by Meera Sanyal
THE BIG REVERSE
HOW DEMONETIZATION
KNOCKED INDIA OUT
MEERA H. SANYAL
This book is dedicated with love to
The late Vice Admiral Gulab M. Hiranandani, my Father and Guide
Banu Hiranandani, my Mother and Mentor
Ashish J. Sanyal, my Husband and Friend
Contents
Introduction
1. The Surgical Strike
2. The Role of the RBI
3. Lessons from History
4. The Human Impact
5. The Economic Shock
6. Demonetization Report Card
Conclusion
Appendix 1: Text of Demonetization Announcement by Prime Minister Narendra Modi, 8 November 2016
Appendix 2: SBI Ecowrap, 7 April 2016
Appendix 3: RBI Circulars on Specified Bank Notes (SBNs)
Appendix 4: 120 Deaths Due to Demonetization
Notes
Index
Acknowledgements
About the Book
About the Author
Copyright
Introduction
Indians are a resilient people. Perhaps, all people are. But there is a stoicism about Indians, especially in the face of adversity, that foreign observers have traditionally dismissed as fatalism. In truth, there is nothing fatalistic about our tremendous capacity to accept life as it comes and to get on with it, armed with the belief that our misfortunes and those who visited them on us, will pass on … in time.
We are also an innovative race, with an incredible ability for ‘jugaad’ when faced with odds that would be daunting for others.
In recent times, there has been no better demonstration of this resilience and tremendous capacity for innovation than the response to and recovery from the dramatic demonetization announced by the Prime Minister, Narendra Modi, on 8 November 2016.
I write this book both as a banker and as a deeply committed and active citizen of India, for I believe the demonetization story must be told.
Ours was an armed forces family. My father was transferred to different parts of the country during our childhood. During our many transfers we were exposed to the diversity of India and grew up with people of all castes and religions. It was an India in which we were all striving to make something of our lives, in a country that was emerging from the scars of Partition.
Ours was a home filled with books, laughter and arguments. My brother and I were encouraged to have a point of view – and every point of view was acceptable so long as it was expressed courteously and backed with logic and facts. Our mother, a lawyer by training, urged us to excel in our studies. She taught me to read and write in our mother tongue, Sindhi, which laid the foundation of my love of languages. Our father, an idealistic naval officer, told us that we must serve our country, and through personal example, taught us what it meant to truly love one’s country.
My first exposure to living abroad was at the age of 17, when I accompanied my parents to the still extant Soviet Union. We lived in a small town in Georgia, on the shores of the Black Sea. I learnt Russian and studied for my Bachelor of Commerce degree via a correspondence course. The Soviet economic system was visibly under pressure. I gained an understanding of the economic perils of a Communist state and what it felt like to live under the whims of an authoritarian regime. The goodness and warmth of the ordinary people we interacted with reminded me of people back home. So did the endless queues; though, in comparison, life in India seemed quite advanced!
I returned to Sydenham College in Mumbai to complete my degree and threw myself into college activities like debating, quizzing and dramatics. I continued my Russian studies and took up French and German in addition. An international students’ organization called AIESEC was trying to establish its Indian chapter, and I became one of its founding members.
This was my initial grounding in management. Though full-time students, we set up the organization, raised funding, organized traineeships for Indian students to work abroad, and welcomed foreign students to be trained in India. I myself undertook two traineeships, the first with NKT, Denmark, a telecom cable manufacturer, and the second with Electrolux, Sweden. I learnt how to roll up my sleeves and work on the factory floor and go door-to-door, selling vacuum cleaners! I got exposed to the Scandinavian socialist economic model, where the government encouraged free market policies but also ensured a basic standard of living and a level playing field for everyone.
