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Why demonetisation was both Whatsapp-style jaadu economics and Kautilyan politics

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If you are not a fan of Modi govt, then demonetisation is the classical definition of governance by urban legends, WhatsApp forwards and early morning brainwaves.

An ordinary human brain is divided into two distinct halves, each performing a different set of functions. If it’s a politician, the halves can be conveniently divided as politics and governance. How does this work with Prime Minister Narendra Modi? Particularly after his most striking policy move so far, whether you call it demonetisation or a mere currency exchange.

His political half, we know better already. He is the most political of our leaders in decades, with a seventh sense of public opinion almost like that of an accomplished naadi-vaidya (traditional ayurvedist who diagnoses a patient by feeling the pulse). We have seen his language change between 2002 and 2007, in 2012, and finally on the national stage in 2014, hitting just the most sensitive and productive buttons with the voter. To that extent, he is winning this round as well. At least so far.

His political (read electoral) proposition is straightforward: Do you believe there is a lot of ill-gotten black money, or not? The answer has to be yes. More questions follow. If so, can India progress, or achieve its destined status as a global power unless you can bring these trillions back into the system? No again. Next: Haven’t we tried our best already to bring it back from tax havens and then through an amnesty scheme? You might get a mixed response on that, with the fans saying yes, critics saying no, but a very large number uncertain. The latest question, therefore, shifts the emphasis from that tricky question: If all other efforts have failed, why not the last option, so what if it is the nuclear one and leaves much collateral damage as its fallout. I know it is a risky, tough decision. But isn’t that why you elected me? Would you rather have Manmohan Singh, an indecisive, uncommunicative, do-nothing?

Modi is winning this argument. What is more remarkable is that he is winning it on the strength of those most harassed, inconvenienced, and impoverished — if temporarily — by this greatest-ever currency destruction in human history. Give me these 50 days, just 50 days, he says, and I will give you a brilliant India and a perfect world. And a majority of the non-black-money-owning multitudes are inspired. Just like the women’s hockey team were by their coach, played by Shah Rukh Khan, when he beseeched the fictional players in Chak De! India to give him “just 70 minutes”.

Also read: Would not suggest demonetisation to any country: New IMF chief economist Gita Gopinath

Unlike a hockey coach, however, whose exhortation will be checked against cold numbers within 70 minutes, a politician has more time. At the end of 50 days, only the current inconvenience may be over. What exact benefits it brings, or devastation it causes, we won’t know for months, if not for a couple of years. You can’t accuse this government and its economic team of not having gamed the consequences thoroughly. How can you game something never done before in human history, where no data or precedents are available? All you have is the contempt of old, establishment economists, who love the status quo. In any case, in politics, the important thing is to find a product, an idea, a promise or slogan that sells. No electorally brilliant leader makes a promise necessarily driven by the belief he will fulfill it.

Since the three-example rule is the oldest one in journalism, here is our list, one old, and two very recent. In 1969, Indira Gandhi, having split the Congress, nationalised banks, abolished privy purses and thereby fired the imagination of the (many still starving then) poor by causing the rich pain, invented the slogan of Garibi Hatao (eradicate poverty). The entire opposition united against the mythology she was peddling, Frank Moraes, the great editor of The Indian Express, even wrote a daily front page column “Myth and Reality” to lambast her. But she swept the elections. Her posters, banners, all had that immortal line: They say, remove Indira. Indiraji says, remove poverty. Now you decide.

Most certainly, Indira Gandhi had no real plan or scheme, most likely not even the intention to eradicate poverty. She had discovered a marketable promise, and, importantly, one on which she wouldn’t be tested too soon. The opposition did not have a bigger idea, a fancier promise, except to ask, you trust her? Can she eradicate poverty, how can you believe her? We know whom the voter believed. It was only much later, as she persisted with a series of povertarian blunders, peaking with wheat trading nationalisation in 1973, that pauperised a stressed, post-1971 war economy and inflation crossed 25 per cent that the poor realised they’d been fooled.

