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Episode 770: When India's Cash Disappeared, Part One

May 10, 2017
Originally published on May 11, 2017 10:45 am

Last November, India's Prime Minister, Narendra Modi, made a move that brought India's economy to its knees.

Modi said, starting on November 9th, most of the country's paper money would no longer be legal tender. Everything over the equivalent a US $5 bill would become worthless pieces of paper.

For an economy where 90 percent of business transactions happen in cash, this was a big deal.

This is a policy known as demonetization. Modi said India needed it because of "black money," which is money outside the tax system. He said, criminals and tax evaders hoarding stacks of cash would be stuck. Everyone else would be better off.

People spent hours in line waiting at the bank to change their old worthless bills into a new ones. Some people died in those lines. Businesses went bankrupt because people couldn't buy anything.

But, demonetization wasn't just the Prime Minister's idea. It all stems back to a PowerPoint presentation from a man known as Guru Uncle, Anil Bokil.

Today on the show, we meet the man who pitched demonetization to Prime Minister Narendra Modi. He says he's on a spiritual quest to fix India's economy. The country's money will never be the same again.

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STACEY VANEK SMITH, HOST:

Maybe the most dramatic thing to happen in economics in the last year happened in India. On November 8 at 10 p.m., the prime minister, Narendra Modi, got on TV and - out of nowhere - said all of the money in your wallet - it is totally worthless starting now.

(SOUNDBITE OF ARCHIVED RECORDING)

PRIME MINISTER NARENDRA MODI: We have decided that the 500-rupee and thousand-rupee currency notes presently in use will no longer be legal tender from midnight tonight...

VANEK SMITH: Five hundred and thousand-rupee notes? That's about 85 percent of the cash in India.

(SOUNDBITE OF ARCHIVED RECORDING)

MODI: The 500 and thousand-rupee notes horded by anti-national and anti-social elements will become just worthless pieces of paper.

VANEK SMITH: Worthless pieces of paper. Imagine that. Imagine President Trump gets on TV and says all of the 10, 20, 50 and hundred-dollar bills in your wallet - they're not worth anything anymore. And India is not like the U.S., where most people have credit cards and debit cards. Ninety percent of business transactions in India happen in cash. And a lot of that cash is, to use Modi's term, black money. Black money is basically any money that is outside of the tax system. It's become kind of a catch-all phrase for corruption in India.

Modi said, you have one month to take your cash to the bank and exchange it for these new bills that we have just minted. And you can change out a maximum of about $60 a day. Sixty dollars a day is a lot of money for most Indians; most Indians live on less than $2 a day. But it's not that much money for wealthy Indians, and this limit, said Modi, meant that criminals and big-time tax evaders would be stuck with these big stacks of cash.

(SOUNDBITE OF ARCHIVED RECORDING)

MODI: Country will get success. Thank you very much. Thanks a lot. Namaskar. Bharat Mata...

VANEK SMITH: After Modi's speech, India's entire economy ground to a halt.

(SOUNDBITE OF NEWS MONTAGE)

UNIDENTIFIED REPORTER #1: People are still lining up for days to exchange old money.

UNIDENTIFIED REPORTER #2: Has provoked a frenzy, as hundreds of millions of Indians don't have bank accounts and risk...

UNIDENTIFIED REPORTER #3: Some reportedly died of shock, while others committed suicide. Millions...

VANEK SMITH: People waited for eight hours in the blazing sun to change their money at the banks. Small businesses went bankrupt because nobody had any money to buy anything. A baby died because his parents didn't have cash for a taxi to the hospital.

SURANJAN GUPTA: (Chanting in foreign language).

VANEK SMITH: Suranjan Gupta traveled to the central bank in New Delhi from his farm in Gujarat. It was an 18-hour journey. His wife had just died, and he had found 3,000 rupees, about $45, worth of old bills that she had been saving in her sari. But the 30-day period to change money was up. Suranjan headed to the central bank in New Delhi because he heard that they could make exceptions. So he came here with this money and his wife's death certificate. But the people at the bank said, nope, you're too late. You've missed the deadline. Your cash is worthless.

He was standing on the sidewalk outside of the bank, and he showed his cash to me. He fanned the bills out. And his hands were shaking. He told me, this money represents months of farm work. I can't afford to lose it.

GUPTA: (Foreign language spoken).

VANEK SMITH: Why had Modi done this? What was he thinking? And how did he come up with this plan? I started looking into this, and I kept seeing one name.

ANIL BOKIL: My name is Anil Bokil.

VANEK SMITH: Anil Bokil.

