Reverse swept

  • Demonetisation jarred the BJP just as much as it had hammered the economy

The Bharatiya Janata Party (BJP) losing elections across five states earlier this month, most notably Madhya Pradesh, Rajasthan and Chhattisgarh, is down to an array of reasons. Each of these played its part, and what the federal ruling party – and indeed its adversaries – needs to mull ahead of next year’s general elections is just how much did these factors individually contribute.

One prominent cause is the BJP government’s demonetisation from two years ago. Prime Minister Narendra Modi himself all but predicted what eventually happened this month, when he said back in 2016 that the previous Congress government “ignored the need for demonetisation, because it feared poll defeat.”

There are scores of ways in which the demonetisation of old INR 1,000 and 500 notes eventually turned out to be a self-fulfilling prophesy for Modi.

The most ominous stats are as follows: 100 people were killed, over 1.5 million left jobless, and nearly 150 million couldn’t get paid for weeks. Furthermore, 99.3pc of the old notes returning to the banks proved the BJP’s claims of demonetisation horrendously wrong, since the black money it had claimed to recovered had either been transferred overseas or invested in real estate or other commodities.

In The Big Reverse: How Demonetisation Knocked India Out, released a month before the state elections, CEO of Royal Bank of Scotland Meera H Sanyal, explains why the BJP’s policy was such a big blow that eventually saw the party being swept away from its strongholds.

The book describes how the events played out two months ago with the seemingly infinite bank queues hogging the news for over a month. Sanyal argues that instead of being a much touted “surgical strike” on corruption, the move “carpet bombed” the economy and the people of India.”

‘Clearly, therefore, Demonetisation failed in its second big goal – eradication of corruption. If anything, the new 2,000 notes made it simpler for corrupt officials to take and stash away larger bribes, compounding the problem for ordinary Indians.’

While the BJP government did concede the immediate effects of the move – it was left with little choice – it continued to downplay the long-term ramifications to a point that losing governmental control over states

The book further underlines why the Reserve Bank of India began to be mocked as the ‘Reverse Bank of India’. It offers a scathing critique on RBI governors Raghuram G. Rajan and Urjit Patel, and the entire board. It also analyses the impact demonetisation had on banking credibility, and questions in detail as to why 86.9 per cent of the Indian currency was sent packing without nary a roadmap for remonetisation in place.

It further establishes that the BJP government clearly did not learn from history and how the previous attempts at demonetisation in 1946 and 1978 had panned out. And considering that the party failed to look at its own past it naturally failed to explore other parts of the world with Myanmar, Ghana, North Korea and the former Soviet Union providing examples of failed bids to do the same.

‘Viewed in perspective, though the 1946 demonetisation failed in its objective of curbing black marketing and did pose several administrative challenges, it did not cause widespread distress to the general public. It is estimated that the high denomination notes of Rs1,000, Rs5,000 and Rs10,000 were only held by three per cent of the population, and as they were certainly not used for daily transactions, the impact of the 1946 note ban on the common man was limited.’

Even so, Sanyal reiterates that demonetisation in itself isn’t a good or bad move – it’s when and how it’s carried out that defines its success. The book quotes examples of successful executions of the same and underlines the importance of meticulously planning such a policy measure.

The Big Reverse also has numerous stories of individuals jolted by the manoeuvre to paint a damning picture for the BJP. Even if the misery of those hit the hardest cannot be quantified, the book substantiates all of its arguments with statistical backing.

‘The price of tomatoes at Girnare mandi near Nashik, Maharashtra dropped to as low as 50 paise per kg, making it impossible for farmers to recover the investments they made while sowing. Faced with the alarming fall in the price of tomatoes, Yashwant and Hirabai Bendkule, a poor adivasi couple, were forced to destroy their crops because keeping them standing would result in a greater loss’

Of course it was the cumulative fiscal impact on these individuals that came together as an unmitigated disaster for the state’s economy. This in turn came up as a double whammy with both immediate and long-term dents. There is further data provided from the government sources to drive home the book’s narrative.

While the BJP government did concede the immediate effects of the move – it was left with little choice – it continued to downplay the long-term ramifications to a point that losing governmental control over states that it ruled over eventually became one of these as well.

As time has unraveled, fall in GDP, decreasing employment and plunging investment in the country have been unveiled alongside. This when coupled with a complete failure of the move to achieve any of its goals meant that demonetisation jarred the BJP just as much as it had hammered the economy.