Demonetisation: In the works for 6 months, 10 people in the loop, including Raghuram Rajan

Passengers gives 500 rupees for train ticket at a booking window

On Tuesday, even before Prime Minister Narendra Modi’s address to the nation was being telecast across television channels, the Reserve Bank of India (RBI) had already started dispatching the new series of Rs 500 and Rs 2,000 notes to banks across the country.

Banks were told they would be receiving the new banknotes, but none — not even the powerful heads of the biggest state-owned and private banks — were aware of the decision to demonetise the older banknotes of Rs 500 and Rs 1,000 denominations. Until they heard it on TV, that is.

The landmark decision by the government to put the notes out of circulation was a process six months in the making, and involved a lot of challenges, the biggest being keeping it confidential, sources involved with the exercise told Business Standard.

In fact, only 10 people in the system were aware of the plan in its entirety. The proposal gained traction in a meeting between officials of the Prime Minister’s Office (PMO) and the finance ministry and the logistical process was set in motion after Modi gave his go-ahead in early-May. The then RBI Governor Raghuram Rajan was also on board.

The central bank, then, ramped up production of notes of smaller denominations. It also started work on producing the new Rs 500 and Rs 2,000 notes. At the same time, RBI issued a circular on May 5, asking banks to dispense more Rs 100 notes through their ATMs.

The discussions and decisions in the early days of the proposal are all said to be verbal and unofficial.

“Maintaining secrecy was of paramount importance as any leakage of this information would have rendered this proposal ineffective. For this to work, it was imperative to catch unaccounted cash holders by surprise,” said an official.

Hence, very few bureaucrats and officials in PMO, North Block, and Mint Road knew of the plan in its entirety. These were the senior-most and most-trusted, including some secretaries and deputy-governors. For others, it was on a need-to-know-basis.

However, images of the Rs 2,000 denomination notes were already leaking online. It was not a cause of concern, though, as nobody could guess the real plan.

The signs were there already that RBI was gearing up for the move, as was evident from another circular on November 2 asking banks to dispense more Rs 100 notes through ATMs within the next fortnight. The notice was carefully worded as RBI also added that it was issuing this notice after observing that very few banks had taken steps to dispense lower denomination notes after the May 5 circular. 

Three days before the announcement, banks were only told they would be receiving new banknotes. At the Cabinet meeting before Modi’s announcement, ministers were told to keep their mobile phones outside the room and reports suggest that they were not allowed to leave till the PM’s decision had been broadcast.