vayalar Ravi, also a Congressman, alluded to this. “There are reports that in Calcutta and Bombay, many bank managers used to convert and change the high-denomination notes through back-door methods,” he informed the speaker.
Above all, it was a stunt, a “hoax,” some members charged. In the upper house, Sanat Raha, another Bengali communist, was biting. The ordinance was all about publicity, not performance, he pronounced. “The publicity was meant as a political stunt—the government [simply] wanted to give some radical ideas.”
Opposition parties, it seemed, wanted none of the demonetisation, some of it, more of it—all at once. Their claims hardly cohered. Yet, they performed a sincere script: contest the policy, quiz the minister, educe replies, proffer alternatives.
The bill wasn’t perfect—far from it. But parties saw past the sharp exchanges and lent their numbers. They supported the bill. Sounds unfamiliar?
The lost art of governance
Desai’s demonetisation drive, his execution, its aftermath, foretold much. Scraping 2% of currency notes had induced a crush. 85% will unleash a cataclysm: The banking network will crash. The corrupt will scheme. Bankers will aid in it. The impoverished, their time, and their accounts will be rented to park the shadowy wealth.
These lessons hid in candid sight. But it had no learners, not least the architects of the 2016 edition. They never tunnelled back in time, it seems; never dusted off the archives. They should have. Ignorance is foul, willful ignorance a felony.
And parliament, too, engaged in a polite, robust exchange. The finance minister briefed the houses. The prime minister didn’t speak; no one demanded he do.
There was passion, of course. Muscular indictments, allegations of malice—the debates had them all. But no one invented slights or exacted apologies, not Patel, not the opposition. No one drowned the houses in shouts, disrupted proceedings, or damaged its decorum. Rules were known, and followed. The chambers had a purpose, and members fathomed it.
Now archaic idioms of our parliamentary lexicon, balance, proportion, even maturity, were still on display then. The opposition contested Patel’s claims and weighed his retorts. On balance, the policy made sense, they decided. So, they supported it.
The legislative branch wasn’t a theatre of the absurd yet. Melodrama wasn’t a deliberative art yet. The silly season of disruption hadn’t descended on the parliamentary calendar yet.
It was a different era.
The 1978 demonetisation vault had much to offer. The Modi government, had it gazed in, would have learned what not to do. Parliament, its two houses, would have learned what to do. They didn’t. They learned nothing from it, and India is paying for it.
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