On Tuesday, Prime Minister Narendra Modi once again displayed his appetite for risk. Barely a month after he decided to go public on the surgical strikes undertaken by the Indian Army against terrorists based across the border in Pakistan-occupied Kashmir, Modi ordered demonetization of existing currency notes of the denomination of Rs1,000 and Rs500.
Like the surgical strikes, this move too is replete with downside risks. Not only does demonetization entail economic costs, it could potentially spiral into an administrative nightmare as people scramble to offload their stock of soon to be worthless banknotes.
Even more risky is the backlash Modi and the Bharatiya Janata Party (BJP) could face from a section of their political constituency who, partially, electorally bankrolled the party’s historic win in the 16th general election.
And the move comes even as the BJP is in the middle of its preparations for elections to the state assemblies of Uttar Pradesh, Punjab, Goa, Uttarakhand—all of which the party needs to win, and where it is up against a determined opposition.
Take the two instances, surgical strikes and demonetization, together and Modi is clearly making a style statement: he is risk-friendly.
In a previous column, citing the surgical strikes I had alluded to the Modi way of doing things, something he seemed to have forgotten (or consciously avoided) in his first two years in office. His way comes from an incredible self-belief and a calculation that the benefits would outweigh the costs. Sometimes, such bets can go horribly wrong.
The big bet in demonetising is to break the unholy nexus of corruption, black money and terrorism. Over the last seven decades each has reinforced the other. It has, as the Prime Minister elucidated in his speech to the nation, acquired scary proportions, threatening the very fabric of India.
The problem required an out-of-the-box solution. And Modi’s bet is demonetising these two currency notes (16.5 billion Rs500 notes and 6.7 billion Rs1,000 notes are presently in circulation) will help the country hit the reset button and start all over again, as it were. Yes, there will be some initial chaos, but the implicit calculation is that the honest will be unharmed.
Sure, Modi needs to follow up by putting in place more steps to ensure black money isn’t generated — especially because new high-value notes of Rs500 and Rs2,000 will soon be issued.
Looking back over the last year and more it is clear that this move has been thought out. It began with a massive push to universalise access to bank accounts, big fillip to the use of Aadhaar in transactions and the push to a cashless economy. This was followed up with two offers for those with black money to come clean—the latest scheme closing on 30 September.
In fact, the prime minister had warned during his monthly radio address, Mann ki Baat, in June that this was the last chance for people with black money to come clean. On Tuesday he carried through with his threat. In the process, politically, Modi has usurped the mantle of being the champion fighter against corruption—one of the key issues which powered him into office.
This is a potential game changing moment. At the least, it has demonstrated India’s commitment to transition to a rules-based regime and abandon the exception-based regime of the last seven decades.