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Dec 20, 2016

Was Demonetisation Really Ambedkar’s Idea?

Both the BJP and Prakash Ambedkar have claimed that demonetisation was B.R. Ambedkar's brainchild. But a closer look at his writing proves otherwise.

Both the BJP and Prakash Ambedkar have claimed that demonetisation was B.R. Ambedkar’s brainchild. But a closer look at his writing proves otherwise.

People scatter rose petals in front of a portrait of B.R. Ambedkar. Credit: Reuters

People scatter rose petals in front of a portrait of B.R. Ambedkar. Credit: Reuters

A dubious piece of information has been in circulation ever since an interview of Prakash Ambedkar was published in the Indian Express, following the demonetisation drive unleashed upon the country by the Narendra Modi government.

In the article entitled ‘B R Ambedkar said currency should be replaced every 10 years’, it was implied that demonetisation was B.R. Ambedkar’s idea. In the interview, Prakash said: “It was way back in 1923, Babasaheb (B R Ambedkar) in his book titled ‘Problems of Indian Rupee’  [sic] had recommended that the Indian currency should be replaced every 10 years to end the menace of hoarding of rupees and checking inflation.”

Prakash claimed that Modi’s decision to demonetise Rs 1000 and Rs 500 currency notes was in consonance with Babasaheb’s theory.

Coming from Prakash, the grandson and heir of the great thinker and architect of modern India, the idea that Babasaheb would have endorsed, even in principle, the current demonetisation scheme, has far-reaching consequences.

Babasaheb’s insights on economics and his contribution to our economy are rarely acknowledged. His ideas deserve considerably more research and citation. However, in his work, The Problem of the Rupee: Its Origin and its Solution, there is no mention of demonetisation by replacing currency every ten years. The basis of Prakash’s claim, if it was not misreported, is, therefore, unclear.

In The Problem of the Rupee, Babasaheb advocated the gold standard for the Indian currency system, as opposed to the gold exchange standard. He chronicled the historical evolution of the Indian currency system and documented the efforts of the colonial British regime in demonetising gold and silver.

In the chapter titled ‘From a Double Standard to a Silver Standard’, Babasaheb examined the proposals of the East India Company for the reform of Indian currency in the mid-1800s. He hailed the company’s efforts in fixing upon a monometalic standard as the basis of the future currency system in India. The reorganisation resulted in the demonetisation of coinage in use in the territories it governed. Babasaheb wrote:

“Taking stock of the position as it was at the end of 1833, we find that with the exception of the Sicca rupee and the gold mohur of Bengal, that part of the scheme of the Directors [of the East India Company] which pertained to the uniformity of coinage was an accomplished fact. Nothing more remained to carry it to completion than to  discontinue the Sicca rupee and to demonetis e gold. At this point, however, arose a conflict between the Court of Directors and the three Governments in India. Considerable reluctance was shown to the demonetisation of gold. The Government of Madras, which was the first to undertake the reform of its currency according to the plan of the Court, not only insisted upon continuing the coinage of gold along with that of the rupee, but stoutly refused to deviate from the system of double legal tender at a fixed ratio prevalent in its territories, notwithstanding the repeated remonstrances addressed by the Court. The Government of Bengal clung to the bimetallic standard with equal tenacity.”

Babasaheb noted that the year 1833 saw important changes in the administrative relations between the three presidential governments in India – Madras, Bengal and Bombay. By an act of parliament, the imperial government set up a centralised system for legislative and executive authority over all of India. This change brought about a change in the prevailing monetary systems and it required local coinages to be replaced by the imperial coinage. “In other words, it favoured the cause of a common currency as against that of a mere uniform currency [i.e. a currency composed of like but independent units].”

Babasaheb elucidated the legislative history of the rupee, observing that the Currency Act (XVII of 1835) would “ever remain memorable in the annals of the Indian history. It marked the culminating-point of a long and arduous process of monetary reform and placed India on a silver monometallic basis, with a rupee weighing 180 grs. troy and containing 165 grs. fine as the common currency and sole legal tender throughout the country.”

References to demonetisation are also made in the chapters entitled ‘The Silver Standard and the Dislocation of its Parity’ and ‘Towards a Gold Standard’. All such mentions in The Problem of the Rupee are in the context of demonetisation of metals and not paper currency.

