The first anniversary of the government’s ‘surgical strike’ against black money just went by, with the media running ‘one-year anniversary specials’ to mark the event.
The BJP celebrated November 8 as ‘Anti-Black Money Day’ while the Opposition called it a ‘Black Day’.
That the ‘surgical strike’ led to large-scale disruption to the economy, job losses and growth slippages has been well documented by now. The informal sector, which generates the maximum number of jobs albeit low-paying, was decimated and is yet to get back on its feet. The MSME sector, too, was badly hit.
Currency swap
The government also kept shifting the goalposts — the objectives of demonetisation varied with every passing day. It initially started as an attack on black money, terror funding and counterfeit currency, shifting later to promotion of digital payments, and expansion of the formal economy and the tax base.
Digital payments increased initially but have plateaued since, though a recent RBI paper claims a significant increase.
More significantly, by August the RBI said that almost 99 per cent of the scrapped currency notes had found their way into the banking system. The government had expected ₹3 lakh crore to not return, which would have meant some of the black money has been ‘extinguished’ but that hope was quashed. Though the government has put on a brave face, saying it is scrutinising the bank accounts which saw a sudden surge in deposits, it is going to be a time-consuming process for the taxman and the outcome is as yet uncertain.
Demonetisation wiped out agriculture trade, which is still largely carried out in cash. The violent farmers’ agitation across many parts of north India was proof of this. The government quickly announced a slew of measures to ease the farmers’ pain, loan waivers being one of them. It didn’t want the violence to escalate into a widespread protest as that would have punctured its narrative of “people are willing to suffer to fight corruption”.
So, if one ignores the rhetoric of both the BJP and Opposition parties, it can be summarised that demonetisation’s benefits, if any, are going to accrue in the long term, though the short-term pain has been enormous. If the long-term gains do not accrue, the whole exercise, in the words of economist Ajit Ranade, would have been “just a great Indian currency swap”.
Political angle
Maybe, instead of looking at demonetisation as a purely economic policy initiative, it would make more sense to view it through the prism of politics.
Prime Minister Narendra Modi and the BJP rode to power in 2014 on the promise of eradicating black money and bringing back money stashed abroad. Tackling black money, a problem that has been festering for decades, was always going to be a long, hard and painstaking process. But politicians as a class are always on the look out for a quick-fix solution to problems, so their gaze is always on the short term.
After being in power for more than two years and with the economy still stuttering, Modi may have been politically compelled to make a ‘big bang’ attack on black money to burnish his image as a crusader against corruption.
Journalist R Jagannathan was perhaps the first to comment on the political aspect of demonetisation. Modi shrewdly tapped into the vast reservoir of resentment that large sections of the poor harboured against the rich and corrupt. The poor, or at least a large section of them, bought into Modi’s narrative that the note ban hit the rich and corrupt harder than them. That the reality pointed to the opposite direction didn’t seem to matter to them.
The big electoral gains in the Assembly elections this year, including the politically crucial Uttar Pradesh, seemed to vindicate Modi’s stand and allowed the BJP to wear the mask of sanctimoniousness and claim that the people were willing to put with enormous sacrifices to bring the corrupt to book.
Left voiceless
The high-decibel protests by the Congress, Trinamool Congress and Left parties, though valid for most part, did not have much impact. Riven by the 2G, Commonwealth Games and coal scams during the UPA-II’s regime, the Congress had lost the moral authority to speak on corruption. Despite his earnestness, former Prime Minister Manmohan Singh’s description of demonetisation as “organised loot” was met with mirth by large sections of the people.
The BJP deftly dubbed anyone criticising the note ban as defenders of black money and the corrupt. The complete lack of nuance in this debate is baffling.
That the BJP was willing to put so many people’s lives at hardship through a policy initiative whose economic benefits are at best uncertain and political gains are enormous raises some important ethical questions.
But for the moment no one in this country is asking those questions.