Demonetisation: From Morarji to Modi, it is politics and volume that matters the most

When former prime minister Morarji Desai had demonetised currency notes in January 1978, he was accused of carrying out anti-black money exercise for political reasons. 38 years later, Narendra Modi is facing a similar onslaught from the Opposition about wiping out tainted money from the economy ahead of crucial elections in important states like Uttar Pradesh, Gujarat and Punjab.

The Parliament debates of 1978 give an interesting peep into the politics of demonetisation. On 21 March, 1978, Lok Sabha archive accessed by Firstpost reveal, that CN Visvanathan, a member of Dravida Munnetra Kazhagam (DMK) from Tirupattur constituency, had questioned the Morarji government for announcing demonetisation on the eve of elections to six states including Maharashtra, Karnataka and Andhra Pradesh.

Visvanathan said while participating in the debate over the ‘High Denomination Bank Notes (Denomination) Bill.’:

“People are thinking whether this bill is intended to curb indirectly the funds of some particular political party before the elections in six states were held. So I ask: Why was the step taken before the elections in six states especially Andhra Pradesh and Karnataka. The Ordinance was promulgated on 16th January 1978, but actually instead of helping the illegal transactions to be stopped, this bill may help to stop the financiers of the political parties from contributing to them,”

And, the bitter historical fact were the election results Janata Party had to swallow in 1978 after executing demonetisation, which may be a cause of worry for the BJP.

The Congress which had become extremely unpopular and was decimated in 1977 made a comeback in the Andhra Pradesh state election, winning a clear majority. In Karnataka too, Janata Party came at a distant second, winning just 59 of 259 assembly seats that went to the polls. The only face saver for Janata Party was Arunachal Pradesh where its state leader Prem Khandu was able to form a government winning 17 seats out of 30 member state assembly and Assam where Golap Borbora, follower of Ram Manohar Lohia and JP became the first non-Congress chief minister of that state. The Janata Party riding high on demonetisation move could win only 99 seats out of 288 assembly constituencies of Maharashtra and had failed to form the government.

Is there a lesson for Modi who is exploiting his black money purging decision in his public meetings in Uttar Pradesh to harvest political gains out of demonetisation?

The volume may haunt Modi government

Team Morarji Desai, who first visualised the idea of curbing the menace of black money through demonetisation, had a much easier task at hand than the team Modi, which embarked on the herculean task to withdrawing 86 percent currency floating in the market. Although, Morarji team comprising of then finance minister Hirubhai Mulljibhai Patel and Reserve Bank of India Governor IG Patel was more unsparing, the volume affecting households at that time was confined to just a few rich than the majority of 125 Crore population that Modi and Urjit Patel is facing today. And, the queue outside the banks and ATMs is not getting thinner by the day than the duo had anticipated.

With one announcement, Modi rendered Rs 14.2 lakh crore as useless, however, for Morarji the value was just 145.42 crore and the highest denomination note was limited to only 346 people (presuming that nobody had more than one note). Whereas for the present government, the task is to withdraw 633 crore high denomination 1000 rupee notes (Valued 6.3 lakh crore) that constitutes 38.5 percent of currency in circulation and 1,571 crore of 500 notes, constituting 47 percent of the total.

The debate that happened on 21 March, 1978 in Parliament gives indication of challenges Modi government could face. Morarji’s finance minister, Hirubhai Mulljibhai Patel while introducing the ‘High Denomination Bank Notes (Denomination) Bill had told the Parliament that, “the total number of high denomination bank notes in circulation as at the close of business on 16th day of January, 1978 was 13,05,899 notes valued at about Rs. 145.42 Crores. These included 12.69 Lakh notes of rupees one thousand denomination, 36,287 notes of rupees five thousand denomination and 346 notes of rupees ten thousand denomination.”

Morarji government while explaining that the high denomination bank notes were being used extensively for illicit transfer of money for financing transactions harmful to the national economy, only gave 3 days for exchange (January 17, 18, 19th 1978), Modi arguing the similar reasons though adding terrorism and fake currency, gave 50 days to the holders of 500 and 1000 rupee notes to deposit in the bank.

Is the comparison between Morarji and Modi government logical? Of course, as both wanted to get rid of black money choking country’s financial health. So, why is the Modi government is facing heat on the issue?

Hukmdev Narayan Yadav, the BJP MP from Madhubani who sits in the second right row of the present 16th Lok Sabha, but then a socialist and active member of JP movement, in a discussion on 21 March, 1978, had reminded the lower house that “Demonetisation is not the only solution to tackle black money.”

Yadav while supporting the move had asked the government to adopt several other measures like covertly initiating a dialogue with big industrialists and businessmen to disclose the amount in cash to the government and that money could be used for setting up new factories and infrastructures to generate employment for youths of this country.

“Political Purification” Yadav had said that day, was still far away while supporting his own government move. And, what Shyamaprasanna Bhattacharyya, a Communist Party member of 6th Lok Sabha from Uluberia constituency, had said on demonetisation in that era still resonates now in political discourse.

Bhattacharyya said in the Parliament during the discussion:

“I have been informed that before our Minister passed the ordinance, the blackmarketeers in Calcutta ( now knows Kolkata) came to know about it and took sufficient precautions to go to various areas and asked the Panwallahs and other poor persons to go the banks and get them changed…and told them: you take something from me and give me the changed money. Thus, they have saved themselves… without the support from the people measures such as this will touch only the fringe of the problem.” 

Team Modi should also read the facts presented in the parliament by DMK member Visvanathan, who had said that out of Rs 140 Crore in higher denomination in 1978, thousand rupee notes worth about Rs 125 Crore ( Presently 6.3 lakh crore), five thousand rupee notes about Rs 13.6 crore and ten thousand rupees notes about 82 lakh were in circulation. The figure shows that only two percent of higher denomination notes were demonetised by Janata Party government in 1978 in comparison with over 86 percent of currency termed as paper by the Modi government.

No wonder, the public, which showed miraculous discipline, is now expressing discomfort.

Vayalar Ravi, now a sitting Congress member of Rajya Sabha, but was in Lok Sabha in 1978, had said:

“Black money is not stagnant in our country. It is generating economic activities. The policy of the government should be comprehensive. It should be aimed at plugging the loopholes which help in the generation, expansion and the investment of black money. There is no policy which I can see either in the budget or in the policy of the government. This is only a piece-meal measure which can never touch the fringe of the black money problem.”

First Published On : Nov 22, 2016 09:18 IST