How did Modi pull off bold ru­pee shake-up?

> The as­sault on ‘black money’ was care­fully planned over six months by a co­terie of the In­dian PM’s ad­vis­ers

The Sun (Malaysia) - - SUNBIZ -

MUM­BAI: Months of plan­ning by a se­lect few sworn to se­crecy and then cash-laden trucks on the streets. But this was no bank rob­bery – rather an au­da­cious plan to is­sue new notes across In­dia.

There are 1.25 bil­lion peo­ple in In­dia but only a hand­ful were aware that on Tues­day night Prime Min­is­ter Naren­dra Modi would an­nounce the shock with­drawal of 500- and 1,000ru­pee (Rs500 and Rs1,000) notes from cir­cu­la­tion.

The as­sault on “black money”, which stunned the coun­try and saw large queues form outside au­to­mated teller ma­chines (ATMs) and banks, was care­fully planned over six months by a co­terie of Modi ad­vis­ers.

The prime min­is­ter had be­come con­vinced in the spring that he needed a head­linesteal­ing move to un­der­line his de­ter­mi­na­tion to check ram­pant tax eva­sion and set­tled on scrapping the two high­est de­nom­i­na­tion bills.

Only Fi­nance Min­is­ter Arun Jait­ley ( pix), the Re­serve Bank of In­dia gov­er­nor and a few close of­fi­cials were in the know un­til the very last minute, ac­cord­ing to In­dian news­pa­per re­ports.

“If se­crecy had failed peo­ple would have in­vested most of their cash in Hawala rack­ets, gold or real es­tate be­fore the an­nounce­ment, wors­en­ing the black money is­sue,” Paras Savla of Mum­bai-based in­vest­ment man­age­ment firm KPB & As­so­ciates told AFP.

The move is part of Modi’s crack­down on so-called black money fi­nan­cial trans­ac­tions in which cash is used to avoid tax. After clos­ing for a day banks started reis­su­ing new 500-ru­pee notes and a new de­nom­i­na­tion of 2,000 ru­pees yes­ter­day.

The Times of In­dia reported that many of Modi’s min­is­ters were only briefed on the plan at a Cabi­net meeting in New Delhi just be­fore he ad­dressed the na­tion. They were then not al­lowed to leave un­til he had fin­ished his speech to pre­vent any un­wanted leak, the pa­per said.

Mean­while, over 1,000km away at a meeting in In­dia’s com­mer­cial cap­i­tal of Mum­bai the RBI was brief­ing bank heads about the plan.

They had been called to the RBI in the morn­ing to re­ceive a locked cur­rency chest which they were told con­tained notes of the new Rs2,000 de­nom­i­na­tion. They were un­der strict in­struc­tions not to open the chest or speak about it un­til later that night, ac­cord­ing to the Mint news­pa­per.

It was when they opened it, as Modi was speak­ing, that they learnt about the new Rs500 note, the pa­per added.

A spokes­woman for the cen­tral bank con­firmed to AFP that the chests were stan­dard pro­ce­dure for the is­su­ing of new notes.

RBI chief Ur­jit Pa­tel has said pro­duc­tion of the new notes had been “ramped up” to meet re­quire­ments but Pradip Shah, who helped set up In­dia’s HDFC bank, said it would be a “night­mare” get­ting money to some ru­ral ar­eas.

“A lot of peo­ple are go­ing to be in­con­ve­nienced,” he said.

With the glare of the world on the US pres­i­den­tial elec­tion, Modi chose to de­liver his bomb­shell an­nounce­ment in a rare ad­dress to the na­tion barely three hours be­fore the or­der to close banks and ATMs came into force.

Once the queues had trudged away from the mil­lions of ATMs around the coun­try with now pre­cious Rs100 bills, the task be­gan of re­fill­ing the ma­chines with the new cur­rency.

Trucks laden with cash started de­liv­er­ing the new cur­rency notes the length and breadth of a coun­try that stretches from the Hi­malayas in the north to the far-flung An­daman Is­lands ar­chi­pel­ago in the Bay of Ben­gal.

Al­most 90% of trans­ac­tions in In­dia are done with cash while Rs500 and Rs1,000 notes cur­rently ac­count for more than 85% of the value of cash in cir­cu­la­tion, ac­cord­ing to re­search firm Cap­i­tal Eco­nomics.

Last week, the RBI had or­dered banks to is­sue more Rs100 notes but no one seemed to have twigged about what was in the off­ing and Modi man­aged to pull off the bold­est stroke of his pre­mier­ship.

Long queues formed outside banks in In­dia yes­ter­day as they re­opened for the first time since the govern­ment’s shock de­ci­sion to with­draw the two largest de­nom­i­na­tion notes from cir­cu­la­tion. – AFP

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