India

Narendra Modi is pulling India back to the 1970s

2017-01-25 05:10:16am

“Our problem is that there is too much democracy in India — that’s why difficult decisions never get taken,” declared Sunil Alagh, marketing consultant and supporter of the ruling Bharatiya Janata Party (BJP). The bon vivant was responding to the uproar over Prime Minister Narendra Modi’s shock decision to invalidate 86 percent of India’s currency. Alagh’s lament betrayed a longing oft expressed by the country’s affluent and well heeled — a craving for the precision and order of authoritarian leadership. “You know, we need someone like Lee Kuan Yew in Singapore,” can be heard in many swish Delhi drawing rooms, whose attendants are in any case inoculated by wealth against the vagaries of India’s economy.

On the same day as Donald Trump’s election in the United States, India faced its own disruption — when Modi declared that 500- and 1,000-rupee notes — virtually all the cash in one of the world’s fastest growing economies — would now be worthless. In a country where 90 percent of all transactions are cash-based, the decision came with only four hours of public notice. The stated aim of the move was to shut down the parallel economy run by tax-evaders. But what followed was chaos — amateur execution and shabby planning contributed to mile-long queues, ATM machines that had not been recalibrated for the new 2,000-rupee notes, banks that ran dry before mid-day, panic-induced hoarding and broken supply chains. In rural India especially, daily-wage workers could not be paid their cash salaries, sometimes for days on end.
Alagh’s impatience with the raucous debate around demonetization and his desire for governance-by-diktat were a throwback to that much repeated cliché about the only time emergency was imposed in the world’s largest democracy — “at least the trains ran on time.” Ironically, the political leader responsible for the iron-fisted curtailment of civil rights in India in 1975 was from the other side of the political trenches — Indira Gandhi, the Indian National Congress prime minister, who is still admired by millions for her take-no-prisoners brand of toughness.

The audacity of Modi’s demonetization decision and the centralization of power it represents has drawn many parallels with Indira’s actions in the 1970s. His notes ban has especially drawn comparisons with Gandhi’s move to nationalize India’s banks in 1969. Modi’s speech at a mammoth political rally at the onset of 2017 virtually replicated a slogan from hers in 1971. Where she had dared her challengers — “They say — remove Indira, I say, remove poverty” — Modi bellowed to enthusiastic approval; “They say — remove Modi, I say, remove corruption.” Apart from the curious third-person referencing of themselves (perhaps appropriate for the personality-centered, cult-building political style of both leaders), the striking parallel with the ’70s is the increasing levels of executive power given to the state. Statism may have been normal for a socialist-era Gandhi, but where does it 
Modi asked India for 50 days for the system to breathe easy again after demonetization. Two months on, we must ask: What exactly did his decision achieve?

Advocates of the demonetization efforts argue that liquidity in the banking system and the subsequent lowering of interest rates will create its own stimulus. The government points to increased tax collections from April to December 2016 counter notions of a demonetization induced slow-down.  However the All India Manufacturers’ Organization says there has been a 50 percent dip in revenue and a 35 percent drop in jobs in the micro small-scale industries sector as a result. Last Monday, the IMF downgraded India’s growth to 6.6 percent, a full percentage point lower than its earlier estimate, because of the jolt from the ban on high-value currency notes.
Was all this grief worth the gain? The actual aim of demonetization remains unclear. If the purpose was to cleanse the system of of illegal wealth — what in India is colloquially known as “black” money — the target was misplaced. Only 6 to 10 percent of India’s unaccounted money is held in cash; those ducking the taxman mostly divert their big bucks to gold, real estate and tax havens in Switzerland. Secondly, now that all the banned notes are back in banks, the Modi government has to confront a piquant question. Did it miscalculate how much “black” cash there was in the system or have tax thieves found a way to launder their wealth? People deposited about 90 percent of the 15.4 trillion rupees that were removed from circulation, sharply contradicting the government estimate that a sizeable amount of unaccounted wealth would not reach the banks. So the original aim — to call out the money-hoarders — pretty much failed. The goal post was then hastily shifted to emphasize digitizing the economy.

Yet, there is no visible outrage from the Indian public because of Modi’s masterful management of the political messaging. By branding his decision as a “fight against corruption, black money, fake notes and terrorism,” Modi 
has converted demonetization into a test of courageous patriotism. Playing on Gandhi’s mantra of being a messiah for the poor, Modi astutely positioned the notes ban as a modern day morality play where “sacrifice” is key to being a good citizen. Modi himself drew the Vedic analogy of the currency ban being like a “yagna,” a “purification” ritual that would cleanse India. Hardship is now a virtue, a sacrifice to attain a Hegelian notion of the common good. If Gandhi spoke conspiratorially of the “foreign hand” out to destabilize India, an emotional Modi has spoken of those who “won’t let me live” for the crackdown on currency. In an age of strident hyper-nationalism, the BJP has craftily encouraged the narrative that those opposing demonetization are fat-cat traitors who are too indolent to be part of a great national movement.

Modi’s blend of disruptive individualism, strongman politics and old-style welfare economics falls back on more government, rather than less, as the primary vehicle of change. The ’70s deja vu has confirmed one thing — “Modinomics” is not quite the right-of-center Thatcherite model that many of his supporters may have expected. Indeed, in India, we are back to the future.


Credit: Washington post