Years and years have gone by since the country witnessed the first and the second demonetisation of high denomination currency notes. But, the primary reason behind the move remains the same.
The country’s first demonetisation took place in January 1946 and the second, thirty two years later (January 1978).
On both the occasions, as is being pointed out now, the elimination of black money was cited as one of the major reasons. On January 13, 1946, THE HINDU carried a news story on the move, captioned as “War on black markets.”
The difference between the previous instances and the present was only in the manner in which the announcements were made. Both in 1946 and 1978, ordinances were promulgated whereas, now, Prime Minister Narendra Modi had, through a televised address to the nation, informed the public of the government’s decision.
In 1946 when the British Raj was still in power, the notes of the value of Rs. 500, Rs. 1,000 and Rs. 10,000 were withdrawn. As per the relevant portion of an official announcement made then which was reported by this newspaper, “the working capital of black market operations is believed to be held in large measure in the form of high denomination notes, and [the] government are aware of the persistent public demand for effective action against these enemies of public welfare.”
Another story published by the newspaper on January 14, 1946, quoting Associated Press of America [as it was known then], stated that “of 1,220 crores of currency in circulation in India, 200 to 300 crores of notes of Rs. 500 and higher denominations had “gone underground” into black market channels to evade Income and Excess Profits Taxes.”
Eight years later (1954), the Reserve Bank of India re-introduced the high denomination notes (Rs. 1,000, Rs. 5,000 and Rs. 10,000), according to the Museum section of the RBI’s website
Within a year of the Janata government capturing power in March 1977, the people were surprised by a late night ordinance on January 16, 1978 that the notes of the denomination of Rs. 1,000, Rs. 5,000 and Rs. 10,000 ceased to be legal tender.