After completing my BCom degree with a top 10 rank in Mumbai University, I joined IIM Calcutta for an MBA programme. In the meanwhile, I had secured admission and a scholarship to INSEAD, one of the leading business schools in the world. After a term at IIM, I left for France. After graduating at the top of my class, I was offered highly paid jobs in the USA, France and Sweden, but chose to return to India and acquire a solid foundation in banking and finance.
I started my banking career in the current accounts department of Grindlays Bank in Kolkata. The hours were punishingly long since the entire operation was manual. In addition, I had to deal with seven aggressive trade unions and their several members who worked in my department. It was a trial by fire, but it gave me a thorough grounding in banking and taught me what management was truly about. When I started to learn Bengali, the doors of communication with my team opened, as they appreciated the effort more than my knowledge of the language.
I grew to be the Planning Officer for eastern India, and led the first wave of computerization for the bank’s eastern region. But I wanted to be an investment banker, and so joined one of the best merchant bankers in the country. This was the era when India was just beginning to welcome foreign investment. In addition to foreign currency loan syndications and equity offerings, I specialized in advising multinational corporations on how to enter India. Working closely with the ministries of finance, commerce and industry, I secured approval for the first foreign investment into the financial services industry in India – that of the investment bank Lazard.
I owe a great deal to my boss in this organization, for he not only gave me a grounding in investment banking and corporate finance, but also allowed me to work flexible hours, enabling me to fulfil my duties as a mother and wife, while continuing with my job. The support and encouragement of my husband, my parents and in-laws made it possible for me to balance home and career.
The winds of economic liberalization were sweeping across India at the time. In the course of my interactions with senior bureaucrats, I was often requested to submit white papers on various topics. I loved dealing with such policy challenges, and so resigned from my job and set up a think tank to provide policy inputs, to both corporates and the government. Post the 1992 liberalization, ABN AMRO approached me to head their investment bank in India.
ABN AMRO was one of the world’s leading project finance banks. I was happy to join it as this gave me an opportunity to gain the expertise needed for financing the massive infrastructure projects on the horizon – power, telecom, highways, airports, ports, and oil and gas projects. I spent intensive months with the bank’s expert teams in Chicago to learn how to structure these long-term, complex financings and understand the risks associated with them.
Over the next five years, our team became the powerhouse of project finance for infrastructure projects in the country. We arranged financing for all the initial telecom operators in India and several major power projects, with due financial prudence. One project I declined to finance was the Dabhol Enron power project, on the grounds that the power purchase agreement was clearly unfair to the Indian consumer and hence could not be economically viable. To my regret, I was overruled and the financing was arranged via Chicago, resulting in large write-offs and losses for the b
ank.
I feel very proud and privileged to have arranged funding for the power sector, which has led to power sufficiency and the electrification of villages across the country, and for the telecom sector, which has led to a mobile phone in the hand of almost every Indian. One of my most vivid memories of the time was working hard to persuade credit committees in Amsterdam to extend facilities to Indian start-ups in the telecom business. A sceptical colleague who had asked sarcastically if I wanted the bank to finance mobile phones for millions of poor Indian farmers, had the grace to call me the other day and say that the seeds of a digital India, powered by mobile telephony, were sown through the financing efforts undertaken by me and my team.
In 1997, I was transferred to Singapore to head the Corporate Advisory Function for the bank in Asia. Within a few months, the Asian financial crisis struck, crippling many of our bank’s major customers. Covering countries as disparate as Thailand, Korea, Indonesia and Vietnam, our team helped to restructure and revive the fortunes of many major ‘Asian tiger’ companies. During my stay in Singapore, I took the opportunity to study Mandarin.
In 1999, I was assigned the task of drafting the acquisition bid for Bank of America’s consumer banking operations in Asia. After the acquisition was finalized, I returned to oversee the integration of the two banks in India. The experience of banking operations and IT gained from my days at Grindlays Bank now proved to be very helpful. I jettisoned the old consumer banking platforms of both banks and, in collaboration with Infosys, implemented their new banking platform, Finacle. We were the first bank in the country to adopt the Finacle platform and helped Infosys customize it and introduce it in many parts of the world. This software is now the backbone of the Indian banking system.