(SOUNDBITE OF LUCIANO UGO ROSSI, VON HEMINGWAY AND WILLIAM RIDDIMS' "DON'T WANT TO LOSE TOUCH")

VANEK SMITH: Hello, and welcome to PLANET MONEY. I'm Stacey Vanek Smith. Today on the show, we meet the man who pitched this idea to Modi. And this man, this man brought one of the biggest economies in the world to its knees - 1.3 billion people - is not a famous academic or policymaker or government minister. He didn't even study economics.

What did you study in school?

BOKIL: In India, that study hardly matters because our life is such a varied institute.

VANEK SMITH: So wait - what did you study?

BOKIL: (Laughter).

VANEK SMITH: Are you not going to tell me?

It turns out, Anil's plan is not about economics or even politics. Anil Bokil says he's on a spiritual quest to fix India's economy.

(SOUNDBITE OF LUCIANO UGO ROSSI, VON HEMINGWAY AND WILLIAM RIDDIMS' "DON'T WANT TO LOSE TOUCH")

VANEK SMITH: The term for what Prime Minister Modi did on November 8 is demonetization, as in the government de-monies (ph) the paper you've been spending. Its power as currency is taken away. This usually happens when a government falls or a country has terrible inflation. India did it once back in the '70s, but the bills that demonetized were bills that most Indians didn't use. Anil was a child at that time - at least I think he was.

Do you mind if I ask your age?

BOKIL: My age? (Laughter) I am now close to my destination.

VANEK SMITH: Oh, no. It doesn't seem like it. You're very good at not answering questions.

(LAUGHTER)

VANEK SMITH: Anil Bokil has presence. He's tall and lean and sort of luminous - looks like someone turned a flashlight on inside of his head. His deep-set eyes and this very playful smile - I met him in a conference room at a hotel, where he said he would give me the same presentation he'd given to Prime Minister Narendra Modi, the one that had rocked the entire Indian economy. Anil grew up in Latur, an agricultural city in central India. Both of his parents were schoolteachers, and Anil was a shy, sensitive kid.

BOKIL: I’m an introvert, and I’m a good social observer. I can observe very keenly. That kind of high sensibility, I have.

VANEK SMITH: There was a lot of poverty in Latur, a lot of people living on less than a dollar a day.

BOKIL: That bothered me a lot.

VANEK SMITH: Anil says the economic situation around him didn't make any sense. There was plenty of food and plenty of money all around, and then there were all these people who couldn't get at any of it. It seemed so unfair and so unnecessary. Anil studied engineering and got a job as a mechanical engineer. He ran a team that designed specialty machines for pharmaceutical companies.

BOKIL: I used to create something new, so innovations were there. And such a kind of (unintelligible) resource really satisfactory thing.

VANEK SMITH: But Anil never stopped thinking about poverty. His mind kept going back to those same questions that he'd had when he was a kid. He and a group of his engineering friends started getting together to talk about social issues. They would sit around and drink tea and wonder why India struggled so much economically.

BOKIL: What is the basic cause of all this mess, why it is happening in India? That's - something is a wrong with the local system. We used to enjoy that.

VANEK SMITH: And these guys were engineers. They spent all of their time making machines and systems to fix problems. So they started to think, society is a system. The government's a system. Something is happening in those systems that is resulting in poverty, so let's fix the system.

BOKIL: Poor is a product. So that's why we are emphasizing all the technical correction, technical solution we need to have.

VANEK SMITH: Anil got more and more into this idea. He would stay up late mapping out the process that was resulting in all of this poverty and inequality. He would draw all these diagrams, just like he did when he was designing a machine. Finally, he showed his work to an economist he knew. And the economist was really interested. He thought it was really intriguing, and he got a group of his colleagues together and asked Anil to present his idea to them.

What happened at the end of the talk?

BOKIL: So it was very nice. It was amazing. There was standing ovation for that. Very memorable - it was a very memorable experience.

VANEK SMITH: Did you think, like, this is what I've got to do with my life?

BOKIL: Yeah, no. This is my duty that destiny has given me this duty. And I had to (unintelligible). No, I had to work for this cause.

VANEK SMITH: Anil quit his job and started traveling all over India, thousands of miles every month, giving his talk to anyone who would listen - local government officials, professors, business people.

How many times have you given it? Like a hundred times?

BOKIL: (Scoffing) Far more than this, far more.

VANEK SMITH: A thousand times?

BOKIL: Again, more than that.

VANEK SMITH: More than a thousand times you've given that presentation?

BOKIL: Yeah, yeah.

VANEK SMITH: Anil moved to the city of Pune. He thought it would be a good base for him. It's kind of an international city. Some of his very passionate engineering friends even followed him there. And they founded this group devoted to these ideas. They call it Arthakranti.

