Demonetisation: Who knew and kept it a secret?

New Delhi, December 9 

Prime Minister Narendra Modi handpicked a trusted bureaucrat, little known outside India’s financial circles, to spearhead a radical move to abolish 86% of the country’s cash overnight and take aim at the huge shadow economy.

Hasmukh Adhia, the bureaucrat, and five others privy to the plan were sworn to utmost secrecy, say sources with knowledge of the matter. They were supported by a young team of researchers working in two rooms at Modi’s New Delhi residence, as he plotted his boldest reform since coming to power in 2014. The secrecy was aimed at outflanking those who might profit from prior knowledge, by pouring cash into gold, property and other assets and hide illicit wealth.

While some advocates say the scrapping of the banknotes will bring more money into the banking system and raise tax revenues, millions of Indians are furious at having to queue for hours outside banks to exchange or deposit their old money.

Direct line to Modi

Overseeing the campaign, with support from the backroom team camped out at Modi’s sprawling bungalow in the capital, was Adhia, a top finance ministry official.

Adhia served as Principal Secretary to Modi from 2003-06 when he was Chief Minister of Gujarat, establishing a relationship of trust with his boss.

Adhia was named Revenue Secretary in September 2015, reporting formally to Finance Minister Arun Jaitley. In reality, he had a direct line to Modi and they would speak in their native Gujarati when they met to discuss issues in depth.

‘Biggest, boldest step’

Immediately after the address, Adhia sent a tweet: “This is the biggest and the boldest step by the Government for containing black money.” Over more than a year, Modi commissioned research from officials at the Finance Ministry, the central bank and think-tanks on how to advance his fight against black money, a close aide said.

He demanded answers to questions such as: How quickly India could print new banknotes; how to distribute them; would state banks benefit if they received a rush of new deposits; and who would gain from demonetisation?

The topics were broken up to prevent anyone from joining the dots and concluding that a cash swap was on cards.

Yet for all the planning, Modi and Adhia knew they could not foresee every eventuality, and were willing to move swiftly. In a best-case scenario, in which India’s four banknote presses churned out new 500 and 2,000 rupee notes designed to replace the abolished ones, it would take at least three months to hit that target.

Secrecy paramount

Secrecy was paramount, but clues had been left. Back in April, analysts at SBI said demonetisation of large-denomination notes was possible. The RBI also disclosed in May that it was making preparations for a new series of banknotes that were confirmed in August when it announced it had approved a design for a new 2,000 rupee note. “The plan was to introduce it around November 18, but there was a clear sign that it could get leaked,” said a person requesting anonymity due to the sensitivity of the matter. — Reuters