Narendra Modi bids to protect Indian capitalism from its capitalists
The most significant thing about the demonetisation announcement is that Narendra Modi has not shied away from hurting his own vote banks
The true face of a person is revealed during exceptional circumstances. This is particularly true when those exceptional circumstances are of his making.
For example, Indira Gandhi, a leader with whom Narendra Modi is often compared, revealed her true self during the Emergency.
On a smaller scale, Modi’s revoking of legal tender status for four-fifths of the country’s currency holdings, an extraordinary measure by any standard, also sends out very significant signals.
There’s no question that demonetisation has hit many people hard, particularly small and middle businessmen, the professional classes and corrupt bureaucrats. Businessmen in the construction and real estate sectors and the political class have suffered big setbacks. The panic is evident from the rise in the unofficial price of gold and the dollar, from the rush to buy diamonds and art and from the numerous innovative ways of converting the old notes that have been reported. What is most interesting, however, is that many of those affected have been the sections of society that have been staunch Modi backers.
The salaried middle classes have been vocal supporters of the move, as they have been the least affected. All of them are securely plugged into the digital economy. Similarly, the very rich are also complacent, as only a small proportion of their assets are kept in cash, mainly to make political contributions. The rich also have the know-how to convert their cash holdings into assets rapidly.
The informal sector and petty businesses, all part of the cash economy, are facing enormous disruption. The poor too have been hard hit, but then they are used to facing much worse challenges. The Indian state is hardly a compassionate one and the lives of the poor are cheap in this country.
That sums up the ‘who wins, who loses’ story. The striking fact about the whole exercise is that, by all accounts, most people are all praise for Modi, although they complain about the ham-handed implementation. The pain is seen to be temporary and worth it because it hurts the rich. It doesn’t seem to matter that economists say the amount of black money kept in cash is only a small proportion of the black economy, that the move will mop up the stock of black money but not its flow, that what is really needed is to attack the sources of black money creation, that political funding is a huge reason for black money, that the unorganized sector may take many months to recover from the shock. Modi has been willing to disrupt the lives of large sections of the population for pushing through this radical measure.
Schadenfreude seems to be popular, although it is a moot question how long it will remain so.
But the most significant thing about the announcement is that Modi has not shied away from hurting his own vote banks. That is why political analysts have, without exception, said that it’s a bold step. It shows that Modi is able to detach himself from his immediate backers and make policies that hurt their interests. That ability arises from his status as a Bonapartist leader, his power to force his will not only in his party but also against sections of his own supporters. The classic study of Bonapartism was by Marx in The Eighteenth Brumaire of Louis Bonaparte. It was a study, in Marx’s words, of ‘how the class struggle in France created circumstances and relationships that made it possible for a grotesque mediocrity to play a hero‘s part.’
Nobody can now say that India is, in Gunnar Myrdal’s words, ‘a soft state’. In soft states, said Myrdal, ‘Policies decided on are often not enforced, if they are enacted at all, and... authorities, even when framing policies are reluctant to place obligations on people.’ But a state that can take the drastic step of demonetising 86% of its currency, that can make the masses stand in queues for hours to exchange their own money, that can finally bring tax evaders to heel, is not a soft state. And it’s very likely that Modi will follow up the demonetisation exercise with other measures to clean up the system.
Modi’s objective, as seen from his admiration of the east Asian model, is the transformation of India into a hard state. One of the features of the autocratic governments in the states that experienced the east Asian economic miracle was the ability to rise above powerful sectional interests in order to push through what they saw were the right policies. Modi too is a votary of a strong developmental state and for that to happen, revenue leakages must be plugged and more resources generated. There are, of course, obvious questions here—one, whether he has the bandwidth to succeed in his objective; two, whether his cultural nationalist baggage will clash with his development goals; three, whether he can face the challenge of assertive caste formations; four, whether he will succeed in creating enough jobs rapidly enough to retain his popularity; and five, the crucial one of whether the east Asian model is past its sell-by date.
The title of a book by Raghuram Rajan and Luigi Zingales was Saving Capitalism from the Capitalists, in which the authors wrote about the need to discipline powerful private interests to protect capitalism as a whole. In his own dramatic fashion, Modi is trying to drain the swamp of Indian capitalism. Perhaps he is trying to save Indian capitalism from its capitalists.