If demonetisation fails, I will take the blame, Modi had reportedly told the Cabinet.
In the past month, there has been plenty of debate on the pros and cons of demonetisation, the most radical monetary reform since Prime Minister Narendra Modi came to power in 2014. However, what has remained buried under a shroud of mystery until now is the identity of the brains behind the policy.
Now, in a report by Reuters, another name has emerged – Hasmukh Adhia, a bureaucrat known to share a close relationship with Modi. The report states that Adhia, along with five others, was chosen to brainstorm on the policy which made 86% of the Indian currency useless overnight.
58-year-old Adhia reportedly operated out of Modi’s residential bungalow, supported by a team of young researchers. The selection of this bureaucrat to spearhead the demonetisation exercise wasn’t just chance, but was the result of his close association with Modi from as early as 2003.
From 2003-2006, Adhia served as the principal secretary to Modi when the latter was the Chief Minister of Gujarat. In September 2015, he was appointed as revenue secretary. While this meant that Adhia was formally reporting to Finance Minister Arun Jaitley, it also meant that Adhia had a direct line to Modi. The duo would often converse in Gujarati when they met to discuss matters.
When Modi announced demonetisation on November 8, Adhia was quick to tweet that it was the “biggest and the boldest step” the Modi government had enacted to deal with black money. At the time, his involvement was not known.
Reuters also reports that the move wasn’t too hasty a decision. A year’s worth of research went behind it. Modi consulted the Finance Ministry, the central bank and think-tanks on how best to eradicate black money, an unnamed aide of the prime minister told Reuters.
But despite the research and planning involved in postulating the policy, Adhia and Modi both knew that they could not foresee each eventuality, and were hence willing to act swiftly. In fact, Modi said in a cabinet meeting held shortly before the announcement that he would take full responsibility if the policy fails:
“I have done all the research and, if it fails, then I am to blame.”
It is no secret that all did not go as planned. Long queues, overworked bank officials and unpaid workers demanded answers and redressal. The requirement for the new notes far exceeded the printing capacity and what with Rs 8 trillion required by ATMs in new banknotes to restore cash liquidity, it became clear that it would require at least three months to reach the target.
There have also been questions about how old notes coming to banks would help identify black money or turn it white. In a recent press conference, Adhia said, “Merely bringing money to banking channels does not make it white until tax is paid on the same,” he said, according to an Indian Express report.
What the money coming back to banks would do, Adhia explained, is that it would help the Income Tax Department to trace the money trail and recover tax and penalties where required.
Adhia is also the man behind two controversial tax proposals in the 2016 Budget – the decisions to partially tax withdrawals from the employees’ provident fund (EPF) and to levy 1% excise duty on gold and diamond jewellery. While the former was rolled back eventually in the face of strong opposition, the latter stayed in place, with an exception to silver jewellery.
Apart from his political career, Adhia has also authored two books on human resource management and is a known yoga enthusiast. He is even believed to have introduced Modi to yoga.
According to Reuters, some officials had objected to devaluing high-denomination notes and to the secrecy Adhia maintained around plan. With widespread criticism now coming against the way demonetisation has unfolded, some of these officials have said that Adhia and his team may have “fallen prey to ‘group think’ that ignored outside advice.”
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