Note: This article was originally published on October 7, 2017, and is being republished in the light of S. Gurumurthy’s appointment to the board of the Reserve Bank of India.

Many believe the demonetisation announced on November 8, 2016 was a whimsical move by Prime Minister Narendra Modi even as he stuck to form by obtaining prior approval of the Reserve Bank of India before announcing the momentous decision. Others contend that while the move was announced suddenly in order to take everyone by surprise, it was nevertheless premeditated. Importantly, it is said that the decision to demonetise 86% of the currency in circulation in the country was based on inputs from a few close advisers of the prime minister, notable among whom was Swaminathan Gurumurthy.

Whatever the truth of notebandi’s provenance, today, however, the 68-year-old chartered accountant and ideologue of the Rashtriya Swayamsevak Sangh, appears less than enthusiastic about the impact that the move has had on the Indian economy.

A chartered accountant by qualification and well-known mediator in corporate disputes involving families, Gurumurthy is a columnist by vocation and an activist too: he is co-convenor of the Swadeshi Jagaran Manch, which espouses economic nationalism, Hindutva-style. He belongs to a small group of thinkers whose views are given considerable importance by the prime minister.

Gurumurthy’s equation with former deputy prime minister and veteran leader of the Bharatiya Janata Party, Lal Krishna Advani, was once much talked about. His association with Modi goes back to the early-1990s, when he apparently acted as an adviser to him and to Amit Shah, now BJP’s national president. His proximity to Modi may be inferred from the email correspondence of former additional advocate general of Gujarat Tushar Mehta in the wake of the 2002 communal riots that was presented in the Supreme Court by advocate Prashant Bhushan in October 2015.

Gurumurthy, who was born in a poor family in Tamil Nadu’s South Arcot district and obtained a scholarship to study for a bachelor’s degree in commerce, often criticises professional economists in general and foreign-educated economists in particular. He sees himself as an ardent proponent of “Indian economics” and believes in the virtues of economic “self-reliance”. One of the favourite issues he engages with is “jobless growth”. He has often railed on this issue by citing numbers contained in the employment survey report by the National Sample Survey Organisation collated by the then Planning Commission.

The report cited an overall net increase in employment of 60 million between 1999 and 2004 (when the Atal Bihari Vajpayee government was in power) while the net increase in employment between 2004 to 2010 (during the United Progressive Alliance government led by Manmohan Singh) was only 2.7 million. In the run-up to the 2014 Lok Sabha elections, Modi frequently cited these numbers – for instance, in a speech made in March 2014. Soon after Modi became prime minister, Gurumurthy, in June 2014, is believed to have made a presentation to the Union cabinet on this topic.

Sources in the BJP who spoke on condition of anonymity say that of late, Gurumurthy has been defensive about the fact that job creation has not taken place during Modi’s term in office. In fact, government data indicates that there has been an absolute decline in employment between 2013-14 and 2015-16, perhaps for the first time in the history of independent India.

Niti Aayog and ‘Bharatiya’ economics

Within the Sangh parivar, it is believed that Gurumurthy was among those who advised the prime minister to set up a new body in place of the Planning Commission. This change was announced in August 2014. In January 2015, he provided inputs during the drafting of the mission statement of the NITI (National Institution for Transforming India) Aayog in January 2015.

The cabinet note for the formation of the NITI Aayog stated: “The new institution has to zero in on what will work in and for India. It will be a Bharatiya approach to development”. This statement echoes the words of Gurumurthy.

He is a firm believer in the ability of the country’s 50 million-odd small and micro enterprises to create jobs and transform the country’s economy. Sources say that the government initiative MUDRA – or the Micro Units Development and Refinance Agency – that was announced in the February 2015 Union budget was identical to what Gurumurthy had suggested and prescribed. They add that he not only helped conceptualise, design and draft the MUDRA scheme, he subsequently endorsed his own idea once it was adopted.

MUDRA essentially advocates relaxation of risk norms and greater generosity in lending to small and medium businesses.

