India repeatedly ruled out demonetization in the 1970s
Demonetization of high-value notes took India by surprise on November 8, 2016, mainly because ‘high-value’ or ‘high-denomination’ is not very high these days. A Rs 500 note is not even a tenner in the US, UK or the rest of Europe. You can’t buy a 10kg bag of rice with it nor fill up a motorbike’s tank with petrol. It’s such a common note now that even a poor farmer or domestic help has some at home. So, unlike in 1978, demonetization has hurt everyone this time.
As for Rs 1,000 notes, consider this: there were 6.3 billion Rs 1,000 notes in circulation at the end of November 8, 2016, but back on February 29, 1972, there were only 392,867 notes of that denomination. Their supply increased more than 16,100 times in 45 years.
Was demonetization necessary? Let the experts debate that. Is it a stroke of genius? Time will tell, and we already know the Janata government did it in 1978. There’s no economics Nobel in it certainly.
But even the 1978 demonetization was not a novel step. Rumours of demonetization had stoked panic many times before that. In the middle of 1973, for instance, a scare spread that the Rs 100 note would be demonetized. It was worth far more than today’s Rs 500 note. Understandably, there was a rush at bank counters to change it for notes of Rs 10 and Rs 20 denominations.
The September 8, 1973 issue of ‘Current’ alleged that some powerful people were spreading the rumour and bank staff were changing notes after illegally discounting them by 10–20%. But the government denied any move to demonetize Rs 100 notes. Then minister of state for finance K R Ganesh told Parliament on Nov 27, 1973:
“Government have repeatedly made it clear in the course of the debate on Wanchoo Committee’s report in Lok Sabha in September 1972, and also on a number of other occasions in both Houses of Parliament in August 1973, that there is no proposal under consideration for demonetization of currency notes.”
What did Ganesh mean by repeatedly? Did the question of demonetization come up often? It did fairly regularly.
On August 5, 1970, Sasankasekhar Sanyal of the CPI(M) asked: “whether government propose to demonetize our currency notes as one of the effective steps towards unearthing of undisclosed money and towards counteracting the evasion of wealth tax and income tax?”
Then minister of revenue and expenditure Vidya Charan Shukla replied: “The gover