Demonetisation: reality and the optics

By now, the economic impact of demonetisation has been discussed threadbare. Two months after the momentous announcement, it is pretty clear that the demonetised ₹500 and ₹1,000 notes returning into the system have far exceeded expectations.

To many, it would appear that black money hoarders have managed to launder their wealth in ingenious ways. It is now up to the income-tax authorities to do a salvage operation by combing through the millions of deposits and cracking down on those where the sums appear absurd in relation to the profile of the account-holder.

Whether this operation succeeds (it will take some time, for sure) remains to be seen. The Government promised short-term pain for long-term gain in terms of shuddhi or purification of the economy. What has ensued is considerable pain, even as the gain in terms of black money being unearthed remains uncertain. Besides, the Centre may not have a sizeable surplus to redistribute directly into the accounts of the poor.

Agriculture and small industry have been worst-hit. The All India Manufacturers’ Organisation, which represents over three lakh small, medium and micro enterprises, estimates 55 per cent revenue and 60 per cent job losses by March 2017. While conceding that labour data is unreliable at the best of times, estimates of job losses doing the rounds are upwards of four lakhs. Anecdotal reports suggest that social and familial stress could be building up in rural areas as a result of workers returning to their villages. It seems that demand for MGNREGA work has been rising.

Former finance minister Yashwant Sinha, now a dissident voice in the BJP, has suggested that a regime that has been unable to live up to its promise of job creation in relation to the Vajpayee government could end up disappointing the aam aadmi , more so in the wake of demonetisation.

However, those predicting dire political consequences could be wrong. Despite the chaos, Prime Minister Narendra Modi appears to be winning, at least for now.

This is because what seems to count, politically, are not the facts, but the popular perception — that finally, one man at the helm is trying what none has attempted before.

For the sizeable supporters of demonetisation, the critics are, by implication, those who are compromised, gutless, jealous or just habitually ‘anti-Modi’.

Even if he fails to unearth black money, he would have won the hearts of the people, sick of venality all around them, for having tried.

The BJP needs to ensure that this perception rides out at least the end of February so that it wins in Uttar Pradesh in particular. Perhaps nothing other than resolute faith in the commitment of one individual can explain how so much economic disruption has not resulted in violence.

The barbs on social media apart, Modi remains in control of the black money narrative.

This confidence perhaps explains why the Centre has not come up with any time-lines on when the cash shortage will end.

Modi is, however, lucky to have been let off the hook by a directionless Opposition. The Opposition has failed on three counts.

First, it has criticised Modi’s demonetisation for its impact on livelihoods without presenting an alternative plan to root out black money that promises ‘no pain and more gain’.

Second, it has been silent on electoral reforms.

Finally, it has not used this occasion to critique an economic model based on privatisation of health and education, which has bred insecurity and corruption all round.

Oddly enough, the level of debate on corruption was more evolved in the aftermath of the India Against Corruption agitation, pioneered by Anna Hazare, which was centered around creating a Jan Lokpal. The IAC gave rise to the Aam Aadmi Party. Today, Arvind Kejriwal, whose AAP blew the bugle on poll reforms by setting a new trend in fund raising, has been quiet on this subject as well as on institutional solutions such as the Lok Pal.

By being silent about electoral reforms — lowering the threshold level of donations to ₹2,000 from the current level of ₹20,000, beyond which it would have to provide a clear account; reducing the scope for fudging an individual candidate’s campaign spending; and scrapping the income-tax exemption for political parties — the Opposition has ceded moral ground to Modi.

He has got away with limited proposals on electoral reforms so far. Can he transform the ways of a party whose sources of funding in the 2014 general election remain a subject of controversy?

Thanks to inept leadership on the other side, Modi’s larger than life image remains unchallenged. Nitish Kumar and Naveen Patnaik, two leaders with a clean image, have stayed out of the anti-demonetisation campaign, perhaps sensing that taking on Modi could prove counter-productive. Kejriwal’s allegations against Modi have not cut ice. The rest of the leaders lack the ‘clean’ tag to raise the discourse beyond its immediate effects.

So, we’re down to optics, where Modi with his remarkable communications skills can manoeuvre the discourse. Expect some cosmetic exercises on reforming property laws and capital markets, and it shall be business as usual.

Jugaad will keep reinventing itself to keep pace with the changes, as it has done so well since November 8.

The BJP’s fortunes would, however, depend on how quickly it can reverse the economic setback. The economic crisis could turn out to be worse than 2008, with consumption and investment dragging each other down. Issues of survival may prevail over than grander themes such as a war against black money. But by then, we may have another narrative of national renewal waiting for us.