Demonetization: Modi's Political Masterstroke?

By Pankaj Sharma and Saurav Sanyal

On 8 November 2016, at 8:00 PM IST, Prime Minister Narendra Modi announced that four hours from his declaration, all 500 and 1000 rupees notes would be devalued. At the stroke of the midnight hour, India awoke to an unexpected tryst with demonetization. An incisive and insightful take on the issue, Pankaj Sharma and Saurav Sanyal's book gives agency to the ordinary Indian voters, the 'torchbearers of democracy'. Going beyond the idea of the citizen as a mere recipient of the government's edicts or munificence, the authors focus on the power of the common man as a voter and the repercussions of demonetization on the upcoming 2019 general elections in India.
In 2019, will demonetization be seen as the waterloo of Modi, or will he emerge stronger and even more powerful? In dissecting the political implications of demonetization, the authors espouse a varied yet nuanced approach. From discussing the role of human psychology in making political choices to a search for an on-the-ground sentiment in determining the factors of influence, Sharma and Sanyal leave no stone unturned in analysing demonetization as THE political issue for the future of Indian democracy.

• Language: English
• Publisher: Bloomsbury Publishing
• Release date: Feb 4, 2019
• ISBN: 9789388038010

Book preview

DEMONETISATION

MODI’S POLITICAL MASTERSTROKE?

DEMONETIZATION

MODI’S POLITICAL MASTERSTROKE?

Pankaj Sharma

and

Saurav Sanyal

© Pankaj Sharma & Saurav Sanyal, 2017

First published, 2017

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To the torch bearers of democracy, the ordinary Indian

CONTENTS

Acknowledgements

Introduction

CHAPTER 1 : Where were You the Day President Kennedy was Shot?

CHAPTER 2 : Modi and Gujarat Model of Politics

CHAPTER 3 : Demonetisation: Why the Official Logic may be Flawed

CHAPTER 4 : The Role of Human Psychology

CHAPTER 5 : Search for On-the-Ground Sentiment

CHAPTER 6 : Demonetisation and the Forecast for 2019

CHAPTER 7 : From the Rear View Mirror and the Road Ahead

Notes and References

Index

ACKNOWLEDGEMENTS

We are immensely grateful to all the teachers, colleagues, professional associates, friends and family members who have not only influenced our thought process, knowingly or unknowingly, but also helped us in becoming who we are as people. There are so many of them that it would be virtually impossible to remember each and every one. Nevertheless, their contribution has been significant and deeply valuable to us. We have a deep sense of gratitude towards each and every one of them.

Specifically, we would like to thank the countless number of ordinary citizens of this country, interaction with whom forms the soul of this book. After this humbling experience, we genuinely believe that human goodness is not constrained by the artificial divisions based on social and economic status. We always found the ‘man or woman on the street’ much more open, much less insecure and very helpful. These interactions also made us feel optimistic about the creativity, imagination, and initiative of an average Indian. We believe that with better education and improved standards of governance, it is possible for us to evolve into a more prosperous and humane society, and that too in a reasonable frame of time.

The support and co-operation from one’s immediate family is an absolutely essential condition for an endeavour like this. Pankaj is thankful to his wife, Mrs Shikha Sharma, and his son, Pulin Sharma, for their patience and accommodating the enormous demand on Pankaj’s time this book had warranted during the background research, field survey and writing phase. Without the ardent support of Shikha and Pulin, this book would not have seen the light of day. Pankaj would be keen to acknowledge the contribution and encouragement received from so many people that the list below is really long, yet very much incomplete. The first for him to remember is his maternal grandfather, Late Shri Janardan Shastri, to whom he owes his love for reading and writing. His friends (Sandip Bansal, Saswat Sarangi, Sunil Teluja, Niraj Khare, Rupal Mehrotra, Ramesh Mantri, Sanjeev Soni and Unmesh Sharma), his teachers (Late Shri Kulwant Singh Sachdeva, Mahavir Sir, Sharma Madam, Bhupendra Sir, Rakesh Sir, Maheshwari Sir, Dr Gokarn, Dr Raheja, Dr Sha, Dr Ghosh, Dr Satsangi, Dr Narag, Dr Mitra, Dr Singla, Dr Pandit and Dr Kaur to name a few of them), his bosses at different points (Suhas Hari, Suresh Mahadevan, Venkatesh Balasubramaniam, Ashish Gupta, Ajay Garg, Gordon Gray and Kishore Gandhi), his solid support in this journey (Ranjan Sharma, Neeraj Sharma and Pushkar Shukla), and most importantly, his parents (Shri Kamlesh Kumar Sharma and Mrs Veena Sharma and Dr Ram Gopal Shukla and Mrs Mithlesh Shukla).

