Here is how Namo’s Demo gamble paid off
UP election results have settled the demonetisation debate once and for all—Narendra Modi’s gamble paid off
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If the Uttar Pradesh election was the referendum on demonetisation (demo), as was being said before the recent Assembly election results, then the answer from the people is clear. In a column I wrote (you can read it at: bit.ly/2mmdYeZ) immediately after 8 November, the day demo was announced, I had flagged the risk, both personal and political, that Prime Minister Narendra Modi was taking by putting the average citizen and the traditional voter base of the Bharatiya Janata Party (BJP)—the traders—through pain. Despite predictions at that time, the nation did not break into riots, the economy did not collapse, stock markets remained buoyant and the global view on the future of the Indian economy did not change.
Over the past few months, the debate on demo has unfortunately drilled down into people’s personal political views about the prime minister. This is true of most of the media, the thinkers and the analysts. The entitled Indian elite have been vocal critics of demo. Their view of anything the Modi government attempts is coloured by their personal discomfort with a person who is an outsider to the power circle of India, being the country’s elected leader. That he does not speak English properly, does not have the same educational background as them, is proud of being a Hindu and has smashed through the elite power structure of Delhi just adds to this. They extended their personal discomfort to the rest of the nation and, in air-conditioned echo chambers, predicted the fitting reply that the people of India would give this upstart. But when you spoke to people outside this echo chamber you got a very different story. A private equity (PE) investor who travels through the smaller towns of India looking for cheap buyouts of distressed firms told stories of people in small town after small town who were laughing at the discomfort of the rich. An entrepreneur who works in the micro-finance sector said with some sense of surprise that the whole non-formal economy anyway works on credit. Cab drivers, relatives and friends in smaller towns of India, all had a very different view on demo, than the crafted narrative we read.
There were two strands to this non-urban elite view: the entitled rich got hurt and, at least, somebody was finally trying to do something.
The fact that there has been no whiff of corruption in its first two-and-half years in power, adds to the clean image of the Modi government. Over the past four months, the cynics have looked under every stone for evidence that India is in a state of emergency and will be a totalitarian Hindu extremist nation soon. They argued that GDP growth would fall because Modi had thrown a spanner in a fully running machine (and these were the very same people who, only two weeks before the announcement, had bemoaned the sluggish economy). They also argued that demo had made no dent in corruption. Every small instance of aberration since has been seized upon in a feeding frenzy of delight as evidence of the grand failure of Modi. The people of India would teach him a lesson, was the widespread belief among some.
If the UP election was a referendum on demo, we know the results loud and clear. So, what should serious debate have waited for? Not anecdotes for sure, but data. For instance, critics of demo could have waited for the Q3 GDP growth data before they decided that the invalidation of old high-value currency notes would kill growth. Now that Q3 data shows no major impact, the wait for Q4 data to prove they were right all along right has begun. As have personal attacks on the Central Statistics Office and India’s Chief Statistician. Suddenly the methodology of GDP numbers is suspect.
The argument now goes that the impact on the informal economy, which was the worst hit by demo, is not captured by GDP numbers—therefore this data is suspect. In their churlishness, the entitled elite behaved no differently than a petulant Mayawati who has blamed electronic voting machines for her personal political failure at the polls.
What other data should we wait for before declaring demo a failure? The tax to GDP ratio numbers. India needs more of its people to pay their income taxes. If demo gets a chunk of traders and professionals (our doctors, our lawyers, our kirana store owners) to begin declaring their income, it will begin to show up in the tax collection numbers. Let’s wait for that. Another piece of data that will point to the impact on corruption will be India’s place on corruption listings. India ranked 79 out of 176 countries on the Corruption Perception Index put out by Transparency International in 2016. We should wait to see the impact on this index in the next round.
Every step towards reform is being fought tooth and nail by the entitled elite—be it the use of Aadhaar or the digitization of currency. The elite viewpoint is now this: Modi has made demo into a political win, the average person does not understand the economic and institutional costs, but we know better. This is the old babu mentality: the people are stupid, we need to decide everything for them. The UP election result has, in my opinion, decided the debate. On 8 November, Modi put his political future at risk with demo. He won the gamble. Can we now get on with more reforms and less useless griping?
Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, and on the board of FPSB India.
She can be reached at firstname.lastname@example.org