Swarajya Logo
Swarajya Logo
Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Our Views
    Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Magazine
  • Store

About Swarajya

Swarajya is a publication by Kovai Media Private Limited.

Swarajya - a big tent for liberal right of centre discourse that reaches out, engages and caters to the new India.

editor@swarajyamag.com

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Participate

  • Contact Us
  • Write for us
  • Style Guide
  • Jobs

Stay Connected

  • Artboard 2 Copy 6Created with Sketch.
    Artboard 2 Copy 10Created with Sketch.
    Artboard 2 Copy 7Created with Sketch.
    Artboard 2 Copy 9Created with Sketch.
  • Andriod Logo
  • IOS Logo

Politics

Modi’s Critics On DeMo May Be Right For The Wrong Reasons; Here’s Why

R JagannathanThursday, January 5, 2017 1:28 pm IST
Prime Minister Narendra Modi. (GettyImages)
Prime Minister Narendra Modi. (GettyImages)
Prime Minister Narendra Modi. (GettyImages)
  • DeMo may have been poorly executed and may possibly have had unrealistic and ill-defined short-term goals, but the politics of the move has probably paid off.
  • In the months ahead, as the cash crunch abates, DeMo will cease to be a negative for Modi.
  • His critics are likely to be proven wrong on DeMo being his Waterloo. Or Panipat.
  • Prime Minister Narendra Modi’s critics may, at long last, have scored a point on demonetisation (DeMo, for short). A Bloomberg report claims that 97 per cent of the demonetised notes had returned to the banking system by the deadline of 30 December. If true, Modi’s critics can claim moral victory, and ask whether inconveniencing millions of citizens and causing short-term economic losses to businesses and individuals was worth the upheaval.

    This outcome was by no means certain, and if Modi’s critics turn out to be right when the Reserve Bank of India (RBI) finally releases it figures, it could be for the wrong reasons.

    The critics were always bound to be partly right because DeMo’s short-term pain was visible from Day One, but the long-term gains – whether in the form of higher tax revenues or greater financial inclusion – have to be fought for. It is the missing short-term gain – from black money not returning to the system – that critics can use as a rotten egg to throw at the government.

    The advantage Modi’s enemies have is that they have criticised almost everything he did since 2014. When you criticise 100 per cent of a man’s actions (or inaction in some cases), the chances of being right at least once are close to 100 per cent, too. No one can get everything right.

    On DeMo, critics have pointed to the short-term negative impact of the move, with economic activity decelerating in many sectors, specially in the informal sectors and trade. But even the government did not dispute the reality of short-term pain in some sectors.

    But when deposits of demonetised notes were surging all through November, they thought they could take Modi’s moral halo out by pointing out that black money was not slinking into the shadows as predicted. It was being laundered. They also pilloried the government for shifting the goalposts. If the initial justification for DeMo was tackling terror funding and reducing the stock of black money in the economy, by mid-November, the larger goal was about moving to a less-cash economy and bringing more people, both individuals and small companies, into the formal banking system.

    The critics were helped by the fact that a few government spokesmen chose to talk about a possible bonanza of Rs 2-3 lakh crore for the government from money that would not return to the system.

    But it is worth pointing out that even non-government commentators did not initially doubt this figure. Consider what Swaminathan Anklesaria Aiyar wrote towards end-November, when the surge in deposits was clearly visible: “…not all hoarders of high-value notes will be able to exchange or launder them by December-end. Nobody knows how large this un-encashed hoard will be. I suspect it may be 20 per cent of the total, worth Rs 3 lakh crore.”

    In fact, most critics were quarrelling not over this figure, but whether this stock of unreturned old notes can result in a cash bonanza for the government after extinguishing the RBI’s liabilities on this count.

    The speedy return of old notes may also be linked to two late initiatives of the government.

    One is the Pradhan Mantri Garib Kalyan Yojana, under which undisclosed incomes could be put into bank accounts after paying 50 per cent tax and accepting a four-year freeze at zero interest on another 25 per cent of the balance. This scheme was legislated around early December, and notified around mid-December. This could have encouraged more people to deposit their black money into bank accounts before the 30 December deadline.

    The second was Modi’s own directive to tax officials not to penalise those who declare higher incomes or more employees post-demonetisation. The Times of India quotes him as telling tax officials: “There will be no comparison with the past. Officials will not say take out the old accounts. I have told them no old post-mortem, otherwise no one will come to the mainstream. Ye afsarshahi (bureaucratic way) nahin chalegi.”

    This too would have encouraged people to return to the straight and narrow.

    Then, finally, there is the possibility of money being laundered. The Rs 25,000 crore surge in Jan Dhan accounts post-8 November, and the Rs 30,000-and-odd crore exchanged in the initial days of DeMo (before it was stopped) using proxies, would have enabled crores of black money to be laundered. Collusion between bank officials and black money holders – which led to huge seizures of new notes worth hundreds of crores – could have accounted for another large chunk of deposits of old notes in large amounts.

