Let us see what governments had done in the past. A few months after the NDA government led by Atal Behari Vajpayee came to power in May, 1998, the then Finance Minister Yashwant Sinha had to address concerns relating to the growing demand for fresh currency notes. High value note of Rs, 1,000, 5,000 and 10,000 had been demonetised almost two decades ago. The Reserve Bank of India was sounded out, and the plan received support from some of the big industry chiefs on bank’s board. That’s when the government of the day decided to undo what Morarji Desai Government had done in 1978—and go ahead with a law to bring back Rs. 1,000 notes. Sinha told the Lok Sabha on December 9, 1998 that he was certain that law makers would share his view that the root use to illegal transaction lay not in notes of high denomination, but elsewhere.

It’s not as though this issue wasn’t recognized earlier. In 1987-- when Prime Minister Rajiv Gandhi also held the finance portfolio—government introduced notes of Rs. 500 denomination. When P V Narasimha Rao was Prime Minister, a joint secretary in-charge of the coins and currency division in the Finance Ministry had made out a case for bringing high notes—only to be rejected by PM.

Indeed, the problem of ensuring an adequate supply of notes was an issue in 70s and also in the run up to demonetisation of January, 1978. For, two months before the decision to do away with Rs. 1000, 5000 and 10,000 notes, the central bank had told the government to consider replacing old machines at the currency mint in Nasik.

When H M Patel, Finance Minister in the Janata government and a former principal secretary, informed RBI governor I G Patel of the decision to demonetize high denomination notes, the governor was not in favour. He told the finance minister that such exercises hardly produced any striking results, I G Patel had written in his autobiography.

“Most people who accept illegal gratification or otherwise recipient of black money do not keep their ill-gotten earnings in the form of currency for long. The idea that black money or wealth held in form of notes tucked away in suitcases or pillow cases is naïve. And in any case even those who are caught napping-- or waiting—will have the chance to convert the notes through paid agents as some provision has to be made to convert at par notes tendered in small amounts for which explanations cannot be reasonably sought. But the gesture had to be made and produced much work and little gain”, Patel wrote.

Prime Minister Modi came under criticism from various quarters. From his own party, former disinvestment minister, Arun Shourie, came out strongly against the government’s demonetisation move and said while the stated objective may be good, the idea was not well thought out.

With the Prime Minister strongly defending the demonetisation of Rs. 500 and Rs. 1000 currency notes, there is no denying that the move is a high stake political gamble for the BJP. Though aimed at fighting black money and counterfeit currency, the exercise has also caused much hardship to the common man. Aside from long queues at banks and ATMs, people facing medical emergencies or planning weddings have been hit hard by the cash crunch. The situation is worse in small towns and villages where banking penetration is weak.

Yet, despite the inconvenience caused, the public initially were supportive of the move but now they are getting desperate. They thought the measure would help in eradicating corruption. But if cash flow is not normalized soon and queues at banks and ATM remain long, people may rise in revolt and take recourse to violence.

The move could alienate a core support base for BJP; small traders and businessmen who deal in cash. In recent days they have seen their supply chains dry and customers dwindle up for want of liquidity. The pain cannot be sustained for long. (IPA Service)