(SOUNDBITE OF CAR HORNS HONKING)

VANEK SMITH: So it means economic revolution?

UNIDENTIFIED WOMAN #1: Yes, yes.

VANEK SMITH: Is that - and you believe in this revolution?

UNIDENTIFIED WOMAN #1: Yes.

VANEK SMITH: Arthakranti isn't very big. There are about a dozen members, mostly accountants and engineers. And they meet here at this little cafe a couple times a month. And so I joined them one morning.

Hello.

UNIDENTIFIED MAN #1: Hello. Thanks.

VANEK SMITH: Hi.

UNIDENTIFIED MAN #2: Nice to meet you.

VANEK SMITH: Nice to meet you. Hi. Nice to meet you.

SHILPA: Shilpa (ph).

VANEK SMITH: Hello. Nice to meet you.

UNIDENTIFIED MAN #3: (Unintelligible).

VANEK SMITH: Hello. Nice to meet you.

They sit outside, drink really strong tea...

Oh, yeah. I would love some.

...And talk economics. But it's not exactly economics.

You've been a member for how many years?

UNIDENTIFIED MAN #4: Arthrakranti member? Nine years.

VANEK SMITH: Nine years - that's a long time.

UNIDENTIFIED MAN #4: Yes, yes. This is a part - what is the meaning of life, and what should I do?

VANEK SMITH: So this isn't just economics. This is, like, almost a religion.

UNIDENTIFIED MAN #4: Yes.

VANEK SMITH: At this meeting, Anil is revered. He wasn't actually at the meeting, and everybody kind of talked about him in these hushed tones. Anil is their visionary. He's this inspired, compassionate man who left his job and left his home and devoted himself entirely to making people's lives better - to fixing India's economy.

UNIDENTIFIED MAN #5: We call him Guru Mama. And guru means - guru you know, right? And mama is brother of your mother.

VANEK SMITH: Oh, it's like your uncle.

UNIDENTIFIED MAN #5: Uncle.

VANEK SMITH: You call him Guru Uncle.

So the group was meeting a couple times a month. Anil was traveling all over India hawking his ideas. And then in 2013, Anil got his big break, the chance to pitch his plan to Narendra Modi.

BOKIL: (Laughter) When I met Mr. Modi, he was not prime minister. At that time, he was chief minister for one province. That is Gujarat.

VANEK SMITH: Still, word on the street was that Modi was going places. In certain ways, he was controversial. But he was also known as a politician who made things happen, who actually had the ability to cut through India's notorious bureaucracy and get things done. And Modi was also known for thinking outside the box. He had a business background, and he didn't do kind of typical politician things. Anil had the feeling that this might be his guy. So he started trying to get a meeting with Modi - calling his office, writing emails and letters to him. Finally, he got a response. OK, Modi will see you. You have nine minutes to pitch your plan.

BOKIL: So seven minutes was sufficient time for me.

VANEK SMITH: You can do this in seven minutes if you have to?

BOKIL: Yeah, yeah, yeah.

VANEK SMITH: Anil Bokil flew to Gujarat with a couple members of Arthakranti. He fired up his projector and started the PowerPoint presentation that he had literally given a thousand times before, the one he is about to show me.

BOKIL: You just put your phones on silent, like my phone.

VANEK SMITH: And just to give you an idea of how the guru uncle rolls, he does not click his own PowerPoint. One of the Arthakranti members does it for him when he says this.

BOKIL: Click.

VANEK SMITH: And here it is, the PowerPoint presentation that rocked India.

So we're looking at a - it's like an apartment building with a bunch of pipes and...

BOKIL: Yeah. Like the height of apartments shows the responsibility of governments.

VANEK SMITH: It's a cartoon drawing of a high-rise apartment building, kind of a 1990s-style graphic. The building has all these pipes bringing water into it, and the building represents India. And the pipes represent resources, resources that the Indian government is giving to its citizens. But the pipes in the picture are all twisted and cracked, and water is spraying out into a big pool on the ground. And this, says Anil, is the problem.

BOKIL: The gushing out resources are called black money. A separate pond is forming there. That's a parallel economy. Click.

VANEK SMITH: Anil says these pipes should be bringing plenty of water into the building. India should have enough tax revenue to support its people, but the system is broken. Money is getting sucked and siphoned out of it because of tax evasion and corruption. And so the building does not have enough water, and a shadow economy has developed.

BOKIL: Click.

VANEK SMITH: In the next picture, a giant head slides in next to the apartment building. It is smiling and wearing sunglasses and sucking water out of the pond of black money with a giant straw.

