The Political Calculus of Demonetization

by Ritwik on November 13, 2016

The Government of India’s recent decision to demonetize high denomination notes has resulted in widespread controversy. Most people seemed to welcome the move in the beginning, buying the government’s rhetoric that it will punish those with ‘black’ (untaxed) money, disrupt the flow of money to terrorists and prove a major step against counterfeit currency. As time goes by, there is rising frustration as it becomes increasingly apparent that the government hasn’t done its homework on this – the whole operation has been set in motion in a hasty and unplanned manner, with banks running out of (valid) notes, ATMs unable to dispense the redesigned high denomination notes, etc.

This is quite apart from the matter that this move is like a sledgehammer being used to kill a fly – at the cost of a load of inconvenience for virtually everyone in the country, the move might unearth some black money hoarded in the form of cash by small and medium traders, as the salaried do not have ‘black’ money and the very rich exercise the various options available to not keep it in the form of cash. As explained by Prabhat Patnaik, it is naive to think of black money in terms of a hoard of cash under the mattress – the corrupt are much more sophisticated, especially with the options unlocked by today’s globalized economy.

Nevertheless, it will prove to be an error for the opposition to walk into PM Modi’s trap by appearing to be wholly against this initiative. Modi is a consummate politician (that description exhausts his skill set) and it would be folly for the opposition to imagine that by attacking demonetization wholesale, they can cause a significant dent to his popularity:

1. If (most of) the opposition criticizes demonetization, they can easily be branded as being upset as their black money has become unusable. This has already begun.

2. The common people will put up with a considerable amount of (temporary) inconvenience if they feel that it is for the end of punishing violators, and toward nation building in general. Modi knows this, and is cynically using this sentiment for his own political ends.

3. Modi revels in painting himself as a lone crusader against the established order. This is ironical from a career politician, but he has successfully used this tactic multiple times in Gujarat, and against the old guard (Advani, etc.) in the BJP. If the opposition unitedly attacks demonetization, Modi is going to pretend that they want to stop him from doing good for the country, but he won’t be deterred etc etc. Like all demagogues, he pulls this off due to the personal connection which he establishes with voters through his fiery speeches – it is Modi that addresses them, not the PM and not a BJP politician.

4. In the absence of any real economic reforms or any real growth in employment, the people want ‘big ticket’ moves. They want to feel that something is being done, and would go to quite extraordinary lengths to believe that things like demonetization and ‘surgical strikes’ have been effective, far beyond their actual impact. This is a deep issue, and is not unique to India, with reverberations being seen across the globe. The people are tired of incrementalism, and want flashy moves, hence Modi, Trump, Brexit – phenomena that play upon this sentiment and repackage routine action (surgical strike) and desperation (demonetization, fencing the border with Mexico) as once-in-a-lifetime initiatives.

In light of the above, the opposition’s response to demonetization has to be nuanced. As the Congress and AAP are doing, party volunteers must visibly and proactively help the common people standing in queues. The intent of the move must be warmly and very publicly welcomed. It needs to be hammered home that while common people are suffering, rich friends of the BJP/Modi are getting away, as this action does not touch them in any way. Kerjiwal, one of the smartest politicians around, seems to have grasped this and is responding accordingly.

It must be understood that Modi’s (and BJP’s) political strategy is usually one of blitzkrieg – keep moving fast, create one controversy after another (in just the last few months – Bhopal encounter, JNU (Najeeb), booking Nandini Sundar and others for ‘murder’, NDTV ban), to keep the opposition guessing and busy, and at all times engage in ceaseless self publicity. Effective response needs to be along similar lines, and must rupture the notion that Modi’s actions are in the ‘national’ interest, since they are not.

One comment

Nice analysis

by Tadit Kundu on November 13, 2016 at 5:03 pm. #

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