Narendra Modi has executed a midnight coup. He decreed that 85 per cent of the cash we have in our pockets, wallets, lockers and under the pillows would be trash from November 8-9 midnight.
The beauty of the move was in its dramatics. The men who mint our money and manage our economy had been working on this for three months, even printing new notes and carting them to banks without a soul getting any wiser. When everything was ready, Modi made a dramatic nightly appearance, much like Atal B. Vajpayee did on that May 1998 afternoon, and told us that most of our cash would be trash in three hours.
Our rulers have trashed our cash twice in recent times. Morarji Desai scrapped all 500-, 1,000-, and 10,000-rupee notes in 1978, and told us to 'keep the change'. The 500s came back in 1987 and the 1,000s in 2000.
Modi has been kinder. Cash-scrapping this time won't leave us cash-strapped. Modi has arranged for banks and ATMs to give us new notes for old. If the offer sounds like the wicked wizard's in Aladdin and the Magic Lamp, so be it.
The next was Manmohan Singh's demonetisation in early 2014. He did it so quietly that most people don't remember it. In early 2014 he scrapped all 500s printed before 2005, and gave new notes for old. In the process, he pushed out a lot of bad notes said to have been minted in Peshawar under ISI eyes.
Yet a lot remained. Our own ISI (don't get me wrong; it's the Indian Statistical Institute) estimates that 250 out of every 10 lakh notes in circulation are fake. Apart from funding their terror tricks in India, the Pak ISI also makes some pin money from their mint. It costs our RBI Rs 29 to print a 1,000-rupee note, and the Pak ISI Rs 39. The latter sells the note for Rs 350 to 400. From the volume of trade, our R&AW estimates that the Pak ISI makes a modest profit of Rs 500 crore a year.
Modi's goals are threefold. One, push out the Peshawari cash along with the Kalashnikovs. The Peshawar mints will take a while to copy-print our new notes.
Illustration: Deni Lal
Two, dig out black money, which was a poll promise of his. He had made a back-of-the-envelope calculation that the money in the Swiss accounts would be enough to fill each of our Aadhaar accounts with two lakh rupees. But after he came to power, he has been writing off the bad debts of moneybags. His amnesty scheme, which closed a month ago, unearthed Rs 60,000 crore of bad money which, taxmen say, is just a tip of the iceberg.
Now Modi has moved with boldness. Whether the move will dig out black money is to be seen. For, most of the black wealth is secreted in real estate and regal metals. When that money comes out, it may be shining white or in gold.
The third goal—the real one—is less prosecutional and more administrative. Modi wants to make Indians deal less in cash, and more on cards and other electronic means.
India is the world's largest cash cow, literally and figuratively. There are larger economies than ours, but they trade less in cash and more through e-ways. One-eighth of our GDP is floating as cash, whereas most economies keep only one-sixteenth in cash.
Modi wants to change this. First he strengthened the direct-benefit schemes of Manmohan, and has been bank-rolling the poor, literally. Then he launched the Jan-Dhan scheme to bank the unbanked. Now he is wielding the stick and telling us to e-deal more and cash-deal less.
Fine! In that case, shouldn't he have made it unwieldy for us to carry cash? The richer and smart-moneyed Americans don't have a bill bigger than $100. The British, who keep more money of the rest of the world than anyone else (London is still the world's banking hub), don't have anything larger than £50 in their wallets. Nor have the Europeans anything larger than ¤50.
And here is Modi offering us 2,000-rupee notes! Why?
prasannan@theweek.in
