by Harish Gupta, National Editor, Lokmat Group
With the passage of 31 of the 60 months for which Narendra Modi got elected as Prime Minister, and after a disruptive monetary exercise which he loves to call “reform”, the machismo he exuded till recently seems suddenly sagging and the old swagger of “56-inches chest” is a thing of the past. The confidence curve of political leaders drop due to factors beyond their control—like the recent ‘Brexit’ that former UK prime minister David Cameron didn’t invite yet it cost him his job. But Modi’s November 8 move to scrap 500 and 1,000-rupee notes, amounting to 85 per cent of the currency in circulation, is an entirely self-inflicted injury to his image.
The decision has prima facie failed on its basic justification that it would whack black money. Going by the figures issued by the Reserve Bank of India, a little over 15.40 trillion rupees worth of currency was dropped out of legal tender by the de-monetisation decision, whereas cash amounting to 14.97 trillion rupees was back into the banks’ chests by December 30. This was after two months of deleterious disruption in citizens’ life.
With time still left for those disenabled by circumstances—like being abroad in the concerned period—to return their invalidated bank notes, Modi’s entire operation was founded on a wrong presumption. He was led to believe that there would be a good 3 to 4 trillion rupees that would escape the round tripping as these are “black” so would not show up.
Of course there being no discrepancy between the number of notes issued and those received does not per se prove that there is no black money in the economy. It is quite likely that a chunk of the notes that returned to the banking system will fail to be accounted for in later probes by Income Tax & ED officials. But the success of such a convoluted mode of catching the thief will depend on an army of taxmen which is not in place currently, and legal processes that may be tediously long. Its net political gain for Modi is yet to be proved though BJP claims it won 8000 out of 10,000 seats in municipalities, byelections and other bodies since November 8. Half way through his tenure, Modi and his “core team” is a worried lot.
In fact, its effect is treading in the negative zone, with businesses suddenly having slammed brake on growth and, consequently, bank credit growth in December has hit 5.1 per cent, its slowest in 19 years. Its impact, according to a financial analyst quoted in The Economist magazine, is “significant but not catastrophic”. It has been roundly criticised by many top-ranking economists, from Nobel winners Amartya Sen and Joseph Stiglitz to former World Bank chief economists Kaushik Basu, with most of them wondering at the utter amateurishness of the move. Sen’s criticism may be ignored for obvious reasons. But no one can buy the theory propounded by Bibek Debroy of the NITI AAYOG that criticism is anecdotal. Let alone consulting his party, it is obvious that Modi over-rode RBI as an RTI petition filed by an individual has brought out that the central bank’s board had met only three hours prior to the Prime Minister’s declaration on national television. RBI refused to divulge details of the consultation. And going by the desultory observations by Chief Economic Advisor Arvind Subranamiam, nor does he seem to have been consulted in advance. Obvious suspicion: Is Modi sitting at the cockpit of a rudderless boat, where the compass is replaced by ill-informed advice from his favourite set of bureaucrats?
Such misgiving has an ominous ring in the context of rising headwind globally, with the advent of Donald Trump and his protectionist posturing threatening to whittle down India’s meagre share of global trade. India’s domestic economy, on its part, is creeping along without growth of employment. Even before Trump’s inauguration, a bill has been admitted to the US Congress for a sharp rise in the minimum wage of immigrant employees armed with H1B visa. It is a move meant to act as a disincentive for employers to import immigrant workers. If the bill gets passed, there may be adverse impact not only on remittance but on growth of white collar jobs across the country.
Also important is the likely fallout of an inwardly drawing America retreating from most of the global theatres of conflict—be it Syria, Afghanistan or South China Sea—and leaving China nursing its ego as the future number one super-power; its economy will surpass that of the US as early as 2020. With the historic bond between China and Pakistan now stretching well past military linkage into strong economic cooperation, and Russia, India’s “trusted friend”, having already moved to the diplomatic no-man’s-land between India and Pakistan, India under Modi is living in a friendless state it never experienced in the past, not even in the Cold War years.
India is now buying arms at a feverish pitch and testing ballistic missiles that, as its Defence Ministry says, can reach the farthest corner of China. However, the real competition lies in the GDP of China being three times that of India in PPP terms, with India’s northern neighbour resolutely on the reform path to turn its ancient land into a modern country with a caring state. As reform, that’s a lot more valuable than canceling the currency and crying wolf.
But all this will be behind if Modi is able to swing UP in BJP’s favour. He has an Herculean task in hand. He has to sell digitization to the poor and illiterates in rural India and make them rich on the back of demonetization within the next 40 days. The demonetization has already brought the 16 parties together in Parliament and TMC’s Mamata Banerjee has established a hot-line with arch rival CPM’s Sitaram Yechury. Akhilesh Yadav has virtually emerged as an iconic figure in UP while the BJP is grappling with a local face.
