As RBI Governor Urjit Patel landed in New Delhi and headed to north block, he was perhaps thinking about the RBI board meeting that would be convened that evening and the reactions it would evoke.
The corridors of north block that houses finance ministry were teeming with journalists. Not known to be media friendly, the journalists did not hound him for a sound bite as he walked into the office of the economic affairs secretary.
It was November 8 and no one had a clue about what would ensue. In fact, only a select group of bureaucrats knew about Prime Minister Narendra Modi’s televised address to the nation wherein he would demonetise ₹500 and ₹1,000 notes.
In an RTI response, the RBI said the decision to scrap the banknotes was approved in the board meeting that took place at 5:30pm. The decision was then taken to the cabinet for vetting.
“When I went to the cabinet meeting, I had no idea such a big move would be announced.
“The finance minister winked at me and smirked. That’s when I realised something is on,” power minister Piyush Goyal revealed at the HT Leadership Summit.
Most cabinet ministers, too, had no idea about the decision. In fact, they were asked to switch off their cell phones at the meeting.
Top bankers on condition of anonymity say they heard about the note ban on TV. “I was attending a party and had no clue about the announcement,” said a public bank chief.
Similarly another bank chief said, “We had absolutely no idea. I got a few messages when I turned on the TV. We didn’t know what to do once the banks reopened on November 10.”
But the next morning, bank officials found their currency chest stacked with new ₹2,000 notes. “We were relieved but knew it was not enough to meet the demands of the customers who had queued up outside banks since early morning. But our customers have been extremely patient and understanding,” said the bank chief.
Banks needed to re-organise their staff to meet the challenge. The number of transactions at bank teller counters had declined dramatically after the mushrooming of the ATMs.
But the RBI or the government was not so lucky. What followed in the weeks after the demonetisation, was mayhem. Fifty days on, the queues outside banks and ATMs might have got smaller, but the cash crunch continues.
The RBI and the government have been criticised for their lack of preparedness and the numerous policy flip-flops during the demonetisation drive.
The drive led to an acute cash crunch. People had to wait for hours to withdraw cash. The country’s 2.2 lakh ATMs needed to be recalibrated for the new currency notes. This took more than three weeks.
So, while people were eligible to withdraw ₹2,500 per day from the ATMs, more than 90% of the machines did not work in the first few weeks. The government and the RBI even had to airdrop cash in several remote places of the country.
Research reports show the scrapping of 86% of bank notes in circulation has led to a slowdown in demand in Asia’s third-largest economy.
A report by SBI Research said it might take India another quarter to return to normalcy. At the end of February, 78-88% of the notes could be back into the system under the best case scenario, wherein currency distribution is optimal, said the report released earlier this month.
While announcing the note ban, Modi had said they aimed to curb black money. But experts have pointed out that black money circulating in cash would be a very minuscule part of the illegitimate wealth that makes up India’s parallel economy.
“Its economics (demonetisation) is complex and the collateral damage is likely to far outstrip the benefits,” former economic adviser to the finance minister, Kaushik Basu, had tweeted.
“To curb black money through demonetisation is like pulling out a double barrel gun to kill a mosquito,” said a top tax official on condition of anonymity.
While data from the tax department shows overwhelming success in unearthing black money in the past 50 days, many question whether the death of over 80 people, trying to access their own hard-earned money, was too big a price to pay.