New Delhi : Can economic pain fetch political rewards? In standard political analysis in a democracy, this would be a laughable proposition. After all, making the life of a citizen easier, if not pleasurable, is the best way to win support.
Five years ago, Prime Minister (PM) Narendra Modi succeeded in overturning this basic principle. A policy move that actually adversely affected people also, simultaneously, increased support for the regime that was responsible for the policy in the first place. And in that lies the mystery of the politics of demonetization.
The answer to this riddle was reported in this newspaper back in November 2016, a fortnight after PM Modi announced the government’s decision to render ₹500 and ₹1,000 currency notes null and void. And it came from citizens in one of the poorest parts of India — eastern Uttar Pradesh. Standing in queues in front of crowded public bank branches in smaller bazaars and sitting in village tea shops, young men and old women, labourers and workers, across castes, had no money to spend and confronted an acute crisis in meeting daily needs. But they had an almost unanimous refrain — Modi was right in doing what he did.
Here is why.
For one, many citizens on the ground bought into the narrative — at least in the first few months after the move was announced — that while they were undergoing pain, those who were more well-off than them were undergoing even greater pain. PM Modi was able to leverage deep underlying resentment against the economic elite, by framing demonetization as a move that would destroy the unreported wealth of the corrupt and how he stood with the poor, toiling masses of India against this elite. To the citizen in small town or rural India, this corrupt elite was not necessarily the representative of big business sitting in Mumbai or Delhi — it was the local contractor, the corrupt government official, the big landlord. “We have barely any money. What will we lose? But these people with their black money will lose out. Modiji has made society equal,” an elderly woman in Jaunpur said back in 2016.
The fact that cash accounted for a tiny fraction of the “black money”, or that some among the well-to-do found enough ways to secure their assets even after demonetization, or that demonetization may have aggravated rather than addressed inequality, did not really matter. What mattered was the perception that the rich were being punished, and that everyone, irrespective of economic status, was in the same boat for that fleeting moment at midnight on November 8, 2016. Modi tapped what radical Marxist revolutionaries had hoped to but never been able to tap — the resentment against inequality.
The second reason that the BJP was able to politically benefit, or at least not lose out, was because it introduced in the lexicon of economic policymaking a strong element of national security. By framing the move as one which would destroy the economic basis of terror in Kashmir, or the resource base of the Maoists, it was able to make a case that citizens were suffering but for a larger cause.
“If our soldiers can protect us for 24 hours, we can stand in the bank queue for a few hours. If this will end terrorism, then we can make sacrifices for the nation,” said a young shopkeeper in Mirzapur.
The fact that the political economy of insurgencies and terror in India was not affected for any substantial period of time did not matter. What mattered was that citizens felt, at that particular moment, that they were participants in a larger collective national endeavour — from which good would come, for which sacrifice was essential.
Three, there was a widespread perception that demonetization would give the government fiscal space to either deliver on its electoral promise of giving direct cash to the poor or enhancing welfare. “There is temporary pain. But in a month or two, money that will be collected from the rich will then be invested in the poor,” a Dalit farmer, a traditional supporter of the Bahujan Samaj Party, said then.
The fact that many were able to preserve income they had concealed from tax authorities, or that there wasn’t any dividend the government accrued from the move, or that more money came into the banking system than assumed, did not matter. What mattered to many was the temporary hope that the poor would finally have access to resources.
But the final reason demonetization worked out politically for the BJP was the faith in Modi’s personal integrity. It is unlikely that any other contemporary leader would have been able to pull off a feat as radical and disruptive a move. If there was even the remotest sense that a corrupt political leadership had taken the decision, the political consequences of demonetization may have been entirely different. And Modi knew that he had to leverage his clean image — to be able to offset the pain citizens were undergoing. And that is why, in rallies at the time, the PM’s messaging revolved around how he had no possessions, no desire for power or wealth, and would be happy to walk away — but was determined to battle vested interests. He painted himself as the warrior, but also the victim.
The fact that a policy needed to be judged by its impact did not matter It also did not matter that Modi’s own political intent may arguably have been to dispel the image of the government as being a “suit-boot sarkar” — Rahul Gandhi’s sharp jibe which forced the government to reorient its political economy messaging — and portray himself as a man committed to the welfare of the poor. What mattered, at that moment, that a leader seen as honest was behind the move.
India’s citizens were willing to live with tangible suffering, for intangible good. But with time, there was a recognition that demonetization had yielded little dividends. It did not punish the corrupt. It did not create a more equal society. It did not lead to universal income transfer. It did not weaken terror. The technocrats in the BJP decided it was best to shift goalposts and frame it as a step towards greater formalization of the economy and digitization (and on both, recent data suggests that there has been a radical change); the political leadership decided that the less people remembered the experience of demonetization, the better off they would be politically. And citizens decided that while the move did not deliver on what they had hoped, the policy’s intent was benign. India moved on. And the most radical of economic measures in Indian history, in retrospect, had a positive short-term and a neutral long-term political impact.
Shashi Tharoor On Demonetization
Taking to twitter Shashi Tharoor tweeted about demonetization that it was an impulsively-conceived, ill-thought out, poorly implemented decision. He tweeted, “Five years ago today, an impulsively-conceived, ill-thought out, poorly implemented decision knocked the bottom out of our economy. It’s time to demand accountability. #DemonetisationDisaster.”
Five years ago today, an impulsively-conceived, ill-thought out, poorly implemented decision knocked the bottom out of our economy. It's time to demand accountability. #DemonetisationDisaster pic.twitter.com/NdGLaJLo7B
— Shashi Tharoor (@ShashiTharoor) November 8, 2021
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