#Demonetisation Is A War Lost Because Of Bad Planning

A lot of war analogies have been used to describe demonetisation. Here’s why it’s a failed campaign.

WrittenBy:Anand Ranganathan
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This is the second part of the five-part series on demonetisation.

Why do governments fail? Why are they blind? Or inefficient? It is because they are run by politicians, and politicians are corrupt. They admit applause and cut out the boos. They discourage criticism and encourage sycophancy. They form armies of the like-minded who make corporals out to be generals. Monopoly of thought necessitates corruption and before you know it, promise gets reduced to a word contained inside compromise.

Governments are the confederacy of dunces. Modi Sarkar is no different.

Demonetisation is, as this author had noted previously, the single greatest disruptive move made in Independent India. Disruption here is meant in the positive sense. Its benefits are clear and obvious. Every wad of demonetised currency, discovered or rendered useless, is a blow to those who want to weaken India, its borders, its societies, its institutions. But for demonetisation to be disruptive in the positive sense, the two most important requirements are stealth and speed. The confederacy took care of the first. It forgot the second.

A new theory is gaining ground among the confederacy of dunces, one that it believes will counter the colossal outrage on account of demonetisation. And it is this: that speed had to be compromised because of stealth, that because the mechanics of demonetisation had to be kept a closely-guarded secret, nothing could be done to address its affects until after they were already upon us.

Nothing could be further from the truth.

Ask any chemist (not to be confused with a pharmacist) the most crucial aspect of a chemical reaction and he’ll tell you three words: Rate-determining step. This is the step that determines the rate of a reaction. A chemical reaction can have multiple steps, but one among them would determine its success. The products and the reactants are helpless bystanders, the rate-determining step is the emperor. It decides.

The rate-determining step in the demonetisation reaction should have been obvious to a pharmacist, leave alone a chemist. It was the ATM machine.

A Prime Minister who makes USD 211 billion worth of currency worthless in a single stroke should have known 220,000 ATMs – more than half of them non-functional at any given time – were never going to be enough; that 100,000 bank branches or 150,000 post offices – none of them operational round the clock – were never going to be enough. This was the neck of the hourglass and they missed it, busy as they all were watching sand specks fall like tinsel.

Taken in by the mechanics, the dunces forgot the kinetics.

Demonetisation is war, and wars are not won by bureaucrats two months away from a shawl and a clock. They are won by generals who prepare for them like generals do. Tin buttons that crumble in the frost are not lessons for winning future wars, they are reminders of why you lost the present one. Hindsight is an excuse of the ill-prepared.

Take a look at how the confederacy has reacted to the single greatest disruptive event in independent India:

One day after the demonetisation announcement, the government orders Banks to remain open on Saturday and Sunday. 

Two days after the demonetisation announcement, the government announces a 200 percent penalty over and above the due tax on deposits above Rs 2.5 lakh. The government also extends the exemption on using demonetised currency at railway stations for two more days.

Four days following the demonetisation announcement, the government extends the exemption on using demonetised currency at government-authorised places for three more days. 

Five days following the demonetisation announcement, the government sets an upper limit of Rs 50,000 for deposits in Jan Dhan bank accounts. It orders that cash will not be refunded for railway and airline ticket cancellations. Cooperative banks are banned from exchanging currency, ignoring four states that pleaded such banks were the backbone of their rural economy and the only banking facility available to farm labourers. The government orders mandatory show of PAN card if combined deposits exceed Rs 2.5 lakhs.

Six days following the demonetisation announcement, the government allows senior citizens and differently-abled persons to stand in separate lines.

Seven days following the demonetisation announcement, the government exempts ID cards photocopies from being submitted as proof.

Eight days following the demonetisation announcement, the government orders the use of indelible ink to tag those exchanging currency so as to avoid multiple exchange.

Nine days following the demonetisation announcement, the government allows families to withdraw Rs 2.5 lakh for wedding expenses. It allows cash to be withdrawn from SBI-compliant petrol pumps  and rejects its own ministry’s demand to allow farmers to buy seeds with the demonetised currency. The government also sanctions a new maximum exchange amount of 2000, reduced from the earlier 4500. The government allows farmers to withdraw up to Rs 25000 per week against crop loans. The government extends the time limit in crop insurance premium cases by 15 days. Mandi traders are allowed to withdraw up to Rs 50,000 per week to pay wages. The government allows Group C Central government employees to withdraw up to Rs 10,000 as advance towards their salary.

Ten days following the demonetisation announcement, the Bharatiya Janata Party orders all its members of Parliament to visit ATM and bank lines and interact with the queued masses. The government orders Banks to only allow its clients to exchange currency, with the exception of senior citizens. 

Ten days following the demonetisation announcement, the government says the implementation of Demonetisation couldn’t have gone better.

Eleven days following the demonetisation announcement, the government forms 27 teams to visit various parts of India and assess the situation.

Now imagine a real war, and imagine if our Army behaved like a confederacy of dunces:

Two days following the declaration of war, the Army orders helmets for the soldiers on the Western front.

Six days later, the Army orders a fresh supply of magazines for the INSAS rifle.

Nine days later, the Army asks fuel refineries to ramp up production.

Fifteen days later, the Army requisitions bulletproof vests.

