A transformative leader for those who believe in him and a polariser for his critics, Narendra Modi changed the narrative with his demonetisation gambit.
Narendra Damodardas Modi is the eye of the storm. Perhaps storm is too mild a term to describe the economic hurricane the prime minister unleashed across the country on 8 November by demonetising high value currency notes. It sucked a mind-befuddling Rs 15 lakh crore into its towering vortex and rendered them void. It was the great leveller, sending the rich and the poor scurrying to banks to join the serpentine queues to exchange notes and withdraw new currency. It shook the very foundations of the Indian economy and depressed growth across key sectors. Even the Modi government admits that the adverse impact will not abate till March 2017, though it is confident that the economy will recover after that.
For the believers-and Modi claims the vast majority backs him-demonetisation represents a long overdue body blow to those who amassed wealth through dishonest means. The less well-to-do masses were willing to suffer the discomfort, as long as the rich got their comeuppance. They saw it as a game-changer, a radical cure for the cancerous venality that has spread to every cell of the body politic.
For the dissenters-and there is a growing legion that includes top economists-Modi is the master illusionist. They view demonetisation as one more in the long list of his jumlas-an economic sleight of hand-that Modi has played to draw a veil over his lacklustre performance. They declare that the demonetisation drive has failed in its primary objective of rooting out black money, that the pain it has wrought on the economy is bereft of any gain.
The jury is still out. But like the centre of a cyclone, Modi remains calm and exuding confidence amidst the huge disruptions his decision has caused. Two days before the December 30 deadline for the return of all demonetised Rs 500 and Rs 1,000 notes to banks, he met me in the spartan Prime Minister’s office in South Block. No piles of files disturbed the symmetry of his work table. A painting of Mahatma Gandhi looked down on him benignly from the mantlepiece.
The prime minister said that the only modification he brought to his office when he moved in two-and-a-half years ago was to instal an alabaster white miniature sculpture of two of his heroes, Sardar Vallabhbhai Patel and Mahatma Gandhi seen in conversation (both fellow Gujaratis). In an adjoining room, his ministers were beginning to assemble for a cabinet meeting to discuss, among other things, what more steps to take on demonetisation.
Sitting bolt upright on his chair, Modi shrugged off the criticisms of his demonetisation drive and said earnestly, “You must understand that we took the decision on demonetisation not for some short-term windfall gain, but for a long-term structural transformation. Our objective clearly was to clean our economy and society of the menace of black money, purging the distrust, artificial pressures and other ills that came with it.”
Asked the reason for his confidence, he said, “If you act with clarity and with the purest of motives, the results will be there for any to see. Whatever my critics may say, I seek no personal benefit from all this, only the greater good.” What was his vision behind the move? He looked me in the eye and said, “I believe that India is standing at a watershed moment, on the cusp of actualising its inherent potential as a developed nation and a global leader.”
He then went on to outline what might be the closest thing to an Indian version of the famed American dream: “I want an India where the farmer is happy, the trader is prosperous, every woman is empowered and the youth gainfully employed. An India where every family has a house, and every household has access to the basic amenities of electricity, water and a toilet.” Punning on his signature programme, he added with a smile, “I am working towards an India which is swachh from all forms of filth.” (see interview: ‘Black money has all been forced out’)
It was in this very room that his illustrious predecessors took many of the decisions that changed the course of India’s history. It was here that Jawaharlal Nehru, the first incumbent, planned and executed the four pillars of what would later be called Nehruvianism: secularism, self-reliance, a mixed economy and non-alignment. Nehru gave primacy to the state to be the engine of growth and to erect the ‘temples of modern India’ while giving room for private enterprise, especially in agriculture, to support his vision. His legacy would last for close to 40 years.
It was in this office that Indira Gandhi, his daughter and successor, took another defining economic decision when she decided to nationalise all banks in 1969. In the same year, Gandhi abolished privy purses for royalty, which initially failed to pass muster in Parliament but came into effect in 1971 after she won a landslide victory in the general elections that year. That victory was attributable in no small measure to her slogan of ‘Garibi Hatao’-something that Modi years later would build on after he became prime minister.