Saurav wishes to acknowledge the support extended by his father, Sanjib Kumar Sanyal, and mother, Ruma Sanyal, for giving him the freedom to exercise his choices in terms of his career as a researcher and business professional. He wishes to acknowledge the everlasting support of his wife Ms Sujata Sanyal, who has been a pillar of strength and son, Shubhraneel Sanyal, who always brings a new perspective to Saurav’s life through his ideas and enthusiasm. He also wishes to acknowledge his family members, especially, Dr SS Chakravarti, Smt Sumita Chakravarti, Ms Shruti Chatterjee, Ms Rashi Chakravarti, Mr Gaurav Sanyal, Mr Supriyo Sanyal, and Dr Purandar Chakraborty, who kept the DNA of free thinking alive. He remains indebted to the indelible inspirations from Prof B Viswanathan (Emeritus Professor, IIT Madras), Prof JK Mitra (Former Dean, Faculty of Management Studies, Delhi University) and Prof V S Srinivasan (Ram Krishna Mission Vivekananda College, University of Madras), along with the inspiring faculty at the Department of Chemistry IIT Madras (1996-1998). A special thanks to his bosses on the professional side (Mr VM Naik, Mr Chander Mohan Sethi, Mr Monoj Chakraborty, Mr Aseem Soni, Mr Manish Gupta, Mr Saurabh Sharma and Mr Sander Verboom) and several close friends (Mr Anish Andheria, Mr Rakesh Kumar Singh, Mr VSN Anuj, Mr Sivaraman Dandapani, Mr B Arun Kumar) who made life an exciting journey every day.

We wish to acknowledge our sincere gratitude for Paul Vinay Kumar of Bloomsbury India Pvt Ltd, whose continuous support and encouragement made this book possible. We were never very good in making a realistic assessment of what the book was lacking but it was Paul, who helped us in the course correction.

INTRODUCTION

From the evening of 8 November 2016, after the Government of India announced that the Rs 1000 and Rs 500 notes would cease to be legal tender in the next four hours, Demonetisation¹ or the Note ban has been continuously in the news. The government has maintained that in the short term, demonetisation is bound to create some inconvenience for the people. However, it will also lead to the creation of a much cleaner economy in the medium to long run. The common people of India have shown exemplary discipline, even though it seems that the entire demonetisation exercise was neither well thought out, nor a meticulously planned exercise. The causes for which are shortage of required infrastructure, manpower for implementation and resources.

In terms of political reaction, while it was natural for the ministers and Government machinery to declare this as an extremely courageous and visionary move, the Opposition was left baffled for a while and without a proper response. Once the initial shock had subsided, the Chief Minister of Bengal, Ms Mamata Banerjee² of the Trinamool Congress, and the Chief Minister of Delhi, Shri Arvind Kejriwal³ of the Aam Admi Party, seized the initiative and started attacking the Government. The Congress party, led by Shri Rahul Gandhi,⁴ was a late joiner, but has remained more vocal on this issue.

Among the more informed and aware class, the sentiment is divided. For instance, there are people who think that a) demonetisation may have led to some inconvenience in the short term, but this would be a good thing in the long term; b) there is no dearth of people who have now turned skeptical about the real benefits of demonetisation; and c) there are some people who have not liked this idea, which is primarily because of vested interests.

Bill Gates⁵ has said "We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten." In our view, it is extremely difficult to forecast what happens in the long term and though it is possible that demonetisation may prove to be an effective and beneficial step over the medium to long term horizon, the near term impact from demonetization has mostly been negative.

Chances are that demonetisation as a tool to tackle Black Money is not going to be effective, as illicit wealth is rarely stored in the form of currency. Post demonetisation, there has been a negative impact on consumption and discretionary spending and though estimates may vary, it is likely that the GDP growth will be lower in FY17 and FY18 as compared to FY16⁶. However, at this stage, it is really difficult to say with certainty whether demonetisation would have a good or bad impact, or none at all, on the Indian Economy over medium to long term.

