Prime Minister Narendra Modi handpicked a trusted bureaucrat, little known outside financial circles, to spearhead a radical move to abolish 86 percent 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.
When announced, the abolition of high-value banknotes of 500 and 1,000 rupees came as a bolt from the blue.
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.
Previously unreported details of Modi’s handling of the so-called “demonetisation” open a window onto the hands-on role he played in implementing a key policy, and how he was willing to act quickly even when the risks were high.
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.
Labourers have also been unpaid and produce has rotted in markets as cash stopped changing hands. Not enough replacement notes were printed in preparation for the upheaval, and it could take months for things to return to normal.
With Uttar Pradesh holding an election in early 2017 that could decide Modi’s chances of a second term in office, there is little time for the hoped-for benefits of his cash swap to outweigh short-term pain.
Modi has staked his reputation and popularity on the move. “I have done all the research and, if it fails, then I am to blame,” Modi told a cabinet meeting on November 8 shortly before the move was announced, according to three ministers who attended.
Some officials in the finance ministry had expressed doubts about scrapping high-value notes when the idea came up for discussion. They now feel resentment at the secrecy in which Adhia rammed through the plan on Modi’s orders.
They also say the plan was flawed because of a failure to ramp up printing of new notes ahead of time.
Other critics say the Adhia team fell prey to a form of “group think” that ignored outside advice.
In the words of one former top official who has worked at the finance ministry and RBI: “They don’t know what’s happening in the real world.”