Modiconomics:How did PM Narendra Modi’s play his tantra against black money hoarders and tax evaders

NEW DELHI,Nov11: When Prime Minister Narendra Modi announced the shock withdrawal of 500 and 1,000 rupee notes circulation, just a handful of people were not surprised.

As part of a group of advisors, they had spent six months carefully planning the biggest attempt ever in India to check black money.

The Prime Minister had become convinced in the spring that he needed a headline-stealing move to underline his determination to check rampant tax evasion and settled on scrapping the two highest denomination bills.

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

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

Many 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 1,000 kilometres away at a meeting in 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 2,000 rupee 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 PM Modi was speaking, that they learnt about the new 500 rupee note, the paper added.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 told news agency AFP.

With the glare of the world on the US election, PM 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 100-rupee bills, the task began of refilling the machines with the new currency.

Trucks laden with cash started delivering the notes the length and breadth of the country.

Almost 90 percent of transactions in India are done with cash while 500 and 1,000 notes currently account for more than 85 percent of the value of cash in circulation, according to research firm Capital Economics.

Last week, the RBI had ordered banks to issue more 100 rupee notes but no one seemed to have seen what was coming.

Top