While the economic rationale of Prime Minister Narendra Modi’s decision to scrap high denomination currency notes is still being weighed by people and analysts, it has become increasingly clear that the step was motivated by political objectives. Coming at almost the mid-point of his tenure, Modi decided that he could no longer plod along and chose to change the script dramatically. The prime minister revived the populist and socialist pre-liberalisation sentiment that the rich are evil and the poor are intrinsically honest, as routinely projected in popular cinema of the era. This explains the now famous recent Modi quip: "Gareeb chain ki neend so raha hai, aur ameer needs ki goli khareendne ke liye bhatak raha hai [While the poor are sleeping peacefully, the rich are desperately trying to get hold of sleeping pills]."
In recent weeks, Modi made several claims that his efforts were to benefit the poor but these appeared more rhetorical with little policy backing. But the decision on 28 November to table the Bill bringing amendments in Income Tax laws is the first indication of the policy of the government. The government’s statement prefaces the raison d'être of the amendment to the existing law with the declaration: "Evasion of taxes deprives the nation of critical resources which could enable the government to undertake anti-poverty and development programmes." The word growth — Modi’s mantra through his electoral campaign and for the major part of his tenure thus far — is significantly not used even once, lest it conveys a pro-rich tilt. The focus is now on development or vikas, of and for the poor.
The government announced institution of Pradhan Mantri Garib Kalyan Yojana, levy of a new cess and an additional deposit scheme for those declaring cash kept in the shadow of licit income (operative phrases for the latter two also being Pradhan Mantri and Garib Kalyan once again to ensure that Modi’s personal signature never fades from the initiative). The statement declares unambiguously that the amount that will be collected from people declaring hitherto undisclosed income “is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.” It goes without saying that spending on housing, sanitation, infrastructure, education, health and livelihood would be all directed towards the poor. In one sweep, Modi is trying to shed the pro-corporate image that has dogged him for several years.
There is no doubt that the Taxation Laws (Second Amendment) Bill, 2016, aims to achieve at least three objectives. Firstly, demonetisation has undeniably dealt a severe shock to the economy and there is unanimity that remonetisation will take several months. In the interim, the official and dramatic push towards cashless transactions, though aimed at minimising damage can at best ease inconvenience caused to people while negotiating daily chores, but cannot be a solution to the crisis that has begun to become visible in different sectors of the economy. Reports of job losses have already started pouring in several thousands and there is evidence that what is being noticed is probably just the tip of the iceberg.
Because the real estate sector was probably most dependent on shadow economy, the impact of demonetisation on the sector will be severest. After agriculture, this sector is the second largest employer in the unorganised sector. If fears that the sector will come to a grinding halt — with demand being initially be met by available inventory — come true, there will surely be large scale losses. The PM Garib Kalyan Yojana has the potential to step into this void by starting welfare schemes in infrastructure and housing sectors. Modi has the opportunity to make welfare programmes a priority and thereby also provide jobs to the hordes of unemployed.
Secondly, because large-scale construction of roads and other infrastructure projects, urban and rural housing affordable for the poor, construction of more schools, hospitals and health centres cannot executed efficiently by government agencies, Modi will turn to the private sector and these projects will be the new drivers of the Indian growth economy. That Modi has to turn to welfare programmes to revive his flagging hold on his tenure and alter the politico-economic script half way into the tenure, is ironical given his taunt at MNREGA for being schemes for “digging ditches”. Thirdly, the amendment to the I-T laws will enable Modi to claim among people that he has made a determined effort to unearth black money and fulfil his promise of 2014.
But for securing the support of masses on a sustained basis and not being dependent on his predominantly middle-class voter base, Modi has to ensure speed in execution. An assessment of the government’s earnestness in pursing welfare programmes for the poor can be made only after it has made fair progress. There are reasons to remain sceptical because the Pradhan Mantri Garib Kalyan Yojana was actually launched in April 2015 as a scheme to conduct workshops to inform and educate people — mainly party MPs — about schemes launched by the government especially for the poor and backward classes.
Not much was heard about it after it was launched with much fanfare by Modi in the presence of party stalwarts. That fate — not a very rare occurrence in the Modi regime — cannot befall the latest initiative without disastrous consequences for Modi. If the Prime Minister seeks to politically benefit from demonetisation, smooth rollout and consistent execution of the plan are essential. But, even this initiative will have to be backed by additional policy measures. The character of the roadmap ahead that the Prime Minister has drawn will determine if he succeeds in his objective or not.
The author is a Delhi-based writer and journalist. He authored Narendra Modi: The Man, The Times and Sikhs: The Untold Agony of 1984. Tweets @NilanjanUdwin