Currency Chaos: Mr Jaitley & Co, Stop Contradicting Each Other

Disarray in the govt on note ban is evident with finance ministry looking like a divided house, writes Abheek Barman

On 10 November, speaking at a grandiosely-named sarkari function called the Economic Editors’ Conference in New Delhi, the most senior bureaucrat in the finance ministry said something that his boss took one whole week to rebut.

Speaking to financial journalists eight days ago, Economic Affairs Secretary Shaktikanta Das, a graduate of St Stephen’s College and a career bureaucrat, confidently said that a new series of currency notes with a face value of Rs 1,000 would be introduced soon, with security features which would make these notes harder to counterfeit.

In a measure that has India reeling in financial shock, Prime Minister Narendra Modi went live on TV at 8 pm on 8 November to say all Rs 500 and Rs 1,000 currency notes would become invalid from midnight that night – exactly four hours after he commenced speaking. Around 86 percent of India’s currency in circulation by value was rendered worthless immediately.

Also Read: Currency Ban Blues: What’s Behind Jaitley’s Deafening Silence?

In Demonetisation’s Aftermath

The aftermath of this so-called demonetisation – a severe cash shortage and shrinkage in demand for things ranging from shampoo to seeds for the winter crop – threatens to start a government-mandated recession in India. Any statement which remotely hinted that the government was trying to mitigate the currency shortage, was therefore, welcome. Thus, Das’ remarks were widely reported by the global media.

At the time, Das’ boss Finance Minister Arun Jaitley said little, apart from assuring people that those depositing old notes for new would not be penalised by the government. Since then, Jaitley’s public statements have taken erratic – and unpredictable – turns.

A couple of days later, when the cash crunch took on an ominous colour, with long queues at banks, post offices and ATMs, and growing public anger, Jaitley said that he regretted the inconvenience, but such things were bound to happen after such a largescale currency overhaul. “There are long term advantages from this for the entire economy,” he said.

Also Read: Note Ban Aftermath: Looming Fear of an Illegal Cash Economy

Unjustifiable Penalties

On 9 November, Jaitley told the media that any deposit above Rs 2.5 lakh would attract tax as well as a 200 percent penalty. This created an uproar, while experts on tax law pointed out that there was no extant legislation to justify such penalties. The next day, a contrite Jaitley told media the taxman wasn’t out to hound anyone.

On 15 November, Jaitley faced a hostile Parliament, where lawmakers asked why defaults of absconding tycoon Vijay Mallya had been written off the books of state-owned banks, while the government was putting the common man to the sword through its currency withdrawal scheme. To this, Jaitley replied with much jargon to convince legislators that Mallya’s write-off was a technicality; banks would do their best to recover Mallya’s dues.

Also Read: Mr Parrikar, Note Ban Didn’t End Stone-Pelting & You Know That

Out On A Limb

• Finance Minister Arun Jaitley and Economic Affairs Secretary Shaktikanta Das have spoken at cross-purposes on reissuing of Rs 1,000 notes.
  
• Immediately after PM Narendra Modi’s November 8 announcement, Finance Minister Arun Jaitley said little.
  
• Since then, Jaitley’s public statements have taken erratic and unpredictable turns.
  
• There are simmering rumours that Jaitley was out of the loop on the Modi government’s most politically and economically sensitive issue.
  
• Lutyens’ Delhi is asking whether Jaitley has been reduced to issuing clarifications after events have overtaken him.
  
• It is said that only four people in government, but not Jaitley, knew of the exact date and timing of Modi’s announcement.
  
• If Jaitley was kept out of the loop before 8 November, it would explain the confusion and flip flops emanating from North Block.
  

Out of the Loop

All this has poured gasoline on simmering rumours that Jaitley is way out of the loop on the most important – and politically and economically sensitive – measure taken by the Narendra Modi government: denotification of high value currency.

Lutyens’ Delhi is alert to microscopic changes on the political barometer. It now asks whether Jaitley, who has been the BJP’s main spokesman on- and off-record to media for nearly two decades, is now left to issuing clarifications after events have overtaken him. And that too, in a BJP-led government.

Soon after Modi’s 8 November speech announcing the withdrawal of high-value cash, people wondered how such an important measure could have been kept under wraps in a polity where ministries, banks, financial institutions and the bureaucracy leak information like a sieve.

Also Read: Black Money Aftershock: Modiji, You Knew How Govt Machinery Works

Secrecy Among Quartet

Only four people, it is said, knew of the exact date and timing of the announcement, though many in the BJP were aware of what would eventually happen. The cash withdrawal scheme, say sources in the currency printing establishment, was actually planned for December or early January.

But Modi decided to bring it forward, probably with an eye on impending polls in Uttar Pradesh, Punjab, Goa, Manipur – and Gujarat, later in 2017.

Modi had to take RBI Governor Urjit Patel, just two months into his job at Mint Street, into confidence. Ultimately, the RBI is the legal authority on all matters related to currency. Pradeep Kumar Sinha, a 1977-batch IAS officer, who is now Cabinet Secretary, the senior-most bureaucrat in government, was also in the loop. And, now, it seems Das also knew the exact date and time of demonetisation.

Also Read: PM Modi, Demonetisation ‘Brahmastra’ Could’ve Avoided Hurting Poor

Ensuing Confusion

If Jaitley was kept out of the loop immediately before 8 November, it would go a long way towards explaining the confusion and flip-flops emanating from North Block, where the finance ministry is housed.

Nobody has any doubt that Modi is the architect and chief executor of the currency-change project. But if he had briefed his entire Cabinet better – or more regularly – then some of the many hurdles that the project faces might have been crossed easier.

As things stand, on Thursday, 17 November, exactly a week after Das reassured media that a new Rs 1,000 currency note would be printed soon, his boss, Jaitley, said the government had no plans to bring back the currency note.

Different ministries in India’s loud democracy often differ on issues. This is perhaps the first time that the most senior people in one ministry – that too, the all-important one dealing with finance – are speaking in different tongues.

(The writer is a Delhi-based senior journalist. He can be reached at @AbheekBarman. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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