Six years have passed since Demonetization on November 8.

Before Prime Minister Modi’s 8 p.m. speech, the RBI and the Prime Minister collaborated for months.

From The Rise of Goliath: Twelve Disruptions That Changed India, a fascinating extract

Rama Subramaniam Gandhi’s memory of the portfolio he oversaw as the Reserve Bank of India’s deputy governor for Currency control will endure the longest.

Not haphazardly. Gandhi was called by RBI Governor Raghuram G. Rajan in February 2016 and requested to help the government weigh the benefits and drawbacks of a plan to demonetize high-denomination currencies.

The task was classified as top secret. Gandhi and Rajan were the only people within the RBI system who were aware of the scheme.

Rajan had also written a paper outlining the immediate and long-term effects of declaring all high-denomination currencies worthless, as well as the steps that would need to be taken in the event that the government decided to go with the proposed demonetisation.

Even though the issue of counterfeit money was getting worse and its incidence was a very small percentage of all the high-denomination Currency Notes in circulation at the time, Gandhi, like Rajan, was uncomfortable with the thought of such a disruptive approach.

Demonetization, however, was not the answer; rather, a determined campaign against counterfeit money and the introduction of new banknotes with improved designs and stronger security measures were.

Beginning in February, work was done to introduce new currency notes and change their designs. The PMO and the RBI worked closely together to develop the new features and design of the new currency notes that will be in circulation.

Gandhi oversaw all activities on the part of the RBI. The processes were complex and adhered to with the utmost secrecy.

At the RBI’s Mysuru currency printing press, up to 18 designers worked on the new currency notes, and it took them roughly 45 days to do the design work.

To get the designs authorised, a representative from the RBI printing press in Mysuru would travel to the PMO in New Delhi. There was no postal or electronic correspondence in the digital age. Instead, in an effort to maintain confidentiality, each process was followed by a physical rehearsal.

When the issue reached the RBI board in May 2016, it was approved for the introduction of currency notes with a value of Rs 2,000.

The printing machines in West Bengal’s Mysuru and Salboni were instructed to stop producing new currency notes with denominations of Rs. 1,000 and Rs. 500 in June.

This was likely the most important indication of the government’s plan for demonetization at the time.

At that time, Rajan was in charge of the RBI. Rajan must have known by that point that demonetisation was imminent, just as Gandhi did when he put that decision into action and understood the government’s strategy.

Rajan said on June 18, 2016, that he would leave his position as RBI governor when his three-year term ended on September 4, 2016, and return to academics.

The news of Gandhi’s resignation had no bearing on his plans for the upcoming months. Gandhi made sure that the printing of the new Rs 2,000 notes had started by the middle of September 2016. In parallel, other printing plants in Dewas, Madhya Pradesh, and Nashik, Maharashtra, had started printing the new Rs. 500 notes.

The RBI governor has changed to Urjit Patel. Thus, Patel’s signature could be seen on the new notes.

The effort to keep the currency note exercise under wraps was proving to be difficult. Approximately a fortnight before the plan to implement demonetization was made public, a piece in Dainik Jagran on October 28 claimed to have made everything clear.

Kanpur-based business columnist Brijesh Dubey predicted that the government would release new Rs 2,000 currency notes with high-security features soon to combat illegal money.

The article added that a serious look was being given to the existing currency notes of Rs. 500 and Rs. 1,000 in an effort to combat fake money.

It was notable that the RBI Board met in Kanpur on October 20 with Urjit Patel as its new governor.

On Sunday, October 30, Diwali was observed all around the nation. To stop further information leaks, the government considered the advantages and disadvantages of moving the demonetisation decision forward. Finally, it decided to make November 8, 2016, the important day.

Gandhi’s day at work on November 8th, 2018 was not typical. He had taken a morning flight to Delhi in order to attend the RBI Board Meeting that afternoon. Gandhi read a memo from the currency management division of the RBI to the board.

The mystery and intrigue surrounding why a board meeting had been called were resolved. Gandhi’s memorandum suggested that bank notes in the denominations of Rs. 500 and Rs. 1,000 from the current and any earlier series in circulation be removed from legal tender.

Urjit Patel, the governor of the Reserve Bank of India, his two deputy governors, R Gandhi and S. Mundra, and five additional directors were present at that board meeting. These additional directors included Nachiket Mor, a former executive director of ICICI Bank; Bharat Doshi, a senior finance professional who worked in various capacities for the Mahindra Group; Sudhir Mankad, a retired IAS officer and a former chief secretary in the Gujarat government; and Anjuly Chib Dugg.

According to any documentary evidence, nobody among the RBI directors responded to the memo that was put up for the board’s recommendation. However, some of those findings suggested that the memo’s passage at the board meeting might not have been straightforward.

The minutes of the board meeting contain three important observations that should be recited here:

While the increase in the amount of money in circulation is nominal, the growth rate of the aforementioned economy is real. The discrepancy might not be as pronounced after an inflation adjustment. As a result, this argument does not sufficiently support the suggestion.

While any instance of currency fraud is concerning, the amount of Rs. 400 crore, relative to the overall amount of currency in circulation in the nation, is not very significant.

The majority of black money is held in the form of real estate assets, such as gold or real estate, as opposed to cash; hence, this action would not significantly affect those assets.

The central board meeting minutes were very reluctantly released by the RBI administration. Right to Information Act requests to release these minutes have been denied for several months. The RBI just made those minutes public in March 2019 on the Chief Information Commissioner’s orders pursuant to the RTI Act.

These minutes make it very evident that the decision to recommend demonetization was not a simple or straightforward one. A lot of worry was expressed about the effects and difficulties that demonetization would bring about.

The directors appeared to have anticipated the decision to demonetize, but they went all out to get as much assurance as they could to help lessen the negative effects of eliminating 86% of the country’s total in circulation currency.

The minutes also revealed that the government and RBI had been discussing the demonetization plan for almost six months.

During the board meeting, a letter from the finance ministry dated November 7, 2016 was presented. What was in this letter’s contents is unclear. According to the central board of directors of the RBI, the government has the authority to revoke currency notes of any denomination, as stated in the RBI Act.

What purpose did the letter from the finance ministry serve during the board meeting?

What provisions of the RBI Act did that letter and its transmission fall under?

This situation is still unclear.

Was the finance ministry directing the RBI board to suggest invalidating high-denomination currency notes? Numerous board members must have been upset that day by these issues.

On November 8, 2016, at 5.30 p.m., the meeting got underway. According to the meeting minutes, the meeting could not have gone on for very long. The RBI board meeting, however, was not simple to conduct.

The government had instructed the board to take into account a proposal that several of its directors did not agree with. The RBI now has the initiative thanks to the resolution that was approved and used to convey its recommendation for demonetisation.

According to official records, the recommendation to implement demonetization was, in fact, made by the deputy governor of the RBI. The government was informed of the RBI board’s approval.

After receiving the RBI’s advice, Prime Minister Modi convened the Cabinet to discuss his proposals and win their agreement before he began his address to the nation at around eight o’clock in the evening.

That night, at eight, Modi’s speech was broadcast on television. However, it had been captured earlier in the day, before the start of the Cabinet meeting.

It was just a quick meeting. There wasn’t much conversation. Before entering the conference room, the ministers who were there had to leave their cell phones with security. Most ministers found the decision to be completely unexpected.

Excerpted with the gracious permission of the publishers, Penguin Random House India, from A K Bhattacharya’s book The Rise of Goliath: Twelve Disruptions That Changed India.

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