Simultaneously, it must be noted that we do not think that any patriotic and honest citizen of the country would disagree that Black Money⁷ issue needs to be addressed at the highest echelons of power. We must clarify that it cannot be outlined with certainty whether demonetisation was the best possible measure to tackle this problem, or if the benefits of this measure will be accrued over the long term. However, that is not the subject of this book. We do touch upon the less than optimal effectiveness of demonetisation in tackling Black Money, and how it has had a negative impact on the economy so far. Our focus in this book will be on the political implications of demonetisation.

So far, we have seen that the government machinery and the Bharatiya Janata Party⁸ (BJP) are trying their best to defend this decision. This is natural, considering the absolute control the Prime Minister, Shri Narendra Modi⁹ (Modi) commands on the government machinery and party apparatus. The reaction from the Opposition is also understandable and on perfectly expected lines. Not all the Opposition leaders may agree that this event offers a huge political opportunity, but at least it may have the potential to become one in the absence of any other major issue for the Opposition parties at this juncture.

The missing piece in the puzzle concerns the reaction of the ordinary voters. For example;

If demonetisation is a political gamble by Modi, will it pay off in the elections? The results of recently concluded assembly elections suggest that either it is not an issue or people are supporting demonetisation.

Who will politically benefit more from note ban? Are the benefits to economy same as political benefits?

Is the opposition to demonetisation and failure of execution in its transition phase going to be bad for Modi?

Do state elections reflect the people’s view on the performance of central government?

Is voting for BJP and voting for Modi the same thing for a voter?

This book is an attempt to understand how an ordinary voter will react to demonetisation. We have tried to understand the popular sentiment over the course of eight weeks, from December 2016 to January 2017, during which we spoke to people and tried to gauge their reaction to demonetisation.

We will come to the detailed conclusions in due course. However, it must be noted at the outset that more than the inconvenience and near term suffering, the voter is looking at how fair and honest the Government is in its intention and consequent implementation of its measure, as well as if really it has the courage to go after the big catch. This is the objective of the book, to look at the reaction among common people that demonetisation has generated and what that entails for the 2019 General Elections.¹⁰ Is demonetisation the Waterloo¹¹ of Modi, or will he emerge stronger and even more powerful?

Read on to know our answers to this question and many more!

CHAPTER 1

WHERE WERE YOU THE DAY PRESIDENT KENNEDY WAS SHOT?

JFK’s assassination and the high impact events

On 22 November 1963, President John F Kennedy¹ was assassinated as he rode in a motorcade through Dealey Plaza in Dallas, Texas, United States of America (USA). This was among the most important events of the twentieth century. Not only because JFK was preparing for the next presidential campaign, but also due to the fact that he was extremely popular and died at a very young age, while he was still in office. Events like an assassination remain so ingrained in people’s mind that even years after one can recall that decisive moment in the past. For most people not just in the USA, but also from around the world of that generation, it was easy to recall where they were and what they were doing when they first heard that JFK had been shot.

As a country, we have had many of our own events over the last almost seventy years of history post-Independence – a mixed bag of good and bad. For example, a sample list of events would look something like this – the assassination of Mahatma Gandhi², the sudden and unexpected death of Lal Bahadur Shastri³, the liberation of Bangladesh⁴, the imposition of Emergency⁵, the 1983 Cricket World Cup win⁶, the assassination of Indira Gandhi⁷, the assassination of Rajiv Gandhi⁸, the demolition of the disputed structure at Ayodhya⁹ in December 1992, the Cricket World Cup win in 2011¹⁰, and so on and so forth. Some were good, and some bad, but all of them almost equally powerful in the minds of Indians who were old enough to remember them.

Demonetisation: Defining moment of Modi 1.0

A disclaimer has to be in place first: We are not making an assumption on what happens in 2019 general elections, the phrase ‘first term’ is only being used to not rule out the possibility that Modi may get re-elected in 2019. Though being fully aware that we are hazarding a guess, we strongly believe that the first term of Shri Narendra Modi as a Prime Minister would be defined by Demonetisation. It does not matter if it is good or bad, or if it would ultimately prove to be a disaster, or a masterstroke in the future. This is an event like Pokhran¹¹ (under then PM, Shri