Politics in India is at a low point. The opposition, led by the Congress, has stalled both houses of parliament for over 12 days over the demonetisation issue. The unruly and uncouth behaviour of the parliamentarians has left a lot to be desired. Moreover, such frequent filibustering even while avoiding a healthy debate on the issue does not augur well for Indian democracy.
The opposition parties have threatened to disrupt both houses until the Indian Prime Minister Narendra Modi agrees to be present during the discussions. The government’s request to continue the discussions, and their assurance that Modi would respond to apprehensions in parliament, have fallen on deaf ears.
The frequent stalling of proceedings in the Rajya Sabha, where the ruling Bharatiya Janata Party (BJP) does not have a majority, has already cost the exchequer over Rs100m ($15m) so far.
Effects on India's GDP
Many leading economists like Paul Krugman and Amartya Sen feel that the government may not achieve its objective by demonetising the currency, despite causing hardship to citizens. Their fear stems from other countries that had demonetised their currencies, like Myanmar (1987); the former Soviet Union (1991), and North Korea (2009); all three failed miserably to unearth black money. Moreover, even if the move proves successful, the government, at best, would be able to unearth only 6% of black money, as 94% is believed to be invested in real estate and bullion rather than kept as petty cash.
According to an estimate by the World Bank, India’s black money is almost equivalent to one-fifth of India’s GDP. World Bank experts feel that the government should have also targeted the real estate sector in order to make the demonetisation move worthwhile. Another cause of worry is that this move, and the ensuing chaos, could bring India’s GDP down by as much as 1 -2%.
What’s ahead for Modi?
If Modi’s bold move to unearth the black money proves successful, it will be not only a personal victory for him, but will bolster his image, both in India and abroad as a person who was successful in bringing violators of the law to heel. However, if the move fails, there is every danger that he may end up losing face among the ordinary people, who will feel let down after his bold promises to cleanse the system of corruption. This may also cast a shadow on his ability to win future elections with an overwhelming mandate, like in 2014 general elections, which had catapulted him from a regional satrap to a national leader.
To salvage the situation, the government should now take the opposition parties into its confidence so that the parliament is allowed to function. Modi’s government can rewin trust by effectively addressing issues caused by the demonetisation, including recalibrating ATMs to handle the new banknotes and also ensuring that enough new notes are made available in all banks. By doing so, Modi can mitigate the sufferings of the ordinary people and boost relations with the opposition by addressing their concerns.
[This is an excerpt of a The Diplomat article]
