The making and unmaking of the note

Bad memories are not easy to live down. Demonetisation is one of these memories, etched into the psyche of the nation as a step that led to widespread disruption, the loss of lives and the derailment of the Indian economy. So, it’s not surprising that the withdrawal of the Rs. 2,000 denomination note brings back ugly reminders of the dreaded demonetisation that the former prime minister Dr Manmohan Singh described as “organised loot and legalised plunder”, his harshest comment on the Modi establishment.

Everyone knew that this fear would come rushing back as the Rs. 2,000 banknote was laid to rest. The Reserve Bank of India (RBI) made it a point to put it in its headline for the press release, circular and the associated FAQs that the notes will continue to be legal tender.

The caution and the qualification were necessary because of fears that the move would be misread. To be sure, this time it’s not a case of demonetisation but a planned withdrawal from circulation, pending which the note remains legal tender. Citizens have time till September 30 to deposit the notes into their accounts or exchange the notes with those of other denominations at bank counters. The exchange comes with a slight hurdle though—only up to Rs. 20,000 at one go to avoid disruption at bank branches. There is no limit for deposits, however, with the applicable KYC norms. To put it in the words of the RBI: ‘With a view to minimise inconvenience to the public, to ensure operational convenience and avoid disruption of the regular activities of bank branches, all banks may exchange Rs. 2,000 bank notes up to a limit of Rs. 20,000 at a time.’

One way to look at it is that the RBI wants an orderly exchange that is not disruptive. The flip side of this view is that it appears quite easy to disrupt Indian banking and branch operations with Indian notes! Regardless, the Rs. 2,000 note with its unique purple colour will go down as the shortest-lived Indian currency note in the history of Independent India at least.

The withdrawal of the high-denomination note is a step in the right direction. The high-value currency was introduced as a desperate measure to fill the vacuum caused by sucking out almost all cash from the Indian system in a nation that till then lived (and even now, in many parts, still lives) on cash transactions.

Yet it was clear early on that one purported aim of the demonetisation programme, which was to flush out black money from the system, was defeated with the introduction of the high-value note. It is easier to hoard cash when it is in a higher denomination. Consequently, any discouragement of cash holdings should mean that the bulk of the currency should be in smaller denominations. Across the developed world, notes are not issued in higher denominations. For example, in the United States, the Federal Reserve Board currently issues banknotes in denominations of 1, 2, 5, 10, 20, 50 and 100 dollars. Higher denominations were last printed in 1945 and discontinued way back in 1969.

In India, demonetisation was announced on 8 November 2016. As of March 2017, the then newly introduced Rs. 2,000 banknote accounted for over 50 per cent of the total value of currency in circulation, but just 3.3 per cent of the total volume of currency in circulation. The note fulfilled an urgent need to feed a cash-starved nation. Over time, however, the note’s commonplaceness has been brought down in a planned glide that saw the numbers—the value of the notes and their volume—come down. The printing of the notes stopped in 2018–19.

This has been a case of wise and pro-people decision making, quite the opposite of the suddenness with which some other policy measures of the government have been announced, notably demonetisation and the lockdown when Covid-19 had just begun to erupt

There are lessons to be learnt from the introduction as well as the withdrawal of the Rs. 2,000 note, the first of which is that the objective of the decision is lost when the disruption it causes is high. If the policy was meant to flush out black money (none of which was found), then the introduction of the high-currency note was a textbook case of what is not to be done to encourage black money and hoarding, but had to be done simply to ease the immediate pain.

The second is that the government is not here to catch the people unawares. A ‘gotcha!’ policy will bring disaster. It presumes that the people are adversaries, unworthy and unwilling or unable to cooperate for the collective good.

Second, a ‘gotcha!’ policy does not consider the serious adverse impact, expected and unexpected, on the weakest sections of the population. The older citizenry who keep cash just for safety and emergency needs, the labourer who hardly has cash and must depend on their daily earnings to feed the family, the technology-unfriendly who do not rely on digital payments were all unintended victims of the harshness of demonetisation.

Ditto was the case with the sudden lockdown, when the announcements asked people not to step out of their homes, unmindful of the facts that a large number of people do not have homes and that the economy depends so much on migratory labourers who had to trek all the way back home with nothing to drink or eat, their pockets empty, their wages lost or unpaid.

A well-planned and thought-through policy that does not fall into the trap of event creation or headline-grabbing also carries the benefit of multiple pros and cons being discussed and well-considered, so that the final outcomes can be that much better. One of the key aspects of decision-making is to think about Gandhiji’s simple message in one of the last notes he left behind in 1948, expressing his deepest social thought:

‘I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest [person] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to [them]. Will [they] gain anything by it? Will it restore [them] to a control over [their] own life and destiny? In other words, will it lead to swaraj [self-governance] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away.’