Demonetisation: What will be the political fallout of this move to counter black money?

If taking bold initiatives is the cornerstone of good governance then Prime Minister Narendra Modi cannot be faulted on this count. A nation accustomed to the glacial pace of change in public affairs is coming to terms with a leader who does not believe in  half measures. That however is just one side of the coin. History is rife with leaders who were humbled at the hustings due to the arduous nature of reforms sanctioned by them. Depending upon which side of the ideological divide one falls, each citizen is hoping for the shoe to drop one way or the other.

Economists, editors, politicians, ex-bureaucrats, bloggers and social media activists have all pitched their tents and marked trench lines. Statistics, jargon, economic theory, stories and expertise are being flung around with remarkable consistency and frequency. In this noise one can easily lose the signals emerging from the hinterland. Therefore in order to understand to the potential ways in which the great demonetisation will play out, we have to analyse the issue at multiple levels. To further refine the topic, in terms of economic theory on paper, demonetisation should play out in a text book fashion and the government will end up mopping black money up as surplus in the Reserve Bank of India account. However, that may not be case when it comes to execution on ground. Therefore assuming a mediocre execution of the policy, as is the case with most governmental initiatives in India, one needs to look at the political economy of the policy measure. That according to us will decide the battle for or against Modi.

Representational image. Reuters

Representational image. Reuters

Popular support for a policy measure is critical to its success. CVoter is conducting a nationwide weekly tracker poll to keep a track of public opinion on demonetisation. In the second week of tracking a representative sample of 1,200-plus people, an overwhelming majority was willing to bear the inconvenience of demonetisation in order to combat black money. But the fact is that within two weeks, the tracker shows rural distress on the rise. Now, when every third farmer starts showing signs of distress due to demonetisation, you better sit up and take notice of it.

We are not diluting the fact that in response to the 'Bharat Bandh' called by certain members of the Opposition, 82 percent respondents opposed the call. Modi’s strategy to call into question the Opposition’s morals has also borne fruit with 78 percent of respondents agreeing with his statement regarding the Opposition not getting enough time to manage their respective personal stashes. While the intent part of demonetisation is beyond argument, the execution bit is indicative of a budding sense of resentment that may culminate in something serious.

In stark contrast to very high approval rates for other questions, only 58 percent of respondents deemed the execution of the scheme to be good. That's a huge drop within a two week period. Also, nearly 24 percent of the respondents termed the ban on high-value notes as a personal disaster or a huge inconvenience. Finally, between the first and second weeks of the tracker, there has been a significant rise in rural disapproval for the execution of the scheme. In light of the sowing season, this is something that should bother the government. It should actually start ringing serious alarm bells in some corner of the 7 Race Course Road or 7 Lok Kalyan Marg, whichever way you know it.

It is an open secret that cash drives the Indian electoral system and no politician can hope to be a serious player without utilising some in the elections. A move like demonetisation is bound to have a serious impact on the way India polity is structured. The way things stand there are currently two models of political parties in India. The first is the cadre-based ideologically-driven parties — this club is almost exclusively composed of the BJP, CPM and CPI. The only party added to this list recently would be AAP, even though its growth story has more to do with a decentralised volunteer network working on a bottom-up approach rather than a centralised cadre working on a top-to-bottom approach. However, the AAP leadership has been trying relentlessly to convert their structure the other way round: Good or bad; only time will tell.

These parties can marshal workers, volunteers and leaders with little else but slogans and doctrinaire preachings. Hence, by default, these parties are less dependent upon monetary patronage and cash dealings, although not fully immune to them. BJP has recently topped the dubious list of being the richest party with funds coming from "unknown" sources. Many attribute the Modi success in 2014 to cash fuelled media blitz, even though it just added to a wave which already was there to see. Therefore, it can be asserted that these parties, ideally should be least affected by demonetisation.

