ON SATURDAY, January 14, 1978 — two days before the Janata government announced its decision to demonetise or scrap Rs 1,000, Rs 5,000 and Rs 10,000 notes — Prime Minister Morarji Desai was in Bombay, garlanding the statue of Shivaji and addressing a massive rally of 1,00,000 people at Shivaji Park, as he enjoyed a historic reception by the Bombay Municipal Corporation.
Before he called for a “halt to the strident demands of organised sections of the country for larger portions of the economic cake,” Morarji Bhai did pause to speak of the city’s “sprouting skyscrapers which disfigured the skylines,” going on to add that he “did not think this was progress”.
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Of course, the man who was chief minister of Bombay State was also amused, knowing “Bombay did not get filtered water,” admiring the tolerant nature of those living in the city and commending their spirit of “bear it till things improve.”
There was absolutely no hint then of what was coming — with the only national news pointer from him that weekend being that he would never encourage or rule through “an Emergency”, according to the lead story in Sunday Standard — the Sunday edition of The Indian Express.
These were the early days of the Shah Commission, which was probing the excesses committed during the Emergency under former Prime Minister Indira Gandhi — with the front page always filled with submissions made by witnesses. On Sunday, in the run up to the demonetisation of 1978, Moraji Desai was seen at Bhavnagar spending 45 minutes of his public address offering to resign if anyone could prove allegations that his son Kantibhai Desai embezzled party funds.
All this was quickly drowned out on the morning of Tuesday, January 17, with news reports screaming “High Currency Demonetised”. The Government soon made two announcements — indicating that it had detected a “high level of smuggling transactions” and also openly calling out “political money from previous governments” as the trigger for the announcement.
Powai resident Rekha Vijaykar, now 75, recalls those days, saying “oil was still Rs 6 per litre.” She speaks of a different era — one marked by the “common man’s sensitivity.” According to her, the middle class and lower middle class were not affected at all considering the notes were all high value. “There was a general apprehension but it settled down with time,” she says.
The government justified the demonetisation move, saying that the high-value notes were believed to facilitate illicit transactions that were “harmful to the national economy.” President Sanjiva Reddy, a report in The Indian Express reads, promulgated an ordinance after an emergency Cabinet meeting held in utmost secrecy, withdrawing high-value currency notes from circulation.
A bank holiday was declared for the next day, to enable “them to prepare and present to the Reserve Bank of India tomorrow by 3 pm returns showing the total value of high denominational notes held by them at the close of business on January 16.
Only RBI, SBI and 71 offices of public sector banks existed then, which accepted currency notes for exchange. People were asked to declare the source, time and manner of acquisition of the high denomination notes. Persons making false declarations were liable for a term extending to three years with a fine or both.
The move saw a similar rush as on Tuesday last week with many impacted, a few even calling in sick and sporadic reports of people fainting in lines, and even two cases of heart attacks.
The decision took many by surprise as city newspapers had earlier reported that the Finance Minister in a public meeting had confirmed no such proposal was in consideration, after reports emerged that the newly formed Janata government would heed the Direct Taxes Enquiry Committee (Wanchoo Committee)’s confidential report in 1970-71. The confusion that followed was expected, with stories of smugglers scrambling.
In Mumbai, with just six branches of public sector banks open, the crowd lined outside the RBI for three days. The forms required for exchanging the notes were also in short supply, worsening the chaos as the deadline loomed close.
There are anecdotes of a few Arab nationals who reached the RBI office at Ballard Estate with “bundles of Rs 1,000” notes, demanding immediate change as they had to leave the country. They kept yelling about the counter of a posh hotel in south Bombay where they stayed as the source of the money. Except that when the RBI officials called to check, the hotel denied any knowledge.
In temple dhanpatis across the city donations surged and at least in two temples the money which poured in broke all past records. By evening of the first day of scrapping these notes the RBI governor (I G Patel) called to all priests, asking them to adhere to the Thursday deadline, quipping that the order applied as much to “gods as to men”.
According to reports, the unofficial rate at which people in Bombay were selling excess Rs 1,000 notes was as low as Rs 250. Trading in bullion — as was seen this week— didn’t take place then, with the rate for gold frozen at Rs 693.
It came to be known that Rs 1,000 notes were being held by commercial and co-operative banks. The RBI in its bulletin soon indicated that the three denominations together made up about Rs 150 crore, with Rs 1,000 notes numbering the highest.
Dr Avinash Supe, now the dean at KEM hospital, was a medical student in the 1970s, living on pocket money of Rs 30 per week. “The government hospitals faced no issue back then. Larger denomination notes were not there. Since treatment cost was also low people had no trouble in getting treatment done.”
The current demonetisation move has left patients scrambling to pay hospital dues, with several getting turned away for having notes of Rs 500 and Rs 1,000. “Back then, the transition was smooth,” Supe recalls.
In the city, the RBI exchanged the Rs 1,000 bill of a lone patient who had no one in the city and was admitted for a serious ailment. By the Thursday deadline, the RBI’s Bombay branch had received an account tally of 6,628 pieces of high denomination notes to the value of Rs 66.61 lakh.
In Bombay, late on Thursday evening, the RBI Governor made a public appearance saying “whoever was found inside the bank hall would be serviced fully but whoever happened in the queue outside would be given a token.”
This was to be shown till January 24, the last day for exchange. By then a total of 200 bank employees worked in Bombay at 53 counters daily.
The challenge now appears to be far more formidable, given the size of the economy and the scale of operation. Unlike 1978, the transition this time could be much more painful.