BOKIL: And do you see the face, the size of face?

VANEK SMITH: It's, like, a huge head.

BOKIL: Huge head is there. That's corruption.

VANEK SMITH: It's, like, smiling and wearing sunglasses.

BOKIL: Yeah. It's like a Mafia...

VANEK SMITH: Oh, it's like from Mafia movies.

BOKIL: Yeah, use the Mafia like this.

VANEK SMITH: This is the corruption that is keeping India so poor.

BOKIL: Now who is suffering though? Click.

VANEK SMITH: A new character appears in the picture, a little hunched-over man with his hands cupped under a spigot at the end of the pipe. He's waiting for a drop.

BOKIL: But here it's the last man - unprivileged, common man. It is around 50 percent of our population. He's our poor farmer. He's not getting resources from system.

VANEK SMITH: As long as the pipes are leaking, the government will not get the money it needs. Corruption will grow. The head will get bigger, and there will not be enough for the poor farmer. So how do you fix it?

BOKIL: And what's the global definition of money?

VANEK SMITH: I don't know.

BOKIL: Money is a medium of exchange. It is the definition, no?

VANEK SMITH: You look upset with me.

BOKIL: No, nobody is. It's so. It's so. So how this can be corrected?

VANEK SMITH: I mean, you have to get rid of the big head.

BOKIL: But for that, what we have to correct first?

VANEK SMITH: The black money, the messed up pipes?

BOKIL: Yes. There's the solution we are asking for.

VANEK SMITH: I'm so excited that I got it right.

Anil says India needs to make the money that is flowing through its economy trackable, taxable. Cash is not trackable. It's anonymous. In order to really fix the pipes, you have to move away from cash and towards credit cards and digital payments. Those are transparent and traceable. Only then will India have enough water for the whole building. Only then will the poor farmer get his share. And so, Anil concludes. India needs to start getting rid of cash, demonetization.

So you showed the slide to Modi of the...

BOKIL: Yes, yes. This is the simplest way we can explain it in the form of...

VANEK SMITH: Did he say anything about the cartoon?

BOKIL: Nothing. He was so nicely - he was just understanding everything. He was smiling.

VANEK SMITH: In fact, Modi got so into it, says Anil, that the meeting went from its original nine minutes to 90 minutes.

BOKIL: Some kind of a confidence, yes. If I get a chance, I will do it.

VANEK SMITH: He said that? He said that?

BOKIL: Yeah, yeah, yeah.

VANEK SMITH: The following year, Modi was elected prime minister of India in a landslide. Anil said he started having calls and meetings with Modi's advisers. And a couple of years after that, on the evening of November 8, Anil was at his little shared office space with some Arthakranti members when, all of the sudden, everybody's phone started ringing.

BOKIL: So many phones - my phone ringing. Everyone was calling us.

VANEK SMITH: Saying, did you just see Modi on TV? I think he's doing your plan, the crazy plan that a bunch of engineers had cooked up in their off-time, the plan that Anil believed in so much he left his job and his home and devoted his life to it - the plan Anil had showed a thousand times to a thousand different people had just happened. The prime minister of India had actually done it.

Is it exciting to watch it play out in real life?

BOKIL: We don't rate our joy in excitement. We call it enlightened. I'm enlightened.

VANEK SMITH: You're enlightened?

BOKIL: (Whispering) I'm enlightened.

VANEK SMITH: I was not sure how to process any of this - the animated slides, the giant Mafia head, the enlightenment. So I took everything to Bhaskar Chakravorti. He is originally from India, and now he teaches economics at Tufts.

BHASKAR CHAKRAVORTI: Well, yeah, Stacey, I think the Indian context is helpful.

VANEK SMITH: First, on the whole spiritual aspect of Arthrakranti, Bhaskar says India has a long history of genius ideas given to people by God. He told me the story of Srinivasa Ramanujan, a young man from the south of India. He had almost no formal training in math, and totally on his own, he came up with a bunch of really sophisticated theorems that had been done by some of the best mathematicians in the world.

CHAKRAVORTI: When asked, he said that the goddess spoke to him at night and gave him the proof. In many ways, people in India are actually quite comfortable you know, going back and forth between science and spirituality. The lines are sometimes quite blurred.

VANEK SMITH: And they get blurred here, too. We have Christian capitalists and religious organizations that work with politicians all the time. Alan Greenspan once said the philosophy of Ayn Rand provided stability to his life. And anyway, says Bhaskar, taking advice from an outsider is kind of Modi's style. Modi prides himself on anti-elitism and kind of going with his gut. But what I really wanted to ask Bhaskar about was the economics. He is an economist, and I wanted him to look at a Anil's plan and tell me what he thought. Bhaskar says his first impression was that this is a really smart plan, really well thought out. But...