Between April 2015 and May 2016, the RBI under its governor at the time, Raghuram Rajan, was concerned about growing non-performing assets (NPAs) in the banking system and was averse to the idea of reducing/relaxing risk weights applicable to banks while lending to small and medium enterprises. It is claimed that Gurumurthy was opposed to Rajan’s move to get banks to adopt stricter norms for recognition of non-performing assets.

While delivering a speech in Chennai last month, Gurumurthy was quoted as saying the government “grievously failed to implement MUDRA first” before demonetisation which was the “original strategy”. What he didn’t say was whose original strategy this was.

During the speech delivered at the Chennai International Centre, Gurumurthy remarked that the establishment of the MUDRA Bank “was stopped by the Reserve Bank, which did not want to give up monetary control” and “control over financing smaller players… Hence, aggregate consumption and job generation have stagnated and the informal sector borrows at 360-480% interest rate.” He claimed that the “RBI and the department of financial services (in the Ministry of Finance) are insensitive, and this will hit growth badly.”

The MUDRA scheme has not really been a grand success. Official statistics suggest that the number of loans for the self-employed has not gone up significantly. BJP sources alleged that when the MUDRA scheme failed to take off, there was an effort by various individuals, including Gurumurthy and BJP MP Subramanian Swamy to discredit Rajan and not give him the customary extension of term. Soon thereafter, on June 18, 2016, Rajan announced that he would not seek an extension of his term as RBI governor.

Fear of high denomination notes

Four days later, Gurumurthy wrote an article explaining why Rajan was not given an extension of his term as RBI governor and explicitly argued that high denomination notes were fuelling growth of gross domestic product (GDP). In that article, he predicted that there would be a new RBI governor soon who would agree with the government’s new ideas after which the “war on high denomination notes will begin”.

Gurumurthy’s article, which appeared on June 22, 2016, was either remarkably prescient or he had an inkling of the prime minister’s interest in demonetisation of high-denomination currency notes.

Incidentally, Swamy and Gurumurthy were both involved in the anti-corruption movement in 2011 that was led by Anna Hazare and Arvind Kejriwal. Gurumurthy and Ajit Doval (now national security adviser) hosted Swamy at the Vivekananda International Foundation, a right-wing think tank. Swamy was then still a member of the Janata Party. Gurumurthy apparently convinced the BJP to take Swamy into the party in 2013 before the Lok Sabha elections.

On November 8, 2016, Modi announced the scrapping of the Rs 500 and Rs 1000 currency note. Gurumurthy then backed the government’s decision and explained the rationale for demonetisation. He argued that there was too much cash in the economy and that there was a pressing need to extinguish such excess liquidity. An otherwise-reticent and publicity-shy individual, he granted three television interviews in quick succession and even responded to former prime minister Manmohan Singh’s trenchant criticism of demonetisation in an article in the Hindu.

‘Hitting the bottom now’

Gurumurthy currently seems more than a bit disappointed with the impact that demonetisation has had. He seems to be targeting the RBI and the Ministry of Finance for the negative consequences of notebandi. He talks of a lack of communication between the finance ministry and a “confidential cell” that allowed black-money holders to get away. He even attacked the Supreme Court for “wanting” riots to take place after demonetisation.

Here are a few quotes from his September 22, 2017 speech in Chennai that have been taken from news reports published in the Hindu and the Hindu BusinessLine:

I have a feeling we are hitting the bottom now. There is no way this situation can continue. Because the government has to take a decision whether to have this whole lot of NPA regulations, the MUDRA decision; if these two-three decisions are taken in the coming six months, the economy is poised to take off. I have faith that given the right policy input, the economy will pick up immediately…

Too many disruptions, too soon. This is one of the things which a government in urgency is doing. Demonetisation, NPA rules, bankruptcy law, GST (goods and services tax), thrust against black money — everything at one stretch; commerce cannot absorb all this…

It is a corrective step. I consider demonetisation as an investment… One of the key successes of demonetisation is that nearly 30 crore bank accounts were opened, and brought huge savings into the banking system. One of the fallouts of demonetisation is it brought unmonitored money into the system…Irresponsible monetary management has been stopped, tax base has risen by about 20 per cent and advance tax for 2017-18 has increased by nearly 42 per cent… Today, it is not possible to bring black money to invest in land, gold or equity on the scale that used to happen in the past.