The story of the day lies on the other side of political divide, the “enterprise” model of political parties. These parties that derive their relevance from pecuniary patronage predicated on caste, personal charisma, community or regional identity are the ones hit hardest. The workers and ground support for such parties is a net result of personal aggrandisement these bestow on their followers. Therefore, the relation that these parties have with their supporters is one of give and take with little space for sentiments. In the short term, it will be tough for such political parties to sustain their patronage power and in the long term a lot will depend upon their ability to rebuild their monetary reserves. One can summarise from the above logic that politically demonetisation may lead to a one-way street ascendancy street for cadre-based parties, but there is more to it.

The BJP’s cadre is more proactive and enthusiastic ever since it wrested the power back from the Delhi-based "intra-party" establishment in 2013. The Goa conclave coup that toppled LK Advani and installed Modi as the primary leader of the party restored the sovereignty of BJP’s ordinary worker. An energised cadre topped by astute leadership culminated in 2014 victory for the party. The CPM’s has been a story in reverse; the average CPM worker has become a handyman to an unelected leadership that refuses to learn from its political environment. Instead, the focus is on political doctrines that have long ceased to be relevant to their milieu. As a result of that, the CPM got toppled from its ruling position in West Bengal to a dismal third behind the BJP in recently concluded by-polls, all within the span of 10 years. Therefore, the correct formula to benefit from demonetisation would be to have wide cadre base that feels empowered vis-à-vis its leadership.

The party's flop show on the 'Bharat Bandh' was spectacular. For the first time, Kolkata was functioning in full gear on a day when Left called for a bandh. That tells a story of leadership being out of sync with the cadre.

Mamta Banerjee's day comprised opposing demonetisation and the 'Bharath Bandh'. That too without allowing a scratch on her vote bank, as the by-polls results proved. But Didi is a different phenomenon altogether.

Moving on to upcoming state elections, the BJP is also faltering to reconcile the aspirations of its cadre base in Punjab and Uttarakhand; although in Uttar Pradesh, the party seems to be in better organisational shape now. In Punjab, the BJP’s senior alliance partner, the Shiromani Akali Dal is undoubtedly run on the corrupt-to-the-core enterprise model and is an albatross around its neck. Hence, it is highly doubtful in the light of damage to Akali Dal’s money power and worker disenchantment within the Punjab BJP that the ruling NDA will notch up gains due to demonetisation.

Its a lost cause, whichever way you look at it. In Uttarakhand, the BJP is on a mergers-and-acquisitions spree, whereby it is picking up leaders with the most corrupt profiles from the Congress. They were exposed to the hilt and are disconnected from the BJP’s cadre culture. Such an influx of culturally-antagonistic leadership is leading to a rift between workers and party establishment that may culminate in a disaster for the BJP in Uttarakhand. The only place where the BJP stands a good enough chance is in the all-important state of Uttar Pradesh. This is where the politics of demonetisation could yield result as the BSP remains the prime headache for them in capturing Lucknow. So the more news filters out about the cash-discomfort of Mayawati, the better are the chances for the BJP. So, the political impact of demonetisation will still be state-specific, depending on who is perceived to be more corrupt. And who is more corrupt, to be precise.

In conclusion, a large part of public support for demonetisation is because the man on the street and his own political cadre believe in Modi. The fact that the prime minister's heart seems to be in the right place on demonetisation, is beyond argument for a huge number of the electorate. To cement this reputation, the prime minister and the BJP should come out with concrete confidence-building measures.

Political gimmicks, particularly like the disclosure of bank statements of MPs and MLAs to party president Amit Shah should have been avoided. Instead, elected officials should publicly release their statements as well as those of their dependents; and for a longer duration than the one demanded. In absence of that, other political parties and leaders may step in to question the prime minister. Indians today want to be taken into confidence on questions pertaining to their future and those political formulations who do so will reap benefits.

India is slowly beginning to experiment with innovative policy measures and wants to own them. Demonetisation is one such measure and therein lies the opportunity or pitfall for the prime minister. He has taken the biggest political risk that India has seen so far. All credit for any success would go to him. So would be the blame for slightest of debacle.

Updated Date: Dec 01, 2016 08:59 AM

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