Karnataka election: GST and demonetisation are Narendra Modi’s forgotten heroes in high-octane poll campaign

Two of the Central government’s biggest economic policies — demonetisation and Goods and Services Tax (GST) — have turned out to be forgotten heroes in Prime Minister Narendra Modi’s high-octane Karnataka election campaign that has just ended. Except on one notable instance, these two barely found any major place in Modi’s speeches this time around. This is a bit of surprise because ever since the demonetisation of Rs 500 and Rs 1,000 notes in November 2016 and GST from 1 July, 2017,  the BJP — and Modi, in particular — has flagged these two as major reform achievements in every poll campaigns — both big and small — including the last major state election in Gujarat. Back then, the BJP’s biggest talking points, including in the Gujarat elections, were these two and claims of big success. [caption id=“attachment_4457695” align=“alignleft” width=“380”] Prime Minister Narendra Modi addressing a rally in Mangaluru. PTI[/caption] This is also surprising also because there are indeed good talking points for Modi on both topics. Data shows that demonetisation has resulted in a significant expansion of new taxpayers. Between November 2016 and November 2017, around 10.1 million new taxpayers have been added compared with an average of 6.2 million in the preceding six years. That apart, Modi has been claiming that the note ban is the first-ever big attack on the informal economy and expansion of the formal sector. But none of these were major talking points in Karnataka. Similarly, the government has been presenting GST as the biggest ever indirect tax reform that’ll help subsume several layers of indirect taxes and build a single tax jurisdiction across the country. The GST tax collections finally crossed the Rs one lakh crore figure in April indicating that some stability is setting in on this front after a long period of uncertainty. This figure came in the first week of May. Modi could have highlighted it as a major speech agenda; but, he didn’t. What could be the reasons for Modi giving both high-profile items a miss from his speeches? Logically, there are difficulties in explaining the lack of meaningful progress made in some of the originally stated goals of demonetisation — black money, counterfeit notes, cash-based corruption. According to RBI data, nearly 99 percent of the money demonetised has returned to the banking system belying expectations that a good part of the blackmoney (Rs three to four lakh crore will perish outside the banking system). Various amnesty-like schemes to attract tax cheats haven’t yielded much in terms of results. Second, the idea that fake notes will die a natural death has gone miserably wrong. According to a PTI report, that quoted a report by the Financial Intelligence Unit (FIU), the banking system not only received an all-time high amount of fake currency in 2016-17, but also detected a 480-plus percent jump in suspicious transactions post-demonetisation. “A noteworthy growth was also seen in the number of counterfeit currency reports (CCRs) that increased from more than Rs 4.10 lakh in 2015-16 to over Rs 7.33 lakh in 2016-17, which may also be attributed to the demonetisation exercise,” the FIU report said. Similarly, despite the positive sides of GST in the long term, it has caused temporary pain the informal sector, which is the biggest employer in India. Coupled with the impact of the demonetisation-induced cash crunch, a good number of informal jobs have been affected since then. Modi is also facing questions on the missing jobs data. According to this report, that quotes the sixth round of the Quarterly Employment Survey released by the Labour Bureau, India lost 87,000 manufacturing jobs in April-June 2017 as compared with a decline of 12,000 jobs in the corresponding period last year. Perhaps, the BJP sensed danger in flagging these two issues because a focus on both GST and demonetisation could very well boomerang. Fearing public anger, the BJP poll campaign managers might have decided to play down both of these big ticket items while on the Karnataka poll campaign. There isn’t any other likely explanation for why Modi’s two biggest economic moves turned out to be the forgotten heroes in the campaign.