Why 1978 demonetisation didn’t hurt India
This graphic published in The Times of India on November 16, 2016 conveys the panic that must have gripped India after currency notes of Rs 1,000, Rs 5,000 and Rs 10,000 were demonetised on Monday, January 16, 1978. Comparisons with the prevailing cash crisis are natural. But did India really panic 38 years ago? No, and here’s why:
Prime Minister Narendra Modi has likened his November 8 decision to demonetise Rs 500 and Rs 1,000 notes to a military ‘surgical strike’, but others say it resembles ‘carpet bombing’ because every citizen is affected by it. In contrast, the 1978 demonetisation was genuinely a surgical manoeuvre as only the truly high-denomination notes were taken out.
A Rs 1,000 note from 1978 would be worth Rs 13,689 today. Conversely, the just-demonetised Rs 1,000 note would have been worth only Rs 73 back then.
There were demands in and before 1978 to demonetise even the Rs 100 note — worth Rs 1,369 now— but neither the Janata government of 1978, nor the Congress governments before it, heeded them. Most salaried people earned less than Rs 1,000 a month and the pain would have been felt all across.
Unlike now, when 86% of India’s currency has been frozen, the 1978 demonetization affected a minuscule proportion of currency notes. Although they were the highest denomination notes, together they amounted to only about 1.8% of the currency in circulation, by value.
So, why are hundreds of people in the queue outside Reserve Bank of India’s Mumbai building in that January 18, 1978 photograph used in TOI’s graphic?
Although the general public was not affected by the demonetisation, a rush ensued at Reserve Bank and State Bank offices because the government gave only three days to deposit the high-denomination notes.
The owners of large notes had to visit “the office or sub-office or branch of the Reserve Bank of India or the main office or branch of the State Bank at the headquarters of a district or any other offic