Demonetisation a make-or-break venture for Modi

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Amulya Ganguli | 19 Nov, 2016
There is an element of spasmodic jerkiness about some of Prime Minister Narendra Modi's policies.

In foreign affairs, this unevenness was seen in his interactions with Pakistan, which swung from warm friendliness to hostility, raising fears of a war.

In domestic matters, the sudden outlawing of Rs 500 and Rs 1,000 notes has caused a turmoil in all sectors of the economy, resulting in severe inconvenience to individuals and throwing trade and agricultural activity out of gear.

Understandably, no advance notice could be given about the demonetisation of high-denomination currency in case the hoarders of black money took advantage of the disclosure. But the transition from one type of legal tender to another could have been managed in a far more smooth manner.

Since no forethought was apparently given to the impact on the ordinary people of the withdrawal of the notes, which constitute an estimated 86 per cent of those in circulation, banks and ATMs have had to face an unprecedented rush -- with some people even dying while standing for long hours in queues.

Because of the prevailing misery outside banks and ATMs, the initial reaction of the people has changed from welcoming the move because of its intention of curbing black money to deep unease and even anger about the government's deplorable failure of implementation.

It was only when the disorderly scenes inside and outside the banks threatened to jeopardise the government's initiative that belated efforts were made to ensure separate queues for the elderly. But it is clear that it will take weeks for order to be restored.

If the Prime Minister thought that his latest move was yet another surgical strike -- Congress leader Kapil Sibal has called it carpet bombing -- which will boost the government's image, he must have realised that it is not being seen in the same positive light as the earlier one.

Unless the banks can begin to function with a modicum of efficiency, the Bharatiya Janata Party (BJP) will have to pay an electoral price.

The first test will be in Uttar Pradesh when the assembly elections are held early next year. It is a poll which the BJP cannot afford to lose since its victory in Assam in the far corner of the country has not been enough to erase the stain of its defeats in Delhi and Bihar.

The party's fears will be all the greater since it is now admitted that the economic situation will get worse before it can improve.

It is the period when the GDP is expected to fall by nearly one percentage point, which will be of considerable worry to the BJP because the opposition parties will not lose this opportunity to pillory the government.

From this standpoint, the otherwise bold and much-needed demonetisation has come as a godsend to opposition parties like the Congress, the Trinamool Congress, the Aam Admi Party and others, which care more about scoring brownie points than about taking a holistic view.

Some of the BJP's allies like the Akali Dal and the Shiv Sena have also joined the dissenters, probably to emphasise their distinctiveness vis-a-vis Big Brother rather than to seriously oppose the move since they have prefaced their criticism by hailing the move.

The Bahujan Samaj Party's joining of the nay-sayers is clearly intended to reap electoral benefits in the forthcoming contest in Uttar Pradesh, where it has a more than average chance of success.

The BJP will be grateful, therefore, that at least some parties have seen the bigger picture and decided to support demonetisation despite the severe inconvenience faced by the ordinary people.

These include the Janata Dal-United, the Biju Janata Dal, the Nationalist Congress Party, the DMK, the Telugu Desam and the Telangana Rashtra Samithi.

To retrieve the situation, the government has to act more resolutely to alleviate the distress of the ordinary people by revving up the creaking banking sector.

It is possible that Modi's initiative has been motivated by the realisation that two-and-a-half years into his reign, the government's achievements have been less than substantial. The economy remains sluggish and employment prospects are not too bright in an age of automation.

His promise, therefore, of boosting job-creation via rapid economic growth hasn't quite been fulfilled, although he still remains the best bet among all the politicians if only because there is no one else who fits the bill.

While Rahul Gandhi is yet to make up his mind about becoming the Congress president, probably because of an innate realisation that he may make a mess of his ascent, other claimants have generally shot themselves in the foot like Bihar Chief minister Nitish Kumar, who has sacrificed his USP of restoring law and order and boosting growth at the altar of prohibition.

For Modi, the gamble of demonetisation is some kind of a make-or-break venture. Even if it poses electoral risks in the short term, it is bound to yield dividends at the time of the next general election in 2019 when the economy will have overcome the present hump of a logistical nightmare afflicting the banks.

As a result, the GDP will begin to rise as lakhs and crores of the new legal tender enter the banking system. But, for the present, the teething troubles will continue.