The issue is not that new rules are being announced faster than one can nudge the person in front to bump the ATM queue along. The question is, why were most of these rules not structured before demonetisation was announced??

Talking of announcement, here is a tweet from a Pune-based senior journalist Raju Parulekar linking a news report from Punjab Kesari, one of the most widely circulated newspapers in the North, and edited by the sitting BJP MP Ashwini Kumar Chopra. Nothing unusual – every one tweeted such headlines on or after November 8, 2016. Except that this tweet is dated April 5, 2015, 19 months before PM Modi’s demonetisation broadcast of November 8.

The Punjab Kesari news report from 2015 is headlined “Big Decision by the Modi Government on 500 and 100 Rupee Notes!” and talks of a high-level meeting with the Prime Minister’s Office during which the plan of demonetising Rs 500 and Rs 1000 denominations to counter the menace of black money was discussed. No other media outlet reported on this news in 2015, neither was there any follow-up. The snippet – whether it was genuine or based on gossip and hearsay, difficult to tell – was ignored and forgotten. The media is now of the view that the demonetisation decision was taken in May of this year and that it was a closely guarded secret. For a decision as sweeping as this, it better be.

Demonetisation has meant that 86 percent of India’s circulating cash, Rs 14.1 lakh crore (7.85 and 6.32 lakh crore in 500 and 1000 denominations respectively), has been made illegal. Even if one were to assume 25 percent of it was not circulating but hoarded as black money, this still leaves us with Rs 10.6 lakh crore worth of circulating cash to replace. Further, assuming 30 percent of Rs 1000 and 20 percent of Rs 500 denomination notes are hoarded and not in circulation, the new currency needed to replace the old would be 2.2 billion notes of Rs 2000 and 12.5 billion notes of Rs 500 denomination respectively. That means 14.7 billion freshly-minted notes.

The government has four mints that can print three billion notes per month. It would have taken 5 months to print roughly the same amount of currency that has now been rendered worthless. In other words, for the new notes to be ready on November 8, their printing should have begun back in May. Printing of new currency began, instead, in early September and it was mainly focussed on printing the 2000 denomination. Reportedly, 1.5 billion notes of this denomination are now ready. Alas, these notes don’t fit in to the existing ATM machines because they are of a different dimension and weight. Even the new Rs 500 notes are different in size from their older version. The machines will take a further three weeks to recalibrate. Thing is, if the government can maintain secrecy during two months of constant printing, why could it not maintain secrecy for three more months so that all the currency now made worthless was ready to be replaced with new one at once? Second, news of new currency in the offing doesn’t necessarily imply demonetisation is coming, neither does recalibrating an ATM (but see later).

Back, now, to the rate-determining step, which is the ATM. Treating demonetisation as war would have meant keeping 14.7 billion notes printed and ready on November 8, the date of the declaration. Army units and Army vans, with good old human cash dispensers, should also have been ready. Beginning 0600 hrs, November 9, these vans should have reached all corners of India, her cities and towns and villages, her mountains and her islands, and within a matter of days managed to carry out what all our ATMs wouldn’t be able to in months.

You don’t go into a war in your nightgown (or gathering your dhoti) as you charge at the enemy. If you don’t have the same amount of replacement currency, you wait till you do. It was a matter of three extra months. The swap should have been between old Rs 500 notes and new Rs 500 notes, and not between old Rs 500 notes and old Rs 100 rupee notes.

Demonetisation was a human operation; never an ATM one. It was a textbook military operation. Clear command structure, total secrecy, unlimited resources at the disposal, requisition of state of the art technology, calling dependable international friends if needed, and at the end, trust in the Jawan. Demonetisation was out with the old and in with the new, with stealth and speed to shock and awe.

Instead, with no new higher denomination notes in sight, a mad rush for the lower denominations followed. Three in four Indian households earn less than Rs 5000 a month . One may then ask, why are so many Indians queuing up? The answer to that question is humbling. An overwhelming majority of Indians who transact in cash are the very people who earn less than Rs 5000 a month. They get paid their salaries in cash, they are forced by their landlords to pay their jhuggi rents in cash, they save up in cash, they buy in cash, they sell in cash. And they are queuing up because the one thing that allowed them to live was taken away in one single, swift move.

As an astute commentator points out, it was but natural for people to begin hoarding 100 rupee notes. The banks and the ATMs couldn’t cope and the lines got longer, causing untold misery and heartburn to millions.

The very scheme to unearth illegally hoarded cash is now resulting in legally hoarded cash. It is natural to hoard legal currency during demonetisation. No one wants to stand in line every day. The result? Even less circulating cash.

Demonetisation has now turned into a propaganda war between the supporters and opponents of its implementation process. For every news or a video clip of suffering, another crops up of non-suffering. But there’s a fallacy here. Suffering cannot be diluted with non-suffering. A successful landing is not an antidote to a horrible crash. In a democracy, all have a voice, but those who suffer must be heard preferentially. Millions are suffering because they have been made to suffer. The Supreme Court warns of a riot-like situation developing soon. It is not a military court. Perhaps that is what will save the dunces from being court-martialled.

Demonetisation could have been a story gloriously worthy of entering textbooks. Instead, it has exposed our total inability to plan and implement awe-inspiring large projects that require stealth and speed. We are slow and unsteady. And we are governed by a confederacy of dunces.


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