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Notebandi: Modi is not BJP and DeMo is not magic wand

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It is amusing that BJP is being referred to in the debates around notebandi. People are also asking if BJP is free from corruption and black money. The fact is, BJP has very little to do with DeMo. It was entirely Modi and his advisors’ decision. Modi has always been on his own, and has a history of upsetting both BJP and RSS from time to time. But, the man has single-handedly delivered an unthought-of position to the party so nobody in the BJP (except disgruntled old-timers such as Arun Shourie, Yashwant Sinha, etc) questions him openly today. In fact the BJP of today is very different from its pre-2014 avatar. From the politics of principle to realpolitik, the Modi-era BJP has systematically invoked Saam Daam Dand Bhed to conquer newer political bastions (to be clear, this is not a criticism of Modi, it is a compliment. Unprincipled enemies cannot be defeated with principles).

DeMo needs to be seen in this context. The move was as political as it was economic. Years back, Indira Gandhi, fearing electoral loss, sidelined her economic advisor who recommended to her to demonetize high-value currency. Modi turned that logic on its head. The humongous victory in UP is a testimony to that. Nothing is more attractive than a bold leader who can take tough decisions and make you a part of them.

Coming to corruption, it was nobody’s case that DeMo would wipe off black money and stop corruption at once. It was part (though a huge one) of a series of reforms such as SIT on black money, GST, Benami Transactions Act, RERA, JAM Trinity, etc. to gradually formalize the economy and stop the gaps that lead to corruption and black money.

There is a common refrain that money just changed hands during DeMo. Wasn’t it expected? People who manage money as a profession found ways to manage their money post DeMo too. It was a given in a primarily informal economy where it can sometimes be impossible to tell black money from white. Also, criminals are invariably smarter than the police, you see. DeMo was not so much about removing already existing black money as it was about restricting generation of new black money by increasingly formalizing the economy. Of course, currency that was funding terror, trafficking, etc. suddenly turned into a piece of paper and we can see the immediate impact in those sectors already.

The ‘shock value’ of DeMo is significant. DeMo put fear in people that things have changed. One will think twice before hoarding notes now because he or she doesn’t know when it might stop being a legal tender. One will never take the system for granted.

Black money is not some heap of notes that you can burn. It is a parallel economy; the solutions, therefore, have to multi-modal. After DeMo, deposits of appx Rs 3.68 lakh crore in over 2 million bank accounts came under scrutiny. Appx 224,000 shell companies were removed from the registrar of companies; DeMo brought more people in the tax net, lowered lending rates, led to opening of nearly 50 lakh new bank accounts for workers; almost all the money came back into the system leaving behind a trail that can be a goldmine of information if the authorities seriously follow it. DeMo came as a major blow to trafficking, Naxalism and terrorism; stock markets are at all-time high, mutual fund AUM has seen phenomenal growth; the digital space has been one of the biggest beneficiaries of the move. Take this snippet from an article on Harvard Business Review, for instance:

“Consider, for example, a government payment system created in 2016 that was processing 100,000 transactions per month in October of that year, prior to the sudden demonetization. A year later, after demonetization, the same system is processing 76 million transactions per month. Meanwhile, according to the Ministry of Finance, the Indian economy is operating with $45 billion less cash than it did prior to demonitization. India’s digital infrastructure is coming to life, with a combination of policy and technological innovation having played an important role. The country is moving rapidly toward a digital-first economy.”

DeMo, GST, Benami Transactions Act and the JAM trinity have the potential to change the face of this country; we must give them time.

Lastly, coming again to from where I started in the first paragraph. Is BJP completely free from corruption, is the party’s funding entirely transparent? Have BJP politicians never touched “black” money? Well, they are part of this same system that we are discussing. These questions don’t really hold. The real question is, is BJP also bearing the brunt of Modi’s anti-corruption moves? The answer is as much as any other party. The interesting thing to observe, however, is how one action has had different levels of impact on different parties, and therein lie clues.

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