8 Years On, Demonetisation Continues to Baffle Us

Only a ritualistic 'purification of money' theory can explain this fundamentally un-economic decision.

Demonetisation has to be understood as something fundamentally un-economic.

(Photo: Harsh Sahani/The Quint)

Eight years have passed since the historic speech by Prime Minister Narendra Modi delivered on 8 November 2016, in which he announced demonetisation. Yet, something still rankles us about the demonetisation saga.

It was illogical from the outset. Denominations Rs 500 and 1000 were withdrawn only for the even higher value of 2000 to be introduced. Rational social scientists showed that it was a failed project right from the beginning.

Many even in the ruling party and cabinet were kept in the dark about it. The Board of Directors at the Reserve Bank of India raised their objections and pointed out amateur mistakes in the plan. But it went through nonetheless.  

My father was a bank employee and a trade unionist during those days. He is now retired but vividly remembers the fateful day and its unstoppable consequences—the serpentine queues, the near-standstill of economic activity, the introduction of primitive currencies such as tokens, outright corruption in the distribution of new currency, and the general despair.

It was a crisis in the real sense of the word. “The lack of preparation was so bad that the Reserve Bank of India resorted to sending out soiled currency notes, which were waiting to be destroyed, back into circulation,” he tells me. 

The disastrous results of the policy have been discussed before. It caused massive job loss, stunted economic growth and did not meet any of its stated goals. The opposition to the move was vocal and well-publicised, even as there were many who supported the move.

Among the most prominent early opponents were Raghuram Rajan, ex-Prime Minister Manmohan Singh and Amartya Sen. Each laid out rational criticism of the policy from various angles, but the overall message was the same—the move simply would not work and was undesirable. Manmohan Singh famously called it “organised loot and legalised plunder”.

I am less inclined to give such conspiratorial motivations to the decision. Everyone who lived through the moment remembers something that is not fully captured by the online archives of the episode—the deliberate poignance with which the demonetisation was implemented. To a more sociologically rather than economically inclined mind, this dramatisation suggests a genuineness. Economistic minds do not seem to be able to grasp this combination of genuineness and irrationality.

Perhaps that is the shortcoming of hitherto readings of demonetisation: they have been too economically driven. Certainly, it is true that some of the political criticisms have hit the nail on the head, such as Amartya Sen declaring it a “despotic action”. Without a tinge of despotism, this blunder could not have been made bypassing the institutional checks.

But this does not capture the why behind this move. Money matters need not always be explained in economic terms; money is also a sociological phenomenon. Demonetisation too requires sociological scrutiny.

Further, demonetisation has to be understood as something fundamentally un-economic. The idea had its genesis in the discourse of economics, for sure, but it was shelved because it did not withstand economic scrutiny. Its later rebirth, then, cannot be explained as economic thinking.

Consider Venkaiah Naidu, who was one of the staunchest defenders of demonetisation. Among the various metaphors and rationales he gave for the scheme, one is particularly notable—that it was a cleansing. “The Prime Minister wants to have a real Swachch Bharat”, he proclaimed, We were to clean our Tan, man, dhan (body, mind, wealth) according to Naidu.

The body could be cleaned by physically cleaning our home, surroundings, temples and so on. The mind had to be cleaned by ending foeticide, educating the girl children, eradicating untouchability and stopping caste atrocities. And money? It had to be cleaned by demonetisation.

The constellation of symbols Naidu employed is intriguing. The cleaning of a home, the eradication of untouchability and demonetisation all occupy the same register in his thinking. Such an extended notion of cleanliness or purity is not new—it is, in fact, one of the central tenets of the Hindu way of life, which has been studied endlessly. The Purity of body and mind is extensively dealt with in Hindu scriptures. Naidu’s move was to introduce the notion of purity of wealth to this schema. It is no wonder that Venkaiah Naidu is giving spiritual discourses in his post-political career.

Normally, such religious metaphors are understood as rhetoric means for delivering a complex idea to a lay public. Coming from a Hindu nationalist party, however, they should be read in the opposite way. These religious metaphors constitute the kernel of the Bharatiya Janata Party’s imagination. Modi too declared that demonetisation was a “purification” and a “historical shuddhi yagna”.

Demonetisation was, in this way, akin to an exorcism performed on the market.

Its importance for the Hindu nationalist formation lies in its role as a purification rite. Unclean things are regularly purged, sometimes even by fire. It is not limited to Hinduism and can be found in many pagan religions across the world. Modi and his ideological cohort appear to have thought of money too in this manner—this was their attempted innovation in Hindu ritualism.

If this sounds bizarre, we can look at similar thinking used elsewhere. Subramanian Swamy suggested once that JNU be shut down for four months so that it would be purified; later, he suggested putting Goddess Lakshmi’s image on the currency so that its value would rise. Mukhtar Abbas Naqvi claimed that Modi had “purified” politics by ridding it of dynasties.

When COVID came, the Prime Minister asked everyone to bang plates so that the virus could be purged. Modi has spoken of wanting to “purify” Muslims.

Such thinking has been a part of Hindu society for centuries; and that is what makes it easy for a large section of the public to accept these ideas comfortably. Purification in the Hindu world has always been irrational and incoherent, and Hindu society has not developed a means to scientifically ensure purity. Instead, it relies on panchagavya—a combination that involves cow urine and cow dung—as a cleansing agent.

Panchagavya was used even in Tirupati, ironically after traces of animal fat were found in the laddoos. Perhaps the most striking example of this structural (ir)rationality of purification came during the Mahad satyagraha—after Babasaheb Ambedkar led the untouchables to drink water from the public water tank, the Brahmins of the locality “purified” the tank by dumping cow dung in it.

Even as the BJP tries to reform and modernise Hinduism, it fails to overcome this rationality. This is the real danger of a religiously driven social movement. While a secular mind or movement has the possibility of eclectically drawing from various sources to expand its horizons, the religious movement is terminally dependent on a small and restricted range of moulds of thinking. With demonetisation, the Hindu nationalist movement proved to be no different.

Ultimately, the saga became an embarrassment for the BJP, an episode even they would like to forget. That is why there is as little talk about it as possible. The only context in which even the Prime Minister defends demonetisation is when there is some criticism which demands a response.

Such defences are visibly different from the original dramatic announcement. There is an unmistakable resignation in them. 

(Arjun Ramachandran is a research scholar at the Department of Communication, University of Hyderabad. Views are personal.)