Home >> Demonetisation, a logical conclusion by Modi

Demonetisation, a logical conclusion by Modi

Updated: December 1, 2016 1:46 pm

All the politicians the world over claim to be working for “the poor common man”, although in reality they may be doing things that have nothing to with the interests of “the poor common man”. See the way the ongoing session of Parliament is paralysed by the leading opposition parties in the name of “the poor common man”. They will like all of us to believe that the Modi government’s decision to demonetise old notes of Rs 1,000 and Rs 500 has forced “the poor common men” in long queues in front of banks and ATMs to exchange old notes and withdraw their “own money”, and, in the process as many as 74 people have died.

There are no two opinions that the government’s decision has brought inconvenience to the people, something the government is admitting without any hesitation. But, at the same time, it is also a fact that many people are convinced that the government’s decision is essential to tackle the crisis of the parallel black economy of the country and for realising this greater goal, temporary inconvenience to them is tolerable. In fact, some opinion polls to this effect as well as press interviews of the people standing in long queues do point out that the demonetisation decision is overall popular, notwithstanding what the opposition parties portray to the contrary. Any doubt on that count has been dispelled by the results of many by-elections that were out on November 22. The ruling BJP has managed to win impressively in Madhya Pradesh, Assam and Arunachal Pradesh.

It is important to note that these by-elections were held after the demonitisation – decision was taken, which the opposition parties had used during the electioneering to demonise the Bharatiya Janata Party in general and Prime Minister Narendra Modi in particular. In fact, at many a place, supporters of the parties like the Congress were celebrating well in advance over the “certain defeats of Modi at the hands of the people”. They must have been really disappointed with the results. What is worse, of all the parties it is the Congress which lost the most – it could not retain two seats that it had won last time in Arunachal Pradesh and Tripura ( in Tripura its candidate came third behind the BJP and the CPM).

In fact, Krishnamurthy Subramanian and Prasanna Tantric of the Indian School of Business have written an op-ed piece in Mint newspaper, dated November 23, in which they have proved that the poor (“the common man”) have not exactly suffered because of the demonetisation of the Rs. 500 and Ras.1000 notes. They have argued on the basis of National Sample Survey Organisation that since the average poor in India earn less than Rs. 1350 per week, they will go to the bank or the post office (or have gone already in the last fortnight) one time at the most; they could not have saved more than Rs. 4000/ – after meeting their day-to-day expenditures.

On the other hand, argue the authors: “The long queues seen stem from two sections of the population: (i) people from the top half of the country’s income distribution, i.e. the richer folks, who want to exchange their honestly earned savings for new currency; and (ii) people who are acting as agents for the dishonest. The significant decrease in the queues after the government decided to use indelible ink to identify people that have exchanged their currency suggests large presence of the second category of people.

“Beyond doubt, the former category is inconvenienced and the government and the Reserve Bank of India should take all steps to ease their difficulties. But this category comprises people from the top half of the country’s income distribution, certainly not the poor. In contrast, those from the second category who stand in the queue are only making efforts to earn a premium from the dishonest, who are willing to pay them such premium to convert their black money into white. No politician who genuinely wants the country to clean up the black money menace should sympathize with the latter category. After all, they are abetting the dishonest in evading the legitimate tax and penalty.

“With respect to the difficulties that the country’s poor are likely to face till 30 December, note that around seven weeks of earnings are left before the deadline for depositing the demonetized notes. So, based on the estimates provided in the adjoining table, the maximum cash earnings of the bottom half would be around Rs 8,000.”

This brings me to a standard argument against the demonitisation by leaders like Delhi Chief Minister Arvind Kejriwal. He says that Modi is ungrateful to the traders, traditionally loyal supporters of the BJP. Kejriwal, who proudly claims to be “baniya”, says that the latest decision has hurt the traders the most. He also adds in this context how in March this year, the issue of excise duty on non-silver jewellery had drawn adverse reactions from gold traders, jewelers and artisans; so much so that there were strikes in various parts. On that occasion too, Arvind Kejriwal had led the protesters in Delhi. In fact, addressing a gathering of jewellers at Jantar Mantar in New Delhi, the Delhi Chief Minister had warned, “The notion was that BJP is a party of traders. Then what has happened now? I want to tell the PM that Jaitleyji will not have to gather votes or contest elections. You need votes so please be a little careful. If jewellers are cheated, then traders will leave BJP’s side.”

However, the fact remains that Modi has not been exactly a typical BJP leader, who tries to please voters on the basis of their identity and occupation. In fact, as the Prime Ministerial candidate in 2014, he had openly gone against the BJP’s position of opposing foreign direct investment (FDI) in multi-brand retail (the party thought that by so doing its traders-constituency would be adversely affected). He had said, “There is no need to fear global challenges, try to convert the situation into an opportunity. Make the most of this situation. We are a powerful nation and have taken a lead in information technology. This is the age of online marketing, accept modern science and make use of it.” He then went on to emphasise why small traders must learn to build brands and go online, creating virtual malls to take on large and multinational retailers. “Customers from even small towns are now going for branded stuff. They are going to malls to buy them. Small traders can build a virtual mall by getting into agreements with brands. You can have a virtual mall in small shops at the click of a button”, he had said.

One can give yet another example. In 2004, when he was seeking fresh mandate as the Chief Minister, Modi had defied the party command to promise in the BJP-manifesto that he would be lenient to the farmers and shopkeepers in small towns who were stealing electricity. One diamond merchant had told this writer during the electioneering then, “what is the use in having uninterrupted electricity by Modi if people are forced to pay for its consumption. Earlier we never paid for electricity. We never cleared our bills, but nobody cut our connections. But under Modi, not only are our connections cut, we are also being forced to go to courts to face legal charges against us”. This merchant had vowed that he and the entire merchant community would campaign for Modi’s ouster. And this was said at a time when detractors of Modi like the veteran party dissident Keshubhai Patel and the opposition Congress were saying that that there was nothing wrong in stealing electricity and that they would write off the unpaid electricity bills if voted to power, apart from promising to supply free electricity to the farmers in the villages. But eventually, Modi had the last laugh.

The point that I am making is that Modi has won spectacular electoral victories despite his “ruthless” policies that went against BJP’s traditional belief. All told, the BJP in India is not a Conservative Party, even though it talks of the importance of a strong military, robust nationalism and assertive Hindu culture. On the economic front, the BJP, unlike a genuine Conservative Party, believes in socialism and populism (it talks of pursuing “Gandhian Socialism”). The party has top leaders who literally hate liberalisation of the economy and globalisation. They believe that it is the job of the government to provide everything free or subsidised. They do not talk, like Modi, of less government and more governance. They do not highlight the importance of empowerment of the poor so that they do not remain poor; they will like the poor to remain beggars for the government freebies and subsidies. In contrast, Modi usually talks of growth and development and does not glorify poverty.

I have invariably argued that in the last general elections people voted for Modi, because he promised to be the harbinger of real changes in the Indian polity and economy. As the Chief Minister of Gujarat, Modi had delivered on the front of economic reforms that India desperately needed – slashing red tape, cutting the licensing raj and minimising the role of the government in managing the economy – all these measures were important for removing corruption that, incidentally, was a dominating feature during the Manmohan Singh regime. In that sense, the demonitisation move by Modi — a strong anti-corruption step, which, in turn, has the potentials of bringing down inflation and turning common man-friendly – – was a logical conclusion for him.