How Hasmukh Adhia-led team of 5 secretly plotted note ban

New Delhi: Prime Minister Narendra Modi handpicked a trusted bureaucrat, little known outside India’s financial circles, to spearhead the radical demonetisation move to abolish 86 per cent of the country’s cash overnight and take aim at the huge shadow economy.

The bureaucrat, revenue secretary Hasmukh Adhia, and five others privy to the plan were sworn to utmost secrecy, say sources. They were supported by a young team of researchers working in two rooms at the Prime Minister’s residence as Mr Modi plotted his boldest reform since coming to power in 2014.

When announced, the abolition of the Rs 500 and Rs 1,000 currency notes 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.

Previously unreported details of Mr Modi’s handling of the move open a window onto the hands-on role he has 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 notes will bring more money into the banking system and raise tax revenues, millions of Indians are furious as they have to queue for hours outside banks to exchange or deposit their old money.

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,” Mr Modi told a Cabinet meeting on November 8 shortly before he announced the move in a televised address, according to three ministers who attended.

Overseeing the drive, with support from the backroom team camped out at Mr Modi’s residence, was Mr Adhia, a top finance ministry official. The 58-year-old bureaucrat served as principal secretary to Mr Modi from 2003 to 2006 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.

While some economists back the demonetisation move, the speed of its implementation is widely seen as radical. “One is never ready for this kind of disruption — but it is a constructive disruption,” said Narendra Jadhav, a 31-year veteran and former chief economist of the RBI who is now a BJP member of the Rajya Sabha. Mr Modi, in his TV address to the nation, had cautioned that people could face temporary hardship as replacement '500 and '2,000 notes were introduced. Calling for an act of collective sacrifice, he promised steps to soften the blow for the nine in 10 Indians who live in the cash economy.

Immediately after the address, Mr Adhia sent a tweet: “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 resonated with voters fed up with the corruption scandals that plagued the last Congress-led UPA 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 the  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. “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 modelled 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 couldn’t foresee every eventuality, and were willing to move swiftly.

Secrecy was paramount, but clues had been left. Back in April, analysts at State Bank of India said that the demonetisation of high-value notes was possible. The Reserve Bank of India also said in May it was making preparations for a new series of banknotes that were confirmed in August when it announced it approved a design for a new Rs 2,000 rupee 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 be leaked,” said one person with direct knowledge who, like others who Reuters interviewed, asked not to be named due to the sensitivity of the matter.

Some finance ministry officials 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 the printing of new notes ahead of time.

Other critics say the Adhia team fell prey to a form of “groupthink” that completely ignored outside advice. In the words of one former top official who has worked at the finance ministry and the RBI: “They don’t know what’s happening out in the real world.”