Prime Minister Narendra Modi hand-picked a trusted bureaucrat, little known outside India's financial circles, to spearhead a radical move to abolish 86 per cent of the country's cash overnight and take aim at the huge shadow economy.
Hasmukh Adhia, the bureaucrat, and five others privy to the plan were sworn to utmost secrecy, say sources with knowledge of the matter. They were supported by a young team of researchers working in two rooms at Modi's New Delhi residence, as he plotted his boldest reform since coming to power in 2014.
When announced, the abolition of old notes of Rs. 500 and Rs.1,000 came as a bolt from the blue.
The secrecy was aimed at outflanking those who might profit from prior knowledge, by pouring cash into gold, property and other assets and hide illicit wealth.
A risky plan
Previously unreported details of Mr. Modi's handling of the so-called “demonetisation” open a window onto the hands-on role he played in implementing a key policy, and how he was willing to act quickly even when the risks were high.
While some advocates say the scrapping of the banknotes will bring more money into the banking system and raise tax revenues, millions of Indians are furious at having to queue for hours outside banks to exchange or deposit their old money.
Labourers have also been unpaid and produce has rotted in markets as cash stopped changing hands. Not enough replacement notes were printed in preparation for the upheaval, and it could take months for things to return to normal.
The Uttar Pradesh election coming up in early 2017 could decide Modi's chances of a second term in office, there is little time for the hoped-for benefits of his cash swap to outweigh short-term pain.
Mr. Modi has staked his reputation and popularity on the move.
“I have done all the research and, if it fails, then I am to blame,” he told a Cabinet meeting on November 8 shortly before the move was announced, according to three ministers who attended.
A direct line to Modi
Overseeing the campaign, with support from the back room team camped out at Mr. Modi's sprawling bungalow, was Mr. Adhia, a top Finance Ministry official.
The 58-year-old served as principal secretary to Mr. Modi from 2003-06 when he was Gujarat Chief Minister, establishing a relationship of trust with his boss and introducing him to yoga.
Colleagues interviewed by Reuters said he had a reputation for integrity and discretion.
Mr. Adhia was named revenue secretary in September 2015, reporting formally to Finance Minister Arun Jaitley. In reality, he had a direct line to Mr. Modi and they would speak in their native Gujarati when they met to discuss issues in depth.
“Biggest, boldest step”
Immediately after the address, Mr. Adhia tweeted: “This is the biggest and the boldest step by the Government for containing black money.”
The boast harked back to Mr. Modi's election vow to recover black money from abroad that had resonated with voters fed up with the corruption scandals that plagued the last Congress government. Yet in office, he struggled to keep his promise.
Over more than a year, Mr. Modi commissioned research from officials at the Finance Ministry, the central bank and think-tanks on how to advance his fight against black money, a close aide said.
He demanded answers to questions such as: How quickly India could print new banknotes; how to distribute them; would state banks benefit if they received a rush of new deposits; and who would gain from demonetisation?
The topics were broken up to prevent anyone from joining the dots and concluding that a cash swap was in the offing.
“We didn't want to let the cat out of the bag,” said a senior official directly involved. “Had people got a whiff of the decision, the whole exercise would have been meaningless.”
Under Mr. Adhia's oversight, the team of researchers assembled and modeled the findings in what was, for it, a theoretical exercise.
It was made up of young experts in data and financial analysis; some ran Mr. Modi's social media accounts and a smartphone app that he used to solicit public feedback.
Yet for all the planning, Mr. Modi and Mr. Adhia knew they could not foresee every eventuality, and were willing to move swiftly.
The announcement caused chaos, with huge queues forming at banks when they reopened after a short holiday.
New Rs. 2,000 rupee notes were hard to come by and barely any new Rs. 500 notes were printed. India's 200,000 cash dispensers could not handle the new, smaller, notes and it would take weeks to reconfigure them.
Filling ATMs with the Rs. 8 trillion in new banknotes that the Finance Ministry reckons are needed to restore liquidity to the economy is even trickier.
In a best-case scenario, in which India's four banknote presses churned out new Rs.500 and Rs.2,000 notes designed to replace the abolished ones, it would take at least three months to hit that target.
Secrecy paramount
Secrecy was paramount, but clues had been left.
Back in April, analysts at State Bank of India said that demonetisation of large-denomination notes was possible.
The Reserve Bank of India also disclosed in May that it was making preparations for a new series of banknotes that were confirmed in August when it announced it had approved a design for a new Rs. 2000 note.
The printing presses had only just started turning when the media finally started to run with the story in late October.
“The plan was to introduce it around November 18, but there was a clear sign that it could get leaked,” said one person with direct knowledge who, like others interviewed by Reuters , asked not to be named due to the sensitivity of the matter.
Some officials in the Finance Ministry had expressed doubts about scrapping high-value notes when the idea came up for discussion. They now feel resentment at the secrecy in which Mr. Adhia rammed through the plan on Mr. Modi's orders.
They also say the plan was flawed because of a failure to ramp up printing of new notes ahead of time.
Other critics say the Adhia team fell prey to a form of "group think” that ignored outside advice.
In the words of one former top official who has worked at the Finance Ministry and central bank: “They don't know what's happening in the real world.”
