It is a myth that demonetisation helped the BJP win Uttar Pradesh.
Demonetisation has been such a complete failure that we struggle to understand its ‘real’ purpose. It has been widely presumed that the stated objective of demonetisation – destroying black money stored in cash – was never the real objective.
The objective was political, we believe, not economic. We have further come to believe that the political objective was met: the BJP won Uttar Pradesh thanks to demonetisation.
Nothing could be farther than the truth.
Why would the Narendra Modi government make such a big move if it knew it was going to be an economic failure? Would the government have liked to look embarrassed when all the money came back?
We don’t like to believe the simplest explanation for things, and we always search for the conspiracy theory. Perhaps, Prime Minister Modi genuinely thought demonetisation would result in stashes of black money being destroyed, and the government making windfall gains. The attorney general at that time had said the government expected to save Rs 3 lakh crore thanks to demonetisation.
To say that this was never the objective is a narrative meant only to cover the failure of demonetisation.
The objective of the shock move was both political and economic – for the Modi government, there was no contradiction. It was an economic idea that, unlike most economic ideas, was also a populist one. In those days, there was some discussion on what the government would do with the money it would save through demonetisation.
How will we spend 3 lakh crores?
Soon after demonetisation, the 2016-2017 Economic Survey had a full chapter on the idea of universal basic income (UBI) scheme. The chapter said the UBI would account for 4.9 per cent of India’s GDP, and the government didn’t have fiscal room to make such a move. It is possible that the government thought demonetisation would give it the windfall savings to go ahead with UBI.
For instance, here is then-defence minister Manohar Parrikar speaking on 18 December 2016: “A minimum of Rs 2 lakh to Rs 3 lakh crore in taxes will be collected and once this tax comes to the government, it will help fulfil the needs of the common people and the poor. The central government will utilise the money to give financial strength to these sections”.
Demonetisation was used by PM Modi and his party to project a pro-poor image overnight. Suddenly the ‘Brahmin Baniya’ party was becoming the Indira Gandhi-esque pro-poor, anti-rich party. There were tax raids across the country. Amounts as small as a few lakh rupees were being confiscated.
Modi dropped his keywords like Vikas and Mitron, and started talking about Garibi, Garibi, Garibi all the time. However, by the time GST arrived and the sense of economic gloom was all-pervasive, the Prime Minister and his party quietly dropped the Garibi plank. The failure of demonetisation has hurt the BJP’s attempt to transform into a party of the poor.
Had demonetisation been successful, the BJP would have been so big today that surveys wouldn’t have been talking about the prospect of a coalition government in 2019. The failure of demonetisation has hurt the BJP politically, there is no doubt about it. It may not have shown in state election results so far, but that’s partly because of PM Modi’s mastery with managing the narrative and partly because the Congress party is too weak to capitalise on the Modi government’s failures.
BJP won UP despite demonetisation, not because of it
Which brings us to the big evidence people cite: the Uttar Pradesh assembly election in 2017. It is widely believed that people in UP voted handsomely for the BJP because they were impressed by demonetisation. Additionally, notebandi also broke the back of the opposition campaign.
Success has many fathers. Given how stupendously the BJP won UP, it was able to even make the ridiculous claim that Muslim women voted for it. If demonetisation was an issue in the UP elections, why was it largely absent from the BJP campaign in UP?
By the time the UP elections began in February 2017, the failure of demonetisation was absolutely clear. Everyone could see that an overnight industry had come up to change old notes, no questions asked. This is also why demonetisation didn’t hurt the opposition campaign: they had the new notes. Everybody did.
Voters were not upset with the failure of demonetisation, and the backlash was limited to a fraction of the trader community. (have trimmed a line here) The BJP managed the failure of demonetisation by telling people that the benefits will come later and also with “at least he’s trying” narrative.
When asked why they were voting for the BJP, voters in UP said it’s because of Modi, the Ujjwala LPG scheme, their frustration with the Yadav raj. And there was anti-Muslim polarisation too. But demonetisation was strangely out of the conversation. Don’t take my word for it, just see what others were reporting around the time. Here is Prashant Jha writing in The Hindustan Times: “In the first month after the note ban, there was euphoria as the poor, the rural affluent, as well as the professional middle classes saw it as a move against the country’s corrupt elements. By the end of the second month, the enthusiasm had evaporated. The benefits remained elusive although the pain was tangible, but there was no hostility either… Counter intuitive as it may sound, despite its disruptive implications, voting may not necessarily happen on the issue of the note ban but other local factors.”
Delhi pundits have created the mythology that demonetisation helped the BJP in UP. It’s a story that helps the BJP because in the end there’s something to say for demonetisation. The truth is that UP was won despite demonetisation, not because of it. Not that the truth matters.