Demonetisation: Modi's political masterstroke at the cost of India's economy and citizens
Arun Jaitley, the Finance Minister of India, tried again to explain the rationale behind the historic (As it turned out, not in a good way) financial exercise of declaring all Rs 1000 and Rs 500 notes, nearly 86 per cent of the currency in circulation at the time, as illegal tender with one swift declaration by Prime Minister Narendra Modi on November 8 last year.
His latest attempt came after the declaration by the Reserve Bank of India that almost 99 per cent of the currency, contrary to government's expectation, had come back. Which means a total failure to take out black money from the system. Adding further credence to the already loud calls terming the exercise a complete flop. And rightly so.
This though has not stopped Jaitley from claiming the contrary. This time too, staying true to form that the government has shown when it comes to backing the unilateral decision taken by the Prime minister, he claimed all the aims of the step had been achieved. With the undertone that the opponents don't understand the exercise popularly termed 'Demonetisation.'
It would have been more believable if the goal posts for the intended targets were not shifted, what seemed like every second day, as criticism of it grew stronger. From being a fight against black money and corruption, to bringing the informal sector into the formal one, to digitisation of the economy etc.
And now with the latest data related to it coming out, all these just look and sound like nothing but excuses to cover up what critics had always warned it to be. A political call with economic and human costs that caused much more damage than any good that it has or could have brought. Leading to a situation where the losses have far outweighed the gains which are still being searched for.
A political call that worked as intended
Last year, the Bahujan Samajwadi Party supremo, Mayawati, speaking at a rally, said, "To divert people's attention from the failures of BJP and the Centre, the government can go to war (with Pakistan) on the issue of Kashmir and terrorism."
While such a claim could have been thought to be just political mud slinging Modi, known for his political acumen, has been able to do one better with a much more subtle 'war against black money' and at a time when his performance was still not being widely targeted or his popularity dwindling.
The timing of it also gives sway to claims of the exercise being motivated by political calculations, though only Modi knows if this was one of the intentions or not. That it worked on the ground is without a doubt given the Prime Minister's party delivering a body blow to its opponents both financially and politically, and winning a three-quarter majority, without naming a Chief Ministerial candidate, in the crucial Uttar Pradesh elections held shortly after the 50-day window to exchange notes got over.
But the reality is that benefits in just one state can't be thought to have been the main aim. Instead, it was in all likelihood a step meant to kill many more birds with one stone.
Having come to power on the promises of cleaning up a corrupt system existing under the Congress rule, Modi, with one decision, was able to enhance his reputation and create an image of a crusader against corruption and champion of the poor who took on those with coffers filled with ill-gotten wealth.
Something that will help him stand in good stead in front of the voters at the time of campaigning for the next Lok Sabha elections in 2019.
Who paid the price
Such gains for Modi did not come free of cost by any means. These are being paid not only by other political parties but also the economy of the country and the common man in whose name the decision was taken.
No matter what the supporters of the exercise might claim, the facts on the ground have failed to show any indication of the gains to the economy that had been promised. With even Gross Domestic Product falling to three year low of 5.7 per cent in the first quarter of this fiscal year.
And though some of the impacts might be blamed on or get covered by the implementation of the Goods and Services Tax, as Jaitley tried to for the fall in GDP, the data and reports from across sectors such as manufacturing (especially unorganised sector), agriculture, financial, insurance, real estate and professional services among others, go far in showing the negative effects of decision taken almost 10 months ago.
Yet the real cost hidden behind all the numbers is that at the human level. And while the finance minister might say that opponents don't understand the logic behind demonetisation, the truth is nobody gets it better than those who bore the brunt of it and in some cases continue to.
These came not only in the form of loss of lives, jobs and daily struggle to get back their own hard earned money of those who stood in lines for hours and days fearing not only whether they will take home some cash but also of losing their place in the queue at banks and ATMs. Reducing grown men and women to tears.
Flawed rationale that should see heads roll, but won't
The high cost in such terms becomes even more glaring when the flawed rationale behind the move is looked at.
Jaitley said, "Objective of note ban was to bring down cash in economy, bring digitisation, expand tax base and fight black money."
As for the claims of doing away with black money, facts such as recent estimates that only 6 per cent of it is kept as cash, the replacement of old notes with even higher denomination Rs 2000 and Rs 500 notes which make stocking up money even easier, and that the move just attacked the stocks instead of the flow of such cash, leave a huge question mark hanging over them.
On the issue of bringing the informal sector into the formal sector, the reality is that it would have been achieved by bringing in GST alone and with much less cost, as it would not have compounded the losses from demonetisation.
Finally, both the aims of digitisation of the economy, through cash-less transactions, and increasing tax base, could have been served better with the implementation of the new tax regime alone. The failure on digitisation front is clear by the RBI data on ATM cash withdrawals which showed that they stood at 2,259 billion, 0.6 per cent more than in the same month last year.
Such flawed rationale and results bring attention to the thinking behind taking such a drastic step. While according to all the reports and understanding of events leading up to November 8 show that the call was taken by the Prime Minister without widespread consultation with other stakeholders. A process that has also tarnished the image of independence and competence of the RBI.
And while in an ideal world, the responsibility would also lie on Modi's door. Everyone familiar with the working's of the Indian democracy and all the governments of different parties since independence, know that will not happen.
Particularly since only the successes are taken credit for by the top post and failures attributed to those below, which should mean that the Finance Minister owns up for the chaos and loss that the exercise caused. Even if it is widely thought that he had a limited if any, role to play.
Yet this would only be wishful thinking, as is clear, from Jaitley's statements that the government, no matter what the cost that has been paid, refuses to accept that demonetisation was a failure in every sense other than political.