During my travels to our branches across the world, I observed that we had lots of employees in expensive office spaces, doing routine bank processing activities. In 2001, I proposed to the Managing Board of ABN AMRO that by off-shoring these activities to India, we could save significant costs and increase profitability for the bank.
They gave the go-ahead, and I established the first office of a bank subsidiary that we called ACES, in an abandoned, derelict mill in the Lower Parel area of Mumbai. Our first employees were mostly children of the displaced mill workers, living in the chawls in the area. The excellent quality of their work gave the bank confidence to send more work to India. In the years that followed, I hired 15,000 people across new processing centres in Mumbai, Chennai, and the NCR region of Delhi, handling work not just for ABN AMRO but also several other major international banks.
While we were building ACES, the bank started a microfinance programme, which I mentored. Through our microfinance lending, we financed over 6,50,000 women across the country, empowering them to lift themselves and their families out of poverty. When the microfinance crisis in Andhra Pradesh started to choke this lifeline of credit, I secured approval to set up a foundation that would provide outright grants, training and market access to the poorest women.
Over the years, I took the opportunity to travel to their villages and live with many of our women beneficiaries in their homes. It was a great learning to see first-hand how effectively they used small amounts of seed capital, often as little as ?5,000, to build successful businesses and transform their lives. Their entrepreneurial talent, ability to work long hours and generosity of spirit were heart-warming and inspiring. Many of the women we financed stood for local elections in their villages and districts – providing efficient and competent governance and changing the lives of those in their community.
In 2005, I was appointed as the Chief Operations Officer for Asia, overseeing countries from Dubai in the West to Australia and Japan in the East. As we had successfully transferred banking operations to India, I now proposed that we consider outsourcing the bank’s IT operations, this time to the major Indian IT companies. As a senior member of the global team overseeing the process, I was delighted when Tata Consultancy Services (TCS) and Infosys were selected on merit. For both TCS and Infosys, this was a landmark deal and the single largest, multi-year, multi-million contract that either had ever won to date, leading to the creation of many jobs in India and valuable export earnings.
During this time, I was selected for the Advanced Management Programme at the Harvard Business School where I was fortunate to interact with leading luminaries from all over the world. A few months later, the Royal Bank of Scotland (RBS) made a bid for ABN AMRO, and, in 2007, acquired the bank for $99 billion. In the process, RBS became the largest bank in the world.
At this stage, I was offered a global role in RBS, but chose to stay in India as the CEO and Chairperson of the bank, Foundation, and ACES. In ABN AMRO, and subsequently in RBS, we were the leading financiers for India’s diamond sector, which in 2013 employed over three million people, contributing six per cent to India’s GDP and billions of dollars in exports each year. With a successful consumer and corporate banking business, a profitable treasury and a thriving microfinance portfolio, the bank was a systemically important bank in India. I headed ABN AMRO Bank and subsequently RBS in India from 2007 to 2013, during which period we received high ratings by all three of our regulators – the Reserve Bank of India (RBI), the Bank of England, and De Nederlandsche Bank, the Central Bank of the Netherlands. Equally important, we were ranked by our customers and staff in the top 10 per cent of organizations in India, for customer service and employee engagement.
The horrendous terrorist attack on Mumbai on 26 November 2008 exposed the incompetence and absence of governance and accountability in our administrative and political machinery.
I decided to step forward and use my experience and financial and administrative skills – to make a difference for my city and my country.
I felt that the time had come – for all of us who cared passionately about the idea of India and the future of Indians – to stop sitting in our living rooms, watching TV debates and criticizing the government, and to step up and get actively involved in improving the governance of our country.
