By M D Nalapat
Nripendra Mishra saw ‘cashless’ economy as being a force multiplier for
orderly growth, while Doval regarded the measure as having the potential
to deal a death blow to counterfeiting.
The BJP expects to get a demonetisation
dividend in the Assembly elections due in the coming months. BJP
president Amit Shah has made the 8 November 2016 note ban the key plank
of his party for the polls. In contrast, setting aside the question of
leadership for the present, Opposition leaders including Rahul Gandhi,
Arvind Kejriwal, Mamata Banerjee, Mayawati and Sitaram Yechury have gone
on the offensive against Prime Minister Narendra Modi. They calculate
that the 8 November 2016 “note ban” will cause economic distress and
therefore will end up as a political disaster for the NDA government.
Certainly, the move has been the most consequential step ever taken by a
Prime Minister in India since Jawaharlal Nehru embraced the Soviet
model of development in the 1950s. However, given the unanimous view
within his small circle of official advisors about not simply the
desirability, but the essentiality of extinguishing the legality of the
(old) Rs 500 and Rs 1,000 notes, it was a given that Prime Minister
Narendra Modi would heed the counsel of Principal Secretary Nripendra
Mishra, National Security Advisor Ajit Doval, Reserve Bank of India
Governor Urjit Patel, Revenue Secretary Hasmukh Adhia and other key
officials and approve the measure announced by him at 8 pm on 8 November
2016.
Mishra saw the “cashless” economy as being a force multiplier for
orderly growth, while Doval regarded the measure as having the potential
to deal a death blow to counterfeiting and to terror financing. Adhia
envisaged a substantial increase in the direct tax base from the
currency demonetisation, while the RBI Governor calculated that about Rs
450,000 crore of currency would get extinguished, thereby relieving
some of the pressure exerted by NPAs on the banking system.
Prime Minister Modi has, from the time he was Chief Minister of
Gujarat, treated official views with considerable respect and has run
government with their help, rather than in a “Bureaucracy Lite” manner
of depending instead on outside expertise. From 8 November onwards,
Modi’s fate, that of the BJP, and that of the Indian economy depends on
the success of the manner in which the “note ban” was implemented,
especially during the 50-day grace period requested by Modi in his words
to the nation. Overall, the assessment of the Opposition is that the
results of the past nine weeks bear out their own pessimistic forecasts,
rather than the optimism of the BJP about the impact of the
record-breaking measure.
The calculation of the Opposition is that there has been a 40%-60%
contraction in much of industrial production after the note ban, with
consumption, especially in the rural areas, falling by 45%. They point
to the closure of textile units and power looms in Gujarat and Punjab as
a pointer towards future election results in these states. They
calculate that the Services sector has been massively hit, with the
consequent loss of millions of jobs. The Opposition claims that Bihar,
UP, Jharkhand and West Bengal have seen the biggest reverse migration
since the 1970s. If true, such a return of newly unemployed individuals
would have repercussions on recruitment to Maoist and underworld groups.
However, the BJP leadership says that all such calculations are false
and that the economy (including employment) has actually been doing
better since 8 November 2016, because of the “cleansing operation”
conducted by PM Modi. However, there seems little doubt that the denial
of cash in the form of new currency to cooperative banks has affected
credit to farmers, few of whom rely on commercial banks for their needs.
According to officials connected with the exercise, the daily
production of Rs 500 notes stands at below Rs 1,000 crore, which is
judged to be too slow.
However, Revenue Secretary Adhia is known to be confident of mopping
up large sums of money from new taxpayers, as well as from the existing
assessees. The Income-Tax Department has been given a free hand by PM
Modi to go after tax evaders, and it is expected that at least six
million new income-tax assessees will get added to the roster of direct
taxpayers during 2017. Given the additional moneys needed for bank
recapitalisation, 7th Pay Commission, defence equipment, infrastructure
development and social welfare schemes, the need for additional
resources is obvious. However, the Opposition expects that such a
crackdown on taxpayers will reduce, rather than increase the popularity
of the BJP. Interestingly, most of the large infrastructure segments
(rail, road and defence) have not been able to spend the moneys
allocated to them over the previous two years. Overall, the expectation
of the Opposition is that tax raids and harsh action will dampen
investor sentiment and lead to a flow of funds out of the country, a
phenomenon that has been on the increase since Finance Minister P.
Chidambaram began in earnest a regime of tax terrorism in 2006, giving
officers discretion and punitive powers far in excess of those enjoyed
by counterparts elsewhere.
The BJP is relying on fissures within the Opposition, and in
particular expects Janata Dal United supremo Nitish Kumar to return to
the NDA. However, contacts within that party say that the ambitious
Bihar leader is awaiting the results of the UP Assembly elections,
before deciding on his strategy. They say that he will move into the NDA
only if the BJP becomes the single largest party in the new Assembly,
and is comfortably ahead of the Bahujan Samaj Party and the Samajwadi
Party. Otherwise, he will remain in the Opposition corner. The other
potential ally is the Biju Janata Dal, as on several issues the NDA and
the BJD are having a similar view. In UP, the BJP is relying on a
continuation of Opposition disunity, and certainly there seems zero
prospect of the BSP and the SP ever joining hands, while in Bengal the
CPM and the Trinamool Congress are unlikely to fight the polls together,
nor the Janata Dal Secular and the Congress in Karnataka. The BJP is
expecting a boost in the Assembly polls next month that would carry over
into the Assembly polls of 2018, most crucially in Gujarat, thereby
setting the stage for the 2019 Lok Sabha polls.
Anti-BJP elements are working throughout the country to create a
perception that the gold in the possession of households will get seized
by the Modi government. They have been assisted in this by a few
remarks of some officials on the subject, and are aware that the
possession of gold is at the core of identity in India, hence the effort
to create insecurity regarding the safety of even the family gold in
the possession of households for generations, much of which does not
have any documents to establish provenance. During the coming weeks, a
coordinated effort will be launched that targets Prime Minister Modi on
the issue of corruption. Now that the PM has made the war on corruption
and on black money the main plank of his appeal to the electorate (in
place of jobs and development, which was the rallying cry in 2014), the
Opposition is seeking to demolish the reputation for probity and good
governance of the Prime Minister, aware that the BJP depends almost
completely on the good name of Prime Minister Modi to win votes.
Should the demonetisation of Rs 500 and Rs 1,000 currency notes prove
problematic in the manner forecast by the Opposition, it would be tough
going for the BJP, including in the forthcoming Budget Session of
Parliament. Charges of misgovernment and corruption against the PM and
his government will be a daily occurrence, while ED and CBI raids and
charge-sheets of Opposition elements are expected to multiply. Although
more than two years away, the frenzy and fury of the coming Lok Sabha
campaign is already manifesting itself in the politics of the country,
and it will be the after-effects (or, as the Opposition hopes,
aftershocks) of Prime Minister Modi’s 8 November 2016 move that will
determine the politics of the country from now onwards.
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