demonetization compared to the present one?
The implementation of similar note bans had happened in the past too, to be precise in 1946 during British India parliament period and in 1978 while Morarji Desai’s Government was ruling. But the bridle that curbed such an action then was different compared to situations now. The story of past was filled with misfortunes and a toeless kingdom, which now rest on the pillars of hope. The past demonetization hasn’t had a nationwide impact as of now. Reasons are several which we shall see in detail below, but the fact is that both demonetizations after Independence were initiated by Bharatiya Janata Party. While 1946 demonetization took place on a January 12, the 1978 one happened on a January as well, just 4 days apart on 16th. Even some started to call January a monetary demon month! To understand how the financial India struggled in past, one must bath in the economy of 1940’s and 1970’s, which will give you an idea why the government did such a note ban then and why they are doing it now!
The 1946 note ban
The 1946 demonetization was actually an idea churned by the British officials following the trail of events let loose in the aftermath of World War 2. During the same period, a similar withdrawal was happening in France, U.K, and Belgium. The main agenda of the government was to put a period to black money market and tax evasions, which in India wasn’t going properly due to weakened British rule in the gust of WW2. ‘But it didn’t go well as intended to’, according to RBI’s History 1935- 1951, page 706. The protest came from within the Government, thinking that this wouldn’t be a successful feat. Take a look at the concluding remarks by RBI governor Sir Chintaman D Deshmukh is mentioned below: (As recorded by Mr. Sunderasan)
“Sir Chintaman Deshmukh felt that we may not get even as much as Rs. 10 crores as additional tax revenue from tax evasion and that the contemplated measure, if designed to achieve such a purpose, has no precedent or parallel anywhere. If the value is going to be paid for value (no matter whether such value is in lower denomination notes), it is not going to obliterate black markets. His advice is that we should think very seriously if for the object in view (as he deduces from the declaration form) whether this is an opportune time to proceed with the scheme. Provided Government are satisfied on the points of (i) sparing harassment to the unoffending holders and (ii) a worthwhile minimum of results in the shape of extra tax revenue, he does not wish to object to the scheme as drafted, if Government wish to proceed with it notwithstanding the administrative difficulties involved.”
It is evident that the implementation didn’t have a hand of appreciation nor popularity due its flaw in the internal systems. According to the ordinance, all denominations above 500 rupees was withdrawn from the economy. At the time there were currencies for 100, 500, 1000 and 10,000 available. People were allowed 10 days to exchange money, which later was extended for 2 more weeks. The result wasn’t as impressive as they anticipated for. Of 143.97 crores only 134.9 crores were exchanged, where the rest 9 crores have to be demonetized. The demonetized currencies were taken back into the system on 1954 which was ultimately demonetized in 1978.
The 1978 note ban
By the period India was on the verge of a development from a nation left in ruins by the British rule. But surprisingly India denominations for 10,000, 5000 & 1000 rupees, which was actually restricted to very few hands. As the matter of fact, a second demonetization happened in the Indian economy on January 16, 1978. Then finance minister HM Patel added in a budget speech of 1978 February that:
“The demonetization of high denomination bank notes was a step primarily aimed at controlling illegal transactions. It is a part of a series of measures which Government has taken and is determined to take against anti-social elements.”
The public was allowed just 3 days for the exchange of denominations, but the fact is that only a few needed to visit bank as the demonetized notes largely was restricted to richer people. During the time a four digit salary would put a person under the limelights. Most of the people find their life being limited within needs under 1000 rupees, such that many haven’t had such high denomination in hand. Another strange fact is that only a few knew about demonetization that to people who read the newspaper. And even some villagers were amazed to hear there was a 10,000 note available back then! According to final statistics, only 15% of currency got exchanged, where it didn’t affect the lives of people as it is off now.
The 2016 note ban
Compared to other demonetization the purpose was highly relevant and it indeed significantly affects each and every citizen. Black money back then was very less and inefficient to infiltrate the economy to create chaos and terrorism. But the current India is under threat just simply because of black money and fake currency. Back then, millionaires were rare and richer was always kept high in society, but today money flows illegally through dirty hands making fake millionaires and corrupted lords which question the integrity of Indian democracy.
By 2016, the economy was under the influence of black money in such a way that even the administrative infiltration was so strong. A group of corrupted brains tends to be the chain pullers making the politicians a puppet. From there now India is crawling back to its ground to be a nation of hope! While the 1978 demonization was far from turning pages, 2016 was revolutionarily a history. The effect of black money can be seen if one checks the inflation difference comparing the prices to the denomination available in 1946 and 2016. Within a span of 70 years, the top denominations became a common shuttle in the economy. While having the highest denomination in 1950’s in possession will make you rich, in 2016 even the poor man need hundreds of thousand rupee notes to get through his days! It’s all going back into normal!