With this aim, I took leave from the bank to stand as an independent candidate from the Mumbai South Constituency in the 2009 Lok Sabha elections. As a result of my decision, people all over the country were inspired to stand against the established, inefficient and corrupt political parties. A host of independents, including well-known names such as noted danseuse Mallika Sarabhai in Ahmedabad and aviation entrepreneur Captain Gopinath in Bengaluru, joined the fray.
My campaign received support from young people across the country, who felt it symbolized their aspirations for a clean, efficient, corruption-free India, where they could flourish in an environment of equal opportunity. This theme was taken up subsequently by Anna Hazare and the India Against Corruption movement, which finally culminated in the formation of the Aam Aadmi Party (AAP) led by Arvind Kejriwal.
South Mumbai is the financial capital of India, and in 2009, it contributed 39 per cent of India’s direct taxes. However, other than for the ultra-rich, it is a hard place to live in and work. Real estate is amongst the most expensive in the world, commuting to work by the jam-packed suburban rail system can be life-threatening, and there aren’t enough schools, colleges, and medical and sport facilities. Open spaces are few and far between, and the civic infrastructure has crumbled.
During my campaign, I walked through each and every street, slum and chawl in my constituency – meeting the brave people who struggled every day, against great odds, in this erstwhile city of gold. The perceived threat of my candidacy was so great that even the then Prime Minister of India came to Mumbai, to appeal to voters not to vote for independents like me!1 And though I lost the election, I learnt a lot about the politics of our country.
Post the 2009 elections, I resumed my job as the Chairperson and CEO of the bank. During the next five years, I spent all my spare time in learning the dynamics of my constituency and searching for solutions that would help improve both the quality of life and governance i
n south Mumbai. My study led to me to conclude that the root cause for poor conditions of life there was the shortage of land. I also found that there was a large parcel of land, promised to the city by the former Prime Minister, Indira Gandhi, which could provide an immediate solution to the city’s space problems.
This area, which I called the PortLands, measures about 1,000 acres in the heart of our city. It was freed up when the operations of the Mumbai Port moved to JNPT across the harbour. Instead of making this space available to the city as directed by Indira Gandhi (a directive which was subsequently ratified by the Ministry of Environment), it was being misused.
Shipbreaking, a highly toxic and polluting activity, was carried out without any environmental safeguards at Darukhana, a mere 5 km from the Chief Minister’s office, the Mantralaya. This became the graveyard even for India’s iconic aircraft carrier, the Vikrant. Over two million tonnes of coal were dumped and stored annually in the adjoining area of Haji Bandar. The coal dust from these coal mountains had been polluting the lungs of the city for over 10 years. As a result, the leading causes of death in Mumbai in 2014 were respiratory illnesses such as lung cancer, tuberculosis, asthma and emphysema. Appeals from the local Koli fishermen and other residents of the area to stop these activities had fallen on deaf ears for many years – ignored by the Port Trust, the Maharashtra Pollution Control Board and every political party.
I believed that reclaiming Mumbai’s PortLands could be the key to the rejuvenation of our city. Polluting activities had to be stopped and the area redeveloped to provide the much needed social infrastructure and public amenities that the people of Mumbai were starved of: schools, colleges, hospitals, parks, sea-facing promenades, sports, arts and cultural centres, entrepreneurial incubation hubs and more.
During this time, I was invited by the US Secretary of State, Hillary Clinton, as the Indian representative on her International Council on Women’s Business Leadership (ICWBL). Since 2011, I have been privileged to work and interact with secretary Clinton and many other visionary women leaders on the council, such as Maud Olofsson, former Deputy Prime Minister of Sweden; Sri Mulyani Indrawati, former Finance Minister of Indonesia; Sheikha Lubna bint Khalid bin Sultan Al Qasimi, Minister of Development of the UAE; Wanda Engel Aduan, former Minister of Social Assistance of Brazil; Judith Rodin, President of the Rockefeller Foundation; Melanne Verveer, former US Ambassador-at-Large for Global Women’s Issues; and Cherie Blair, among others.