How Modi Has Sold Demonetisation To People

There never was going to be any roll back on demonetisation. This is not a Prime Minister who is into roll backs; Narendra Modi, having a taken a stand, does not easily move from his position. And on something like this, which was clearly his decision, a decision that he trumpeted as the cleansing of black money, demanding the people stand by this national endeavor, a decision that he saw as clearly meeting the one promise he wanted to keep to the electorate, there was no going back.

To understand how strongly Mr Modi feels about what he has done is to understand that this is a decision that went against that core BJP constituency of traders and business people. These people have been the party's constant source of support, both political and financial, since pre-independence India, backing the right-wing Hindu movement through its various bodies and avataars: Mahasabhsa/RSS/Jana Sangh and now the BJP. These are the people who don't pay or at least avoid taxes, and always have cash in hand. So to have strangled their way of doing business, Mr Modi has risked losing this core element of support in search of something much bigger, capturing the minds of the vast mass of poor and middle class India who feel they have been gypped by these very traders and money lenders for generations. And if the equanimity with which, so far, the average Indian has reacted, he seems to have judged the pulse of the nation very well. So having stretched and stuck his neck out, he was never going to release the guillotine of a rollback.

The closest similarity to this move was Indira Gandhi's nationalisation of banks and abolition of the privy purses under the clarion call of Garibi Hatao. Whatever the demerits of these moves, it gave her the political fuel to smash the opposition, collect an awesome victory and position herself as the Goddess of the deprived. It is this pro-poor image of the Congress since then that has kept the Grand Old Party hobbling along as a political force in India, even after they strayed into liberalisation and the opening of the economy. And this is the mantle that Mr Modi wants to grab and wear; it is the mantle that would convert the BJP from a right-wing Hindu party into a pro-poor, pro-development one, albeit one with a Hindu nationalist flavour. Mr Modi knows that once you capture the imagination of the pro-poor, it is easy to blame failure of any objective on anti-nationalism; something that Indira did brilliantly throughout her "reign".

The Prime Minister had in the 2014 election campaign harped on the Congress (UPA's) corruption and the vast amounts of black money that was floating both within and outside India. He had promised to bring the black back, and use the money for each and every Indian. And this search to get back the black has remained a key constituent of the BJP's policies. Unfortunately, both attempts get the public to surrender their black money, both abroad and here, have been signal failures. The last one in September managed to garner a measly 65,000-odd crores, which, when compared to the 1997 scheme which collected more than 33,000 crores (at that time, which is like 1,13,000 crores if corrected for inflation), was another slap in the face of the government. Mr Modi does not like failure, so failing twice to get his core constituents to pay up was probably enough to push him into this, instigating the sudden step to demonetisation.

In the way that he has sold demonetisation to the average Indian, of a surgical strike at a small minority of people who hoard and exploit the rest with their black economy, he has hit upon the very psyche of exploitation that most Indians hold: that of the fat lala sitting in shop with wads of notes under his mat, charging whatever he feels like for provisions or loans. Every less privileged Indian has seen this image, and even those better off come across the shopkeepers who refuse to give you a bill, who refused credit cards by pretending they never had a swipe machine (suddenly these popped out after November 8), or the jeweler your bought ornaments from without being sure of the actual good content. It was an easy sell, and he has sold it well.

The Prime Minister and the government's rhetoric has followed a consistent line in the face of all criticism, that this is a revolutionary step in eliminating black money, all Indians must stand together and take the pain of this, all those against this are anti-national and don't want to eliminate black money. Which is why more rational arguments about how little black there was in currency notes (varying estimates from 1-5% of all currency), so this would not do much, to others on the possibility of the country going into recession, haven't cut much ice. It is a monumental political gamble and having taken it, there is no step back.

The policy announcements that have followed have tried to address the concern that this single shot would not stop the world of black money, only temporarily derail it. Offering  a second bite (at a more costly rate) to declare black holdings is the major step towards that. Alongside is the implicit threat of scrutiny and raids. More importantly, there is a promise that more will follow post December 30. Even looking at the world of campaign financing does not seem to be out of the realm of reforms; many believe that much will follow, in January and in the budget.

The problem that remains is that has the mindset of the those in the black market really changed? Yes, the fishmonger is getting a swipe machine or an e-payment gateway, others who did not give bills are making them, but will this continue beyond December? The seizure of 4!crores, and that too in new notes in Bengaluru, shows how deep the corrupt practices in this country our. Firstly, where, without the connivance of bank officials would anyone be able to get hold of such a large sum of Rs 2,000 notes? Secondly, the government engineers who were raised seem to have no qualms about collecting money for favours done. And by all accounts, the ubiquitous bootlegger is back in circulation, offering deferred payment for whatever takes your fancy. Corruption is so wide spread that the cures are going to be difficult to find. 
  
How is the government  going to address this? Where is the transparency in government going to come from to stop the politician-engineer-contractor nexus? How are tax rates going to be rationalised so that it makes no sense to avoid them? The current multi-layered GST rates are an example of where people try to avoid or fiddle, with the connivance of the tax officer, the category that products fall into. These GST rates are a political compromise, but in that are the seeds of its corruption. Nothing in this country works, unless it is this or that. Too many choices means too much room to manoeuvre. 

Similalry, the effort to make us cashless, is not simple or short. Getting card machines into a shop takes more than two weeks if not a month. It needs documentation, scrutiny and even a visit to the establishment before a machine appears. And since these machines are imported, they will take time for delivery, even with the lower duty. More smart phone type of attachments also perform these tasks, but again need time to reach the market. The servers in the system have already been hanging with the increased volume of digital transactions and need to be upgraded. Other phone-based payment systems are great, but involve a level of literacy higher than swipe card machines. And finally, the shopkeeper does not want to pay the charges ranging from 0.6% to 2.5% on usage of the card. Neither does the buyer. So how do you incentivize them?

Despite all these and many other concerns, Modi has climbed onto the tiger, and isn't getting off. He will exploit his policies against black-marketeering to the hilt and is likely to succeed politically, at least in the short run, just as Indira did, until inflation and the failing economy allowed Jai Prakash to lead a successful movement against her. The recent municipal victories in Maharashtra and Gujarat show support for him. And if he continues to politically succeed, he will have changed the political game in India completely. 

(Ishwari Bajpai is Senior Advisor at NDTV)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.