    The simple takeout is this: there were several reasons why large amounts of demonetised notes did not stay out post 8 November. So it would be unwise to conclude that just because the overwhelming chunk did come back, either due to the ingenuity of crooks and/or the government’s own actions to entice this money back in, the DeMo effort was a wasted effort. That’s why the critics are half-right.

    But Modi’s critics have also failed to note another fallout: the poor, despite facing hardships without easy access to cash, have seen the move largely in a positive light. The latest India Today-Axis survey of Uttar Pradesh voters showed that more than three-quarters (76 per cent) of those polled supported demonetisation. And more than half (51 per cent) expected DeMo to help curb black money.

    Whatever the short-term economic consequences, Modi’s critics are wrong on one point: that DeMo will cost Modi politically.

    DeMo may have been poorly executed and may possibly have had unrealistic and ill-defined short-term goals, but the politics of the move has probably paid off. In the months ahead, as the cash crunch abates, DeMo will cease to be a negative for Modi.

    His critics are likely to be proven wrong on DeMo being his Waterloo. Or Panipat.

    Tags
    Narendra Modi
    RBI
    Uttar Pradesh
    Panipat
    Jan Dhan
    Demonetisation
    Pradhan Mantri Garib Kalyan Yojana
    Waterloo

    Comments ↓

    An Appeal...


     

    Dear Reader,

     

    As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

     

    Our business model is you and your subscription.  And in challenging times like these, we need your support now more than ever.

     

    We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

     

    Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

    Get Swarajya in your inbox.


    Magazine


    Swarajya Magazine Cover Image
    Merchandise

    Merchandise


      Politics

      Walter Russell Crocker: Australian Diplomat And Newly-Discovered Icon Of 'North-South Divide'

      Walter Russell Crocker: Australian Diplomat And Newly-Discovered Icon Of 'North-South Divide'

      Aravindan Neelakandan
      51m

      Ayodhya: Why We Should Be Ever Grateful To Dr K.K. Muhammed's Courage

      Aravindan Neelakandan
      4h

      Telangana Election Results Explained: Part-2

      Venu Gopal Narayanan
      9h

      Economy

      Enough Of Big Bang Reforms? No Major Announcements In Next Budget, "Wait Till July 2024", Says Nirmala Sitharaman

      Enough Of Big Bang Reforms? No Major Announcements In Next Budget, "Wait Till July 2024", Says Nirmala Sitharaman

      Nishtha Anushree
      3d

      ₹58,378 Crores! Govt Set To Open Taps On Additional Welfare Spending With 2024 In Mind

      Swarajya News Staff
      4d

      India Anticipated To Be Fastest Growing In Next Three Years, Set to Become Third Largest Economy By 2030: S&P

      Nishtha Anushree
      6d

      Defence

      On This Day, In 1971, Indian Air Force Continued Heli-lift Operations Across Meghna, While Fierce Fighting Raged In The Mountains Of Ladakh

      On This Day, In 1971, Indian Air Force Continued Heli-lift Operations Across Meghna, While Fierce Fighting Raged In The Mountains Of Ladakh

      Ujjwal Shrotryia
      2h

      Indian Navy Gears Up For Domestically Made 'Underwater Chariots' — Here's All About It

      Bhuvan Krishna
      13h

      1971 War: How The Indian Army Crossed The Mighty Meghna River In East Pakistan On Its March Towards Dhaka  

      Prakhar Gupta
      1d

      World

      Putin Hails PM Modi As 'Main Guarantor' For Robust India-Russia Relations

      Putin Hails PM Modi As 'Main Guarantor' For Robust India-Russia Relations

      Bhuvan Krishna
      14h

      'Context' Takes Its First Victim: UPenn President Liz Magill Resigns

      Swarajya Staff
      16h

      After Becoming Longest-Serving President, Putin Announces Running For Election In Russia Again

      Nishtha Anushree
      2d

      Culture

      From Jodhpur To Ayodhya On Bulls, Preserved Through Herbs: The Story Of Ghee To Be Used For Ram Lalla's First Aarti

      From Jodhpur To Ayodhya On Bulls, Preserved Through Herbs: The Story Of Ghee To Be Used For Ram Lalla's First Aarti

      Nishtha Anushree
      2d

      ‘Garba Of Gujarat’ Declared As Intangible Heritage By UNESCO

      Arun Kumar Das
      4d

      Gujarat's Garba Is Now In List Of UNESCO Intangible Cultural Heritage of Humanity

      Swarajya News Staff
      4d
      States

      infrastructure


      Arun Kumar Das
      1

      Delhi-Meerut-Ghaziabad RRTS: Trial Run Commences Beyond Priority Section; Namo Bharat Train Goes Up To Modi Nagar South

      2 Mins Read
      Arun Kumar Das
      2

      Ram Temple: Special Trains To Ayodhya Station, Electric Catamaran On Saryu River

      2 Mins Read
      Arun Kumar Das
      3

      Cool Comfort: India Mandates AC Cabins In New Trucks From October 2025

      1 Mins Read
      Swarajya News Staff
      4

      Airbus Helicopters, Indamer Aviation Join Forces To Strengthen India's Helicopter Maintenance Services

      2 Mins Read