It is of utmost importance to note that Babasaheb neither advocated demonetisation nor denounced it. He merely documented the history of legislative and administrative actions in demonetising the two metal currencies – gold and silver – which had prevailed in the past. Nowhere in his entire treatise does Babasaheb suggest that currency should be replaced every ten years. Nor does he offer demonetisation of currency as a solution to curb hoarding and to check inflation.

The ‘Statement of Evidence’, submitted by Babasaheb to The Royal Commission on Indian Currency and Finance, published in 1926, offered solutions for the reform of Indian currency, which included taking away the government’s access to currency mints. He advocated for the constitution of a central bank to issue and manage currency rather than vesting control for its management and supply in the government’s hands, for he was certain that a government would surely issue more money than necessary. While referring to the colonial administration’s views on the principles governing the paper and rupee currency in the early 1900s and during the First World War, he said:

“Now, if it is dangerous to entrust a Government with the power to manage currency, how very dangerous is it to entrust it to the Government of India, which professes to carry out its trust on the basis of doctrines such as these [increase and decrease the currency to suit the needs of commerce]! No one is so ill-instructed in these days as to suppose that these are sound maxims. If security is enough, what need is there for convertibility? If currency is issued only in response to trade demand, what fear is there of over-issue? A Government acting on such a principle may well go on indefinitely increasing the currency without remorse. History abounds with instances of ruin caused by the management of currencies on such naive principles as these.”

The commission went on to recommend the formation of a central bank (the Reserve Bank of India), which would separate the control of currency and credit from the government. The Reserve Bank of India was established under the RBI Act of 1934 as the banker to the central government and it launched operations from April 1, 1935.

The present regime’s decision to demonetise currency notes is clearly one taken by the prime minister. Such a move would have been anathema to Babasaheb, who was against governmental control and involvement in money supply. The present measure, to state the least, is exactly the opposite of what Babasaheb stood for.

It now appears that the BJP has taken advantage of the erroneous seal of approval, which it has presumably gained from Prakash’s interview.

In Uttar Pradesh, where state assembly elections are around the corner, the BJP is loudly invoking Babasaheb’s name in its favour by claiming that the party is realising his “dream” by demonetising currency notes. The farcical appropriation of Babasaheb by the BJP with the help of this endorsement is to be rued.

Dushyant Kumar Gautam, head of the BJP’s Scheduled Castes Morcha, reportedly said in late November that those opposing demonetisation are “hurting the sentiments of Dalits by opposing Ambedkar’s views”. The ploy even made its way to Karimnagar in Telangana, where BJP MLC N. Ramchander Rao stated, “Demonetisation was the idea of Dr B R Ambedkar,” while addressing a meeting that marked the icon’s 60th death anniversary on December 6. Maharashtra chief minister Devendra Fadnavis also said in the legislative assembly on December 7, “How Bharat Ratna Dr Babasaheb Ambedkar had advised demonetisation in 1923 every 10 years”.

The greater tragedy is that the mass of people, the depressed classes, hit hardest by demonetisation, are being led to believe that it was Babasaheb’s idea. In a report on the occasion of Ambedkar’s Parinirvan Diwas, his death anniversary, it was distressing to find that while people are experiencing hardship they are also consoling themselves by believing that their idol had come up with the plan to demonetise. Because of that, they believe that something good will come of all this, although to many observers it is clear that the larger good is likely to be a distant dream. In messages circulating in different languages, on social media and through platforms such as WhatsApp, it is being baselessly propagated that demonetisation was favoured by Babasaheb.

While writing on the issue of demonetisation in the Economic and Political Weekly, the writer and activist Anand Teltumbe concluded,“The BJP has variously tried to project through its hanumans (Dalit leaders in their fold) that the demonetisation decision was as per the advice of B R Ambedkar. It is a white lie.” The noted econominst and Nobel laureate, Amartya Sen, who recognises Babasaheb to be “the father of my economics”, has termed demonetisation a “despotic act”.

It now falls on Prakash and the BJP to clarify, without any delay, the accuracy of the claim that Babasahen had said that currency notes should be replaced every ten years. The bibliographic citation from The Problem of the Rupee would be most helpful. Prakash’s remarks assume greater prominence considering they appear to have given the BJP an opportunity to justify demonetisation by attributing the idea to Babasaheb. As Prakash is a prominent member of the Ambedkarite movement, his clarification would be especially invaluable in helping us study Babasaheb’s ideas. It would also prevent any misformation, spread in Babasaheb’s name, from gaining credibility.

Shridhar Prabhu is a lawyer based in Bengaluru. Vinutha Mallya is a book editor and journalist based in Bengaluru.

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