BOOKS: THE DEMON THAT NO ONE NEEDED
All governments make mistakes. Mostly, these consist of a series of small ones whose effects are localised. But at 8 pm on November 8, 2016, the Modi government made a gigantic blunder, which had economy-wide effects: it rendered 86 per cent of the Indian currency invalid. The effect was the same as suddenly taking out 86 per cent of engine oil: the motor seized up.
As Winston Churchill might have said, never had so many been made so miserable by so few. The RBI recently reported that 97 per cent of the currency had come back which means that only the non-black money holders suffered. The decision to demonetise on such a scale thus neither had, nor has, any justification whatsoever.
Meera Sanyal, banker-turnedpolitician, tells us about it in this smart little book. It is essentially a well-crafted summary of much of the analysis that followed demonetisation. For anyone looking for a quick random walk through all the discussion, this is the book. It is simply written and wellorganised. Above all, it is the banker, not the politician, speaking except in the sarcastic heading of the first chapter called ‘The Surgical Strike’.
Four of the remaining five chapters discuss the role of the Reserve Bank of India (RBI), the human impact, the economic shock and finally, a comprehensive and entirely uncomplimentary report card. Much of what these chapters contain is well-known, but only to experts. The fifth takes the reader through a brief history of demonetisations and shows how it simply never works, anywhere, any time. Given this, the only rational explanation for doing it is an attempt by governments to disarm adversaries. Whether it was the 1946 demonetisation by the British, just before the pre-Independence national election later that year; or the one in 1978, which some said was aimed at Indira Gandhi’s alleged cash hoard; or in Burma or Ghana or Zaire or Russia after the collapse of the Soviet Union, this was one of the two common threads. The other was that it never achieved its stated aims.
Chapter two discusses the role of the RBI, which had always, in 1946 and in 1978, been dead opposed to demonetisation. So was Raghuram Rajan in 2016. He demitted office as governor two months before Modi made his speech and Urjit Patel was made to take the blame after being instructed to do so with veiled references to the now famous Section 7 of the RBI Act, which allows the government to literally order the RBI to do something. This suggests that he, too, was opposed to demonetisation.
The only disappointing chapter in the book is the concluding one which is all too brief, a mere five pages. That said, the 41 pages of end notes provide a valuable source of references for researchers. They contain several hidden gems such a Business Today report that says the PM told the cabinet that if demonetisation failed, he would be to blame. Hmm… Indeed.