Free Press Journal

Demonetisation: Narendra Modi’s monumental political gamble

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Since he dropped the demonetisation bombshell on a Tuesday evening (November 8), sending India into a state of shock and awe, Prime Minister Narendra Modi has once again become the focus of sustained attention. As Indians, both very rich and those barely above the poverty line, have grappled with the realities of a draconian demonetisation that has put nearly 86 per cent of the cash supply of India out of circulation, there have been sharply polarised reactions to his audacity.

This was inevitable. Demonetisation on this scale in a functioning, political stable economy is unique. Previous demonetisation of high value currency notes had affected only the creamy layer of society and, in any case, had left India’s vast informal sector relatively unaffected. The present exercise affected nearly every class of Indian in varying degrees, except those living on the margins of the market economy. The only other examples in recent times — the demonetisation of the Reichsmark in Germany after World War II and the demonetisation of the Rouble after the collapse of the Soviet Union — took place in exceptional circumstances and following huge political turbulence. Certainly, pundits I have spoken to could find no other parallel in the world, and certainly not for a vibrant economy.

The long queues outside banks, the ATMs that were emptied of cash and the spate of colourful rumours have certainly affected public perception. In the debate in the Rajya Sabha last Wednesday and Thursday, Opposition MPs competed with each other in describing the woes of the “common man.” There were speeches offering a robust defence of the cash economy and the traditional, non-banking ways of doing business. Horror stories were narrated of families despairing of how to go about a scheduled wedding. Others complained about stranded travellers and the British Government—influenced no doubt by the English language TV channels—issued a travel advisory to incoming tourists. On the social media, journalists and liberal academics shed copious tears over the difficulties faced by their maids, malis and drivers.


Politically, the reactions were confusing. While West Bengal Chief Minister Mamata Banerjee flew completely off the handle and organised a march of like-minded parties (which, ironically, included the very non-kosher Shiv Sena) to Rashtrapati Bhavan, her long time CPI(M) opponent organised a petition signed by some 150 ‘intellectuals’ debunking the move. In Parliament, CPI(M) General Secretary Sitaram Yechury compared Modi to Mohammed bin Tughluq, the eccentric medieval ruler who had tried his hand at currency reform — unsuccessfully. Yet, fierce criticism was coupled with wariness. The Congress veered between trying to claim credit for initiating anti-corruption measures during Manmohan Singh’s 10-year rule and suggesting that the whole exercise was a scam. Indeed, apart from Mamata and Delhi’s equally mercurial Chief Minister Arvind Kejriwal, others kept their criticism to the management of the transition rather than the objective of the demonetisation.

Whether the boldest step taken in the anti-black money crusade initiated by the Prime Minister earlier this year will fetch political dividends is something that no one is entirely sure about. That the announcement of the demonetisation was also accompanied by a large measure of lower middle class glee at the likely sleepless nights to be suffered by the fat cats isn’t in any doubt. However, the full-throated expression of support is likely to be delayed until the new notes are in circulation and the queues in banks and ATMs have lessened. Indeed, it may well be a few months before India starts arriving at a considered judgment of Modi’s demonetisation.

There are, however, certain initial conclusions that can be drawn. The first and most obvious is the fact that the Prime Minister’s authority in the party and his government is total and unchallenged. The demonetisation exercise inconvenienced the vast majority of Indians and added to their daily hassles, at least for a short period. But the exercise completely unsettled those engaged in trade, both in urban and rural areas, because they were at the heart of the cash economy that accounts for nearly 25 per cent of economic activity. Ironically — and this is a point that hasn’t received any worthwhile attention — the traders make up the BJP’s core constituency, one that has stood by the party through times good and bad.

By hitting that section the hardest and more or less coercing them into joining a modern sector, Modi has taken a monumental political gamble. He has, in effect, triggered a social upheaval in the BJP and reached out to sections that were hitherto no part of the party’s support base. Whether the BJP is able to enlarge and redefine its social base as a consequence will be worth watching. So far the party has extended unequivocal support to the Prime Minister but how the tremors affect the social base is unknown. In any case, as in Gujarat, Modi has always conducted a very presidential form of politics by reaching out to voters over the heads of intermediaries.

Secondly, the demonetisation exercise has reshaped the image of Modi as an administrator. In 2014, Modi was regarded outside Gujarat as a charismatic leader who meant different things to different people. While his decisiveness and no-nonsense style was appreciated, there was always a big question mark over his ability to effect a fundamental transformation of the country. Indeed, one of the criticisms levelled against him was that he was essentially an incrementalist, not a radical.

The Prime Minister’s anti-black money drive will go a long way in changing perceptions. It is now clear that unlike, say, Indira Gandhi’s nationalisation of banks in 1969 and V.P. Singh’s endorsement of the Mandal Commission report in 1990, Modi’s demonetisation was more considered and part of a larger calculation. In hindsight it now appears that the Aadhar card drive, the Jan Dhan Yojana, the drive against foreign accounts and the scheme for the declaration of concealed wealth and income were steps in a larger scheme of things. When Modi argued that he wouldn’t take any more excuses after September 30, he wasn’t bluffing. It would seem that there is a passion in the Prime Minister for driving change, regardless of the magnitude of the project. He seems to plan his moves quite meticulously and is thirsty for challenges. It is extremely unlikely that any other Prime Minister would have undertaken such a monumental challenge as demonetisation, not least because he was completely dependent on a sluggish banking sector for its rapid and relatively painless implementation.

It is this single-mindedness that is sharply at odds with political calculations that appear to have totally unnerved both the status quoists (who imagined after two years that they had co-opted him into the Lutyens’ zone) and the remnants of the ancien regime, yearning for the predictability of past Congress regimes. Modi has not only emerged as a leader towering above the pack, he has set in motion a political churning. It is likely that the 2019 general election will end up as a referendum on the man.

The author is a senior journalist and Member of Parliament, being a Presidential Nominee to the Rajya Sabha.