Exactly a year ago, Prime Minister Narendra Modi announced an ambitious but enormously disruptive decision to invalidate Rs 1,000 and Rs 500 notes, ostensibly to combat corruption, counterfeiting and terror funding. Demonetisation triggered public panic, slowed manufacturing, sent workers home and affected economic growth.
The RBI said in August that 99 per cent of the cash was returned. But the move forced citizens to adopt digitisation at an unprecedented pace, in a country where 80 per cent of transactions were conducted in cash. And it helped the BJP win the election in UP.
What has India gained and lost from demonetisation and what are the lessons learnt?
Demonetisation was a political move with economic consequences. Among other things, it sought to uproot an old political elite that presumably depends on hoarded cash. Even though hard evidence for such an assumption may be mostly anecdotal, the perception did exist and that’s what mattered most for a move like this to achieve any public acceptance.
It worked perfectly for the BJP in the Uttar Pradesh elections, where voters were willing to overlook their problems simply because they were convinced that the elite cash hoarders had been busted. Which is why when data later showed that bulk of the demonetised money had returned into the banking system, there was a downturn in sentiment.
In contrast something like GST, which is an economic reform move, also got bracketed with demonetisation. So, what has really happened in the past few months is that economics has become the hottest currency in politics? Every economic decision is going to be contested, projected by government’s detractors as a sleight of hand, just like GST is being framed these days.
Here are other sharp perspectives on demonetisation:
Radhika Pandey, consultant, NIPFP
Milan Vaishnav, senior fellow, Carnegie Endowment for International Peace
T.S.R. Subramanian, former cabinet secretary
Ritika Mankar Mukherjee, senior economist, Ambit Capital
Manish Tewari, national spokesperson, Congress
Arun Kumar, retired professor, JNU
Syed Zafar Islam: BJP spokesperson for political and economic affairs
The government, thus, has no choice but to make demonetisation appear successful, else it stands the risk of losing its credibility in economic policy making. And the burden to deliver that success, it seems, rests on the tax enforcer. For instance, the Serious Frauds Investigation Office, has been granted the power to arrest.
But these challenges notwithstanding, demonestisation will remain a political masterstroke in heat and dust of electoral politics — not because it helped BJP win UP, but due to the fact that it created a whole new constituency of voters for the party.
In a caste-driven polity, where BJP largely depended on the Hindutva card to unite castes, demonetisation was a classic move that combined small underprivileged caste groups into a class of ‘poor vote’. And as subsequent actions have shown, including the selection of their presidential candidate, the party is nourishing this vote base with great care.
Pranab Dhal Samanta is Editor, ThePrint