The two more recent examples are Brexit and Donald Trump. The demagogues who led the campaign for Brexit, Nigel Farage to Boris Johnson, have all, as Americans say, gotten off that kerb. Their promise was to reclaim Britain and make it great again. The job of winning the referendum, and thereby disrupting Europe, done, they are not about to put their hands up and be tested on that promise. Trump, similarly, promised to make America great again at a time when, as most sensible people tell you, it is probably as great as it’s ever been. How much greater he will make it, when and how, why bother asking? His election is done and the political craft, ultimately, is all about winning popular opinion. If it has to be done by engineering a collective suspension of disbelief, so be it.

This is precisely where Modi is winning the immediate battle and his combined adversaries are at a disadvantage. Like Indira Gandhi in the early Seventies trapping her enemies in the for-or-against poverty eradication trap, Modi is conjuring up a for-or-against black money binary. Real results of his campaign won’t be assessed for months, and if putting up with some inconvenience is all he is requesting, the poorest will grant it. The rich, meanwhile, may be figuring out not only ways to launder what they have, but also ways to profit from the misery of the cheering, voting masses. We can conclude, therefore, that the political half of the Modi government’s mind is working brilliantly.

Also read: Make no mistake: Demonetisation has been as much a political failure as an economic one

A less certain picture emerges when you look at the other half. Demonetisation is only the latest — if clearest — indication of Modi’s approach to governance. It is instinctive, audacious, non-risk-averse, even impetuous. We aren’t yet going so far as to call it reckless. But there is no missing a boredom with detail, analysis and war-gaming. Forget avoiding the usual trap of bureaucratic analysis-paralysis, there even seems impatience with data. We do not authoritatively know the extent of black money, where it’s hidden and by whom, what are our optimal targets of recovery and clean-up. We have some totally non-peer reviewed, unofficial, theoretical “reports”. So, the “solution” is to vacuum out the entire money, give back what can be justified as legitimate, and the rest is your gain.

For the seventh-largest economy in the world, shared by nearly 1.3 billion people, mostly poor, this is a buccaneering approach to governance. It can work, by yanking in a lot of informal economic activity into the formal tent and, thereby, expanding the tax base. But who knows? Just as nobody quite knew or gamed the consequences of going public with the surgical strikes across the LoC, or of the defence minister reopening the global debate on the Indian nuclear doctrine by expressing his “personal views”. If you are a fan of this government, you can compare it with Virender Sehwag: See ball, hit ball. And if you aren’t, it’s the classical definition of governance by urban legends, WhatsApp forwards and early morning brainwaves. We won’t know the score for another few months.

This column was originally published on 18 November 2016 and is the first impression of demonetisation from Shekhar Gupta’s National Interest archive.

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  1. I think the column should be immediately pulled off and replaced by one which will categorically tell the people what a great disaster the move was. How can Mr Gupta have the audacity to put before the readers such trash. What do you mean the next few months will show. Have the courage to denounce the move and don’t try to give the benefit of doubt to the one man who brought about this man- made calamity on the nation.
    Demonetisation was the biggest scam of the century. There are umpteen articles by eminent economists whowill testify to this fact. Then why present before the readers an obsolete article which only shows the writer cringing to please the powers that be. No mention of the 100+ people who lost their lives and the unbearable suffering and trauma the nation’s weakest citizens had to go through in those terrible days, when people had to beg for their own hard-earned money. Mr Gupta, you have no heart.
    If you continue doing this you will end up driving people away from the Print.

    • Inhaled a little too much cracker-laden-air ? Read the footnote my friend, which mentions when it was “originally published”.

    • One, some columns stand the test of time. Like Cleopatra, they do not pall by custom. More importantly, the sweetest words in the English language are, I told you so. Not in Shri Shekhar Gupta’s league, of course, but can say with complete honesty, have not posted a single comment, from day one, praising the move. It did not require two years of hindsight to recognise that demonetisation ought not to have been done. It did not affect the outcome in UP in March 2017, but to the extent that it has harmed the economy so much, some bills will fall due next summer.

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