I have not come here to defend the government… despite its many benefits, demonetisation was implemented badly… . due to a communication error between the Finance Ministry and a confidential cell, black money holders escaped the demonetisation dragnet.

… withdrawal of cash crippled the informal sector, which generated 90% of jobs and satisfied 95% of its capital requirements from outside the banking system….

… political pressures on the government had reduced the many objectives of demonetisation to one: of ending the circulation of black money….The demonetisation scheme had a big hole. It was because there was no coordination within the government. The advice the government of India received was that demonetisation and the income disclosure scheme should be announced simultaneously. Because of the communication gap within the system, income disclosure was announced first and demonetisation, later.

Demonetisation became a gas chamber. That was the first major strategic fault…Instead of collecting the tax in advance, the government is now chasing the black money to collect taxes…GST is a welcome measure, but it is too ambitious. It wants to formalise the Indian economy in one go. It’s not possible. It has to be a calibrated formalisation of the Indian economy.

The media is failing, economic think-tanks are not doing original work for India because they are still on a one-size-fit-all model… (After demonetisation) the media wanted riots, the Supreme Court wanted riots. The people did not riot. It goes to prove the psychology of India as a peaceful nation…

Gurumurthy is said to be a great networker. His contacts cut across classes and regions. Among the clients of the accountancy firms with which he has been associated have been companies controlled by the Chhabria family and liquor baron Vijay Mallya. In 2003, he played a key role in resolving a dispute over the control of assets and businesses between the families of Rahul Bajaj and his younger brother Shishir Bajaj that had gone on for more than six years. More recently, Gurumurthy is believed to have played a role in brokering the deal between Russia’s Rosneft, the Oil and Natural Gas Corporation and the Essar group.

He was a great confidante of the late Ram Nath Goenka who founded the Indian Express group of publications. In 1986, he co-authored (together with Arun Shourie) a series of articles against the Reliance group of companies, then headed by Dhirubhai Ambani. In 2003, Gurumurthy, on behalf of the SJM, demanded a criminal investigation into the controversial Enron power project in Dabhol, Maharashtra. In 2010-11, he was among the convenors of a task force on black money set up by the BJP. In 2012, he gave a clean chit to Nitin Gadkari (who was then BJP president) when allegations of financial misdemeanour were levelled against his Purti group of companies.

Gurumurthy has been editing the Tamil magazine Thuglak after the demise of its founder Cho Ramaswamy. Among his close friends is Revenue Secretary Hasmukh Adhia who moved from the Gujarat government to North Block in Delhi as secretary, financial services in the Ministry of Finance. Adhia is a trusted confidante of Modi. It is said that Adhia was introduced to yoga and the finer nuances of Hinduism by Gurumurthy. Adhia holds a doctorate degree in yoga from Swami Vivekananda Yoga University in Bangalore. Besides Adhia, another officer of the Indian Administrative Service (IAS) to whom Gurumurthy is said to close to is T V Somanathan in the Prime Minister’s Office. In fact, he is said to have recommended his appointment.

India Today magazine ranked him in 30th place in its 2017 list of “India’s 50 Most Powerful People”. He was the subject of media attention in 1997 when he accused two senior government officials of acting as American “moles” without directly naming them. Later, in 2006, in a newspaper article, he named the people he was accusing: V.S. Arunachalam and former Indian ambassador to the US Naresh Chandra.

Of late, Gurumurthy’s relations with Swamy seem to have changed somewhat. In a tweet sent on September 22, Swamy remarked: “Spin talk can never cure our economic ailments. In fact it ends up in tailspin. CAs and laymen must know macro economics is complex Maths”. CAs, in this instance, presumably means chartered accountants.

I have known Gurumurthy for quite some time. In 1997, he appeared on a television programme that I used to anchor for CNBC-TV18 and vigorously participated in a debate on “swadeshi economics” with Bibek Debroy, who currently heads the Prime Minister’s Economic Advisory Council. Before writing this article, I wanted to speak with Gurumurthy to seek certain clarifications from him on the record. But I was not successful.

Paranjoy Guha Thakurta is an independent journalist.