In 1990, V.P. Singh, who occupied this office by forming a coalition government, would unleash the biggest affirmative action programme since Independence by accepting the Mandal Commission recommendations to provide statutory reservations for the Other Backward Classes, in addition to those provided to Scheduled Castes and Tribes. The decision affected meritocracy and dealt a bitter blow to the feudal elite, the ramifications of which are being felt even today. But it brought the mass of the backward communities and castes into the forefront of political and economic power.
A year later, in 1991, when providence propelled P.V. Narasimha Rao to the corner office, along with his finance minister Dr Manmohan Singh, he would announce radical economic reforms that included dismantling the licence-permit Raj, freeing the private sector from stifling restrictions and opening up the economy to foreign investment. That economic liberalisation saw the Indian economy break the shackles and become one of the fastest growing in the world.
In 1998, when the BJP-led coalition took charge, A.B. Vajpayee summoned India’s top scientists, A.P.J. Abdul Kalam and R. Chidambaram, to the office and gave them the go-ahead to conduct a series of nuclear tests in Pokharan in May that year. It’s success would enable him to declare that India was now a nuclear weapons state, forcing its way to the global nuclear high table. In the same year, when this writer asked Vajpayee the reasons behind such a momentous decision, he paused for a long while and then said simply: “It just had to be done.”
Modi’s answer as to why he went ahead with the plan to demonetise high value currency has a directness and clarity reminiscent of Vajpayee. Yet unlike prime ministers in recent times who took their defining decisions in the first year of coming to office, Modi’s game-changing moves, especially on the economy and on foreign affairs, has come midway through his tenure. On the economy, after projecting himself as market-friendly when he came to power, he flattered to deceive. His first two budgets were seen as upholding a policy of gradualism and incremental change rather than big bang reforms.
And then, when we least expected it, Modi carried out an economic Pokharan by exploding the demonetisation bomb. The prime minister’s rationale for the decision was the urgent need to curb black money for India to “become a developed nation and global power”. He also mentioned that it was to stop terror groups and counterfeit money being pumped in by their handlers across the border. Among the benefits being cited is that it would expand the tax base because there would now be a digital trail for all transactions. As the cash queues grew even longer in front of the banks, his team converted adversity into opportunity. He was projected as the great moderniser by pushing for, among other things, a rapid digitisation of transactions leading to a less-cash economy.
While all these are laudable goals, there is an overarching political reason for his move. And it is not just about winning the forthcoming assembly elections in Uttar Pradesh. Modi is employing a strategy used by Indira Gandhi: to be seen as the new messiah of the poor and downtrodden. In doing so, he is going beyond caste and religious permutations and tapping into the increasing economic and social disparities that come with an economy on the fast-track.
This is social engineering even more massive than Mandalisation. Instead of religious divisions, Modi appears to be pushing for a class divide, pitting the rich versus the others. The narrative is that the salaried and the working class are honest taxpayers while the rich exploit the loopholes and amass vast amounts of illegal wealth. So in Modi’s new mantra, not only does he want to create wealth (by backing industrial growth) but he is also forcing a redistribution of it to end the inequality and exploitation that the working class had come to suffer. A combination of neo-Marxism and the market that Deng Xiaoping so successfully synergised in China in the 1980s. As one senior official says, “Pure and simple, the prime minister sees himself in the role of a reformer in the wider and broader context-not just an economic reformer but also a social one.”
In doing so, Modi is going beyond the traditional votebanks of the BJP and the saffron parivar, with the hope to expanding his party’s voter base substantially by 2019. Like the development mantra, which he used to great effect to win the 2014 general elections handsomely, Modi is evolving a new version of the poverty-alleviation programme which was once the core of the Congress party’s election strategy and is also appropriating the anti-corruption plank that Arvind Kejriwal had come to own. To his credit, no major scams have beset Modi’s government. The forthcoming round of assembly elections in Uttar Pradesh and Punjab will be a testing ground for Modi’s experiments with honesty and integrity.