CHAKRAVORTI: It is very much of an engineering approach, which takes a whole bunch of different economic and social political issues and finds logical interconnections among them and then comes up with some conclusion.

VANEK SMITH: And that makes economists nervous, says Bhaskar, because economists rely on data. They compare one changing data set to another changing data set. It's nuanced and time consuming.

CHAKRAVORTI: The real world is a messy place, and simply putting these system diagrams on a page is not a sufficiently strong argument for policy.

VANEK SMITH: For instance, mafiosos getting money is not a direct result of people not paying their taxes. The two are related, but it's not that simple. It's not water in a pipe. And just because people pay more in taxes does not mean that the Mafia will get less money or that corruption will go away. Bhaskar says a society and economy - it's not a machine. It's a complex, living thing made up of complex, living people - people that you really need to take into consideration when you're making policies.

BOKIL: That's the problem. So-called educated, trained economists - they used to make use of every statistical data.

VANEK SMITH: I ran all of this by Anil, and he said this is exactly why problems like poverty never get fixed, economists and their endless data-collecting, endless speculating about the consequences of every possible action. Meanwhile, the system creating poverty gets more entrenched, and nothing happens. But the whole time Anil was talking, I just kept thinking of Suranjan Gupta, the grieving man who had found the money in his wife's sari. Anil's clean, logical drawings had made a mess in his life that caused him real harm.

BOKIL: It's inconvenience. It's not harm.

VANEK SMITH: There was some harm. I mean, some people lost their businesses. There were people who died standing in line. I mean...

BOKIL: That's normal. People are used to dying in the bed also.

VANEK SMITH: But...

BOKIL: We are not...

VANEK SMITH: OK.

BOKIL: ...That emotional because...

VANEK SMITH: You're not emotional about it?

BOKIL: We are sensible. We are not emotional.

VANEK SMITH: But, I mean, you're such a compassionate person. I mean, all of this is to help the guy on the end. But it's striking me that people that struggled the most were, like, the little old man at the end of the pipe. I mean, did you feel responsible for that?

BOKIL: That's since - he's not new to this kind of suffering.

VANEK SMITH: But they suffered more because of demonetization.

BOKIL: It was necessary. It was a must. These are my country fellows. These are my family members. But we need to have it. The treatment may feel like some kind of a pains before, but it is for the correction of your disease.

VANEK SMITH: Anil says this is what Modi liked about his plan. It was a solution - a bold, crazy, amazing solution - to some of India's biggest, most complicated diseases, corruption and poverty.

BOKIL: In the end, India will be totally different, totally different. A very graceful India we are looking forward now.

VANEK SMITH: Do this, said Anil, and it will hurt. People will struggle. Things will be bad. And then the country will start to heal. Poverty will end. People will get their dignity back. India will be the great economic powerhouse it was always meant to be.

(SOUNDBITE OF STEVE FAWCETT'S "SELL MY SOUL")

VANEK SMITH: In our next episode, we have Part 2 of the story. We look at how Anil Bokil's plan played out. We go to different parts of India, talk to people in different walks of life and see how demonetization affected them. We have a little preview after this.

(SOUNDBITE OF STEVE FAWCETT'S "SELL MY SOUL")

VANEK SMITH: We have gotten a lot of emails about demonetization. In fact, it was the thing that inspired us to actually go to India. So please tell us what you want to hear PLANET MONEY. It will make a difference. It shapes the show. Email us - planetmoney@npr.org, or find us on Facebook or Twitter.

PLANET MONEY's editor is Bryant Urstadt. Alex Goldmark produces the show. Today's episode was produced by Sally Helm. And I have a few people I would like to thank - Nishant Dahiya, Aparna Alluri, Alyson Trager (ph), Ashutosh Phalke and Chhavi Sachdev. And if you're looking for another podcast to listen to, check out Up First. It is only about 10 minutes long, but they pretty much cover all of the news you need to know for the day in those 10 minutes. Check out Up First on the NPR One app or wherever you get your podcasts.

I'm Stacey Vanek-Smith. Thanks for listening.

(SOUNDBITE OF STEVE FAWCETT'S "SELL MY SOUL")

VANEK SMITH: Next time on PLANET MONEY, we travel to different parts of India and look at the effect demonetization has had on people and ask them what they think of it.

UNIDENTIFIED MAN #6: Seventy trucks of tomato were thrown on the road by farmers. Because of demonetization, there was no buyer - this kind of problems, the government should have thought about this. Transcript provided by NPR, Copyright NPR.