Meanwhile, the chorus of criticism has only grown and become more widespread. Particularly after the economy slowed down and as money launderers found new ways of turning hoarded cash into white. Using unusually harsh language, former prime minister Manmohan Singh termed Modi’s decision “monumental mismanagement” and “organised loot”. The reports from rural areas, particularly in the informal sector which depended on cash for its sustenance, continue to present a gloomy picture. Many key sectors of the economy have reported a worrying drop in growth of sales and services.
Yet Modi remains unfazed. His confidence stems from the calculations his government made that almost two-thirds of the Rs 1,000 denomination notes and one-third of the Rs 500 notes had been used to hoard cash and were not in circulation. By bringing it out into the open and the formal economy, apart from the windfall the government would get from penalties, Modi’s team believes the circulation of so much cash would act as a growth stimulant.
As proof that the masses believe in Modi, they cite the fact that there has been no outbreak of violence or organised protest since November 8 over demonetisation. They also believe that the cash shortage will ease by the end of January. The other ace Modi has up his sleeve is the budget, due on February 1, where he could use a combination of lowering taxes, providing incentives and cheaper credit, particularly for the small and medium sector, to stimulate growth.
Meanwhile, in 2016, Modi also proved a game-changer on the foreign policy front. Despite his relative inexperience, early in his tenure he surprised everyone with his Neighbourhood First policy, and for using economic diplomacy to reach out to major powers. But after an early charm offensive, including an unscheduled visit to Lahore, he ran into rough weather with Pakistan.
Countries PM Modi visited till 2015
Countries PM Modi visited in 2016
Modi hit back hard in September by successfully launching the most extensive surgical strikes deep inside Pakistan, after the devious attack on an army unit stationed in Uri two weeks earlier. His message: I am not the previous guy. I will not play defensive and be passive so that you can take my reaction for granted. He also raised issues about rethinking the Indus Water Treaty and extending a sympathetic hand to the Balochistan separatists to rattle Pakistan. By bringing an element of uncertainty into India’s response, Modi had decidedly changed the narrative with Pakistan and expanded the options available to retaliate if Islamabad persisted with its perfidy.
Officials who work closely with him take pains to point out that nothing Modi does is impulsive. In foreign policy, they say if you joined the dots you would know it would lead to the surgical strike against Pakistan. Modi had already carried out a surgical strike against the Northeast rebels deep inside Myanmar territory, so Pakistan should have taken note. What his critics termed as a flip-flop in India’s Pakistan policy, had a logical resonance to it. On various occasions, he had shown the world that he was willing to go the extra mile to improve relations with Pakistan. But if they went back to their bad old ways, he would punish them.
On the black money front and the move for a less cash economy, there was a clear build-up. Starting with the massive drive to expand Jan Dhan accounts, then moving to get back black money stashed in foreign banks, followed by a voluntary disclosure scheme and then a drastic crackdown through demonetisation. Modi had given a clear warning to all concerned that he meant business. As an official said, “Don’t take anything he says lightly. He is an agenda setter. He has the boldness and courage to take risks but does so after careful analysis and calculation. But once he takes the plunge, he does not believe in half measures.”
There is little doubt that Modi remains the dominant bull on the political landscape and has no real challenger. But real change comes with its own pitfalls. The threat to Modi today will not come from the Opposition, but from within his own flock. A senior analyst pointed out that the last time there was a majority government headed by Rajiv Gandhi, the revolt came from his most trusted aide: V.P. Singh. By unleashing the demonetisation demon, Modi took the risk of offending the merchant and business class, the BJP’s core constituency. Also, while the RSS top brass have so far been supportive, they may become increasingly wary of his personality-driven prime ministership, especially if the economy does not recover in the next few months and if the BJP fails to win the UP polls. His biggest challenge remains dealing with unemployment. So it is important that Modi keep his eye on the ball and make the necessary course corrections. Otherwise, his fall could be swift.
Yet, as 2016 comes to a close, there is little doubt that it was the year that Modi came into his own. On account of his willingness to take bold, radical decisions that could change the course of India’s history, Modi is India Today’